FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 2-98314-W
MEDICAL ADVISORY SYSTEMS, INC.
(Name of small business issuer in its charter)
Delaware
52-1233960
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
8050 Southern Maryland Blvd., Owings, MD 20736
(Address of principal executive offices)
(Zip Code)
Issuer's Telephone Number (301)855-8070
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
(Title of class)
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 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 [X] No .
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment of this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year:
$1,953,062 for the fiscal year ending October 31, 1995.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within the
past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange
Act):
$567,683 estimated as of January 31, 1996.
3,869,938 Shares of Common Stock ($ 0.005 par value per share) were
outstanding at January 31, 1996.
PART I
Item 1. Description of Business.
Medical Advisory Systems, Inc. (the "Company" or "MAS") is a
Delaware corporation incorporated on December 1, 1981, with
its principal office located in Owings, Maryland. Its
mailing address is: 8050 Southern Maryland Blvd., Owings,
Maryland 20736 (telephone: 301-855-8070).
The Company provides medical assistance products and
services. The products and services offered by the Company
include:
o pharmaceuticals and medical supply kits, which are sold to
vessels operating in the maritime industry;
o 24-hour-a-day medical advice to ships at sea through a
worldwide telecommunications system, and ancillary services
including training programs, medical records maintenance, and
medical cost containment service and;
o 24-hour-a-day medical advice services to the international
travel industry.
The Company provides its services from its operations center
located in Owings, Maryland. The Company also utilizes an
agent in Hong Kong to maintain relations with customers.
History.
Two significant events preceded the organization of the Company --
(1) The U.S. Coast Guard commissioned a study of medical
assistance and facilities available to ship personnel while
at sea. Information gathered from 1978 to 1981 indicated
that several factors could lead to improved remote medical
care. These factors included:
o a response center with physicians on duty 24 hours a
day to attend immediately to emergency calls from
anywhere in the world;
o use of a standardized and pre-coded list of medical
supplies;
o centralized maintenance of medical records; and
o use of physical standards for pre-employment
physicals as well as retention physicals for
seagoing employment.
A U.S. government program proposed in response to the study
was never funded and subsequently the study information was
released to the public.
(2) In 1981, the U.S. government dismantled the U.S. Public
Health Hospital and Clinic System ("USPHS"), which had
provided free care, physicals, record storage and radio
advice to ailing or injured seafarers.
The Company began operations at the beginning of 1982 to take
advantage of the privatization opportunity created by these
two events. Revenues only partially covered substantial
losses incurred first to establish and then to enhance the
Company's operational medical advice system.
The Company believes a key to acceptance of the Company's
medical advice services is its ability to demonstrate the
cost-effectiveness of those services. Since modern vessels
can be operated with relatively few people (e.g., a crew of
18-25 for a supertanker), physicians are not required to be
aboard. Consequently, in the event of a medical emergency,
a ship will usually be required to divert from its charted
course to facilitate an airlift evacuation for a victim of
an accident or illness. In some instances, unnecessary
diversions are made because trained medical personnel are not
available to determine whether or not a medical emergency
really exists. The cost of a diversion to a shipping concern
can be high. The Company believes if it can eliminate just
one diversion in ten years, the shipping concern will have
benefited from the Company's services, since the cost of such
a diversion would most likely exceed the fee which the
Company charges for an unlimited service contract for a ship
during the period.
During fiscal year 1993, the company entered into an
agreement with SACNAS International of Paris, France to
market services under their trademark name, "Mondial
Assistance," in the U.S., Canada, and Mexico. A newly formed
company, Assistance Services of America (ASA) Inc., was
organized and incorporated in November of 1993 to promote the
joint marketing effort. The company and SACNAS International
each have 50% ownership of ASA. Travel Assistance services
are being marketed to U.S. and Canadian corporations and
insurance companies. Services include medical consultation
and logistical support for individuals traveling outside of
their home country. ASA collects fees from the subscribing
company. Service fees are paid to MAS for cases in North
America or to SACNAS International for cases outside North
America.
Segments.
Revenues from the Company's medical assistance services can
be broken down as follows:
Percent of Revenues
Year Ended October 31, 1995
1995 1994
Program Services 42% 48%
Pharmaceutical Sales 22% 23%
Travel Assistance 20% 12%
Clinic Services 3% 4%
Training 8% 9%
Other/Ancillary Services 5% 4%
100% 100%
Program Services.
A staff of physicians and communication specialists operate
out of the Company's response center in Owings, Maryland to
provide medical advice to people in remote locations,
anywhere in the world, 24-hours-a-day, 365-days-a-year. No
patients are seen at the center. All assistance is provided
exclusively through telecommunications systems utilizing
telephones, satellite, high frequency radio and telex.
Subscribers to the Company's medical advice service are
provided with two standardized and up-to-date manuals which
have been developed by the Company; a "Medical Protocol
Manual" and a "Pharmaceutical Manual". When a call for
medical assistance is received, the caller is guided through
the Medical Protocol Manual as prompted by the physician in
order to identify the symptoms of the patient. Once the
physician has ascertained the nature of the problem, he can
advise on proper procedures and treatment making use of the
Pharmaceutical Manual to assist the caller in identifying
the proper medicines and supplies. The physician can
determine whether a patient can be treated on board or
whether shore care is warranted as soon as possible. When
the caller identifies himself, a data base accessed by
computer enables the physician to examine medical records, if
available, and to identify whether or not pharmaceuticals are
on board. The center currently receives an average of
fifteen to twenty calls each 24-hour period.
In a typical case, four or more contacts are made between the
caller and the physician to enable the patient's condition to
be monitored and the case resolved. Every call received by
the Company is documented and timed, and a case report is
written and signed by the attending physician. Reports are
forwarded to the subscriber for insurance purposes and
company records. A copy of the report is also included in
the patient's MAS medical history file.
The Company charges for its medical advice services according
to one of two methods. The subscriber can elect to have
unlimited service for a rated flat annual fee or to have the
service available on a timed per minute basis. Subscribers
are responsible for all communications costs.
The Company's experience shows that new subscribers usually
opt for the timed service. As subscribers become more
familiar with the service and usage increases, the flat fee
arrangement becomes more economical for them. Most U.S.
maritime customers have flat-fee contracts; which have terms
of one to three years.
Pharmaceuticals Sales.
The Company sells a variety of kits containing
pharmaceuticals and medical supplies. Included in the kits
are both prescription and nonprescription drugs and controlled
substances. The kits are designed to be used in conjunction
with the Company's Pharmaceutical Manual. All medications are
specially labeled for use in the Company's system. The Company
has supplied pharmaceuticals to it's maritime and airline
customers, first through a former subsidiary and subsequently
through a sub-contractor, for the past 12 years. In the past
year, the Company created its own warehouse facility including
stocking various commonly needed pharmaceuticals as inventory
and supplies its customers directly. This internalization of
the supply function is expected to result in greater
profitability for the Company and greatly improved service for
its customers, who often have time-critical supply needs.
Travel Assistance.
Another market for the Company's services is the international
travel insurance and assistance industry. The Company has
contracts with two European travel assistance companies to
provide medical consultation and logistical support for their
European customers who become ill or injured while traveling in
the U.S. The Company charges the travel companies a fee for
consultation with the physician attending the traveler.
Additional fees are charged if the traveler requires travel
arrangements or other logistical services.
During fiscal year 1993, the company entered into an agreement
with SACNAS International of Paris, France to market services
under their trademark name, "Mondial Assistance," in the U.S.,
Canada, and Mexico. A newly formed company, Assistance
Services of America (ASA) Inc., was organized and incorporated
in November of 1993 to promote the joint marketing effort. The
company and SACNAS International each have 50% ownership of
ASA. Travel Assistance services are being marketed to U.S. and
Canadian corporations and insurance companies. Services
include medical consultation and logistical support for
individuals traveling outside of their home country. ASA
collects fees from the subscribing company. Service fees are
paid to MAS for cases in North America or to SACNAS Inter-
national for cases outside North America.
Clinic Services.
The Company has established a network of approximately 175 U.S.
clinics and hospitals through which it provides clinic
services. This network was established in response to the
closure of USPHS hospitals and clinics, which left mariners
without specifically designated care facilities. The closure
of the USPHS hospital system also left the maritime industry
without medical fitness standards by which mariners could be
measured. Working with a committee sponsored by the U.S.
Maritime Administration and the Department of Transportation,
the Company has helped to establish physical examination
guidelines of maritime employees. The committee is comprised
of members from government, labor, and industry and is known as
the Seafarer's Health Improvement (SHIP) Committee. The
Company uses the SHIP Committee standards in providing reports
to employers regarding the mariner's health.
The Company's network has been established through contractual
relationships and agreements with the clinics and hospitals,
which are located in strategic U.S. ports and other parts of
the country. Through this network the Company coordinates pre-
placement and periodic physical examinations. The Company
receives fees for each physical and for including medical
reports in the Company's depository of more than 20,000 health
records. It also provides other work, health and safety
recommendations to employers.
Training.
MAS provides emergency medical response training programs for
seafarers. Seafarers are trained to administer emergency first
aid at sea in conjunction with the Company's radio medical
advice services. Training also includes discussions of other
MAS services that are important to the seafarer's occupational
health and welfare. The training is performed both at Company
facilities and at customer locations, including on board ship.
Ancillary Services.
The Company also provides services related to its principal
business, which include cost containment and medical record
maintenance. Cost containment services are performed in order
to control medical costs of hospitalized patients. Control
can be achieved through procedures such as preadmission
certification, which documents the ailment of and treatment for
a patient and reduces the likelihood that unnecessary tests or
other procedures will be performed; use of second opinions,
which enable attending physicians to define a treatment program
more sharply, thereby keeping unnecessary procedures from being
performed; and concurrent reviews, which track the patient
response to the treatment program established under the pre-
admission certification and second opinion procedures.
The Company monitors shipboard emergencies and is also able to
monitor the transfer of a patient to a shore-based facility and
the treatment of that patient. Physicians contracted by the
Company provide the latter service when they are not responding
to requests for medical advice. The Company believes that its
physician-to-physician contact makes its services more
attractive in providing cost containment compared to other
companies which use medical personnel other than physicians for
utilization review.
Markets.
The primary markets for the Company's products and services are
the maritime industry and travel insurance companies.
Maritime.
The maritime market consists of three primary segments. One
market segment consists of privately-owned U.S. flag ships
which transport U.S. goods to and from ports within the
United States. In this group, there are approximately 450 deep
draft vessels for which evacuations due to medical emergencies
are complicated and expensive. Over 90% of the companies that
operate these vessels utilize the services of the Company.
Approximately one-third of the these customers have adopted
the Company's pharmaceutical program since it was introduced in
late 1983. The Company also has contracts with towing, re-
search, and commercial fishing vessels.
A second market segment consists of ships owned by U.S. and
foreign companies which carry U.S. goods under flags of
registry other than the U.S. flag. Over 95% of all U.S. goods
are shipped on the approximately 10,000 vessels which fall in
this category. The Company has contracts with over 300 of
these ships having domiciles in 15 countries. The Company
provides services to approximately 50 U.S. flag ships which are
owned by or affiliated with the U.S. Government.
The third market segment encompasses the balance of the world's
oceangoing vessels and numbers around 75,000 vessels/units.
The Company's ongoing efforts to sell to this market is
enhanced by the efforts made to sell to the second market
segment as most of those companies operate vessels both in the
U.S. and worldwide. The further development of less expensive
satellite communication equipment also makes this market more
accessible. Although its response center is staffed with
multilingual personnel, the Company estimates that 20% of this
group will find language an obstacle to their use of Company
services.
The Company attempts to expand its maritime markets by
contacting potential subscribers directly. Having collected
data from its fourteen years of operation, the Company is able
to demonstrate the cost effectiveness of its services by
showing the savings arising from preventing unnecessary
diversions of a ship to port to treat an injured seaman. Such
data is also used to generate annual reports for existing
subscribers to reinforce their decisions to continue using the
Company's services.
In addition to these marketing efforts, the Company also
promotes its training classes to new and existing subscribers.
The Company has found that familiarizing crew members with the
Company's services leads to increased and more efficient usage.
Competition.
The Company competes in the medical advice market with a few
foreign government-operated entities outside of the United
States. The Company also knows of several U.S. companies which
have entered the radio medical advice market, as well as
several hospitals in the U.S. that provide radio medical advice
to ships at sea. While the Company believes it has a
competitive advantage, the barriers to entry into the Company's
major market are relatively low, and there can be no assurance
that a company with far greater financial resources will not
commence operations similar to those of the Company and
generate competition that does not now exist.
There are several pharmaceutical suppliers, both domestically
and internationally, which market extensively to the maritime
market. The Company competes effectively by providing a well-
managed pharmaceutical program that is fully integrated with
the Company's medical advice service.
There are several domestic and foreign companies which provide
services similar to the Company's travel assistance program.
These companies have significant financial resources, and are
capable of competing effectively with the Company's products.
Regulation.
The Company has been licensed by the Federal Communications
Commission to operate a limited coast, high frequency and
single side band ("SSB") radio station. The monitoring of
"controlled substances" by Company physicians is regulated by
the Drug Enforcement Administration. The Company holds
licensure from the Drug Enforcement Administration and the
Maryland Board of Pharmacy for the distribution of pharma-
ceuticals. The Company does not hold any medical licenses, but
utilizes the services of licensed physicians. Since advisory
services are provided primarily offshore by radio, the Company
is not subject to regulation by the various state medical
regulatory authorities. To the extent it begins providing
advisory services onshore, the Company may become subject to
state regulations dealing with the practice of medicine.
Insurance.
The Company maintains liability insurance for its operations.
Physician personnel are provided through Hall & Associates,
P.A. which is covered by a comprehensive professional liability
insurance policy with coverage of $4,000,000 in the aggregate.
Personnel.
The Company contracts with Hall & Associates, P.A. for the
services of physicians for the Company's 24-hour-a-day medical
advice operations for a fixed fee. The Company also pays the
premiums on professional liability insurance covering personnel
associated with Hall & Associates. The Company does not
directly employ its own physicians. See Item 12. The Company
employs 20 people (9 in management and administration, 9
communications coordinators, and 2 part-time employees) and
believes its relationship with its employees is satisfactory.
Hall & Associates, P.A. has 1 full-time physician and 15 part-
time physicians contracted to provide services to the Company.
Item 2. Description of Property.
The headquarters of the Company consists of two buildings
containing a total of approximately 5,000 square feet located
on 1.44 acres of commercial land in Owings, Maryland,
approximately twenty miles from Washington, D.C. The head-
quarters buildings contain executive offices and the Company's
medical response center, which is staffed 24-hours-a-day. The
property is owned by the Company and is secured by Bank of
Annapolis First Mortgage of $142,953. The Company also has a
commercial line of credit of $38,604 secured by a lien on the
property. The Company is in good standing with both commercial
lenders.
At peak times, the medical response center is staffed by two
physicians, four communications coordinators, one data processing
operator and the operations manager. The center is equipped with a
bank of commercial telephone lines, inbound WATS lines, telex,
electrocardiogram sending and receiving capabilities and a high-
frequency single side band ("SSB") radio station. The radio station
is licensed by the Federal Communications Commission (see Item 1,
"Regulation") and can operate on five specially designated frequencies
that are free of other traffic. This capability affords the Company
voice communication from Hawaii to Italy with high reliability.
Arrangements made with radio relay stations located in Berne,
Switzerland; Singapore; Durban, South Africa; Bahrain; and Sidney,
Australia give the Company worldwide communications capabilities. All
radio and telex equipment is supported with backup equipment and the
response center uses a generator to maintain continuous operations in
case of a power failure. The Company maintains a commercial insurance
policy on all buildings and equipment which, in the opinion of manage-
ment, is adequate to cover the company's exposure.
Item 3. Legal Proceedings.
The company is not a party to any pending legal proceeding
(nor is its property subject of any pending legal proceeding)
other than routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders.
On August 25, 1995 the Company held an annual meeting of
stockholders. In preparation for the meeting the Company
issued an information statement but did not seek proxies.
Individuals holding 1,975,406 shares of common stock (52% of
3,816,933 shares issued) were in attendance at the meeting. All
four members of the Board of Directors stood for reelection.
By unanimous vote of those present the following individuals
were re-elected as Directors of the Company, constituting the
entirety of the Board of Directors:
1. Ronald W. Pickett
2. Thomas M. Hall
3. Judith P. Hoyer
4. Jean-Paul Babey
No other matters were submitted to a vote of the stockholders.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
There is a limited public trading market for the Company's
Common Stock in the over-the-counter market, and there were
278 holders of record on January 26, 1996. Although no
quotations for the Company's Common Stock are regularly
published, certain dealers who make a market in the Common
Stock have informed the Company that the high and low bid
prices for the Common Stock have been as follows:
Bid
High Low
November 1, 1992 to January 31, 1993 1/4 1/16
February 1, 1993 to April 30, 1993 1/4 3/16
May 3, 1993 to July 30, 1993 1/4 3/16
August 3, 1993 to October 29, 1993 1/4 1/8
November 1, 1993 to January 31, 1994 3/16 1/16
February 1, 1994 to April 29, 1994 3/16 1/8
May 2, 1994 to July 29, 1994 3/16 1/8
August 1, 1994 to October 31, 1994 3/16 1/8
November 1, 1994 to January 31, 1995 3/16 1/8
February 1, 1995 to April 29, 1995 3/16 3/16
May 2, 1995 to July 29, 1995 3/16 1/8
August 1, 1995 to October 31, 1995 3/16 1/8
On January 31, 1996, the Common Stock was quoted by its
primary market maker at $ 3/16 bid, $ 5/16 asked.
These over-the-counter quotations reflect inter-dealer prices,
without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
The Company has never paid a cash dividend on its common
stock and has no plans to do so in the future.
Item 6. Management's Discussion and Analysis of Financial Condition.
Results of Operation.
The Company's consolidated net income for the fiscal year 1995 was
$268,143 ($.07 per share), and $205,525 ($.05 per share) for 1994, an
increase of 30% attributed to an increase in revenues, primarily
travel assistance revenues, of $387,277 or a 71% increase over 1994.
The Company's core business consists of maritime program services,
sales of pharmaceuticals and training services provided to maritime
customers. Revenue from maritime program services is derived
primarily from providing medical advice to ships at sea on a timed-
charge or contract basis. Timed cases are billed on a per-minute of
Response Center use basis; unlimited-usage contracts have an annual
fixed fee based on the subscriber's fleet size and involvement with
the Company's pharmaceutical and training programs. Total revenue
from contracts from medical advice to ships at sea during fiscal 1995
was $813,289, 5% lower than revenues reported in 1994.
The customer mix in fiscal year 1995 for unlimited contracts and
timed usage was 76% and 24%, respectively, compared with a product mix
for unlimited and timed of 78% and 22%, respectively for 1994.
Unlimited contracts provide more consistent and predictable cash flow
than timed cases, therefore, the Company strives to convert timed-usage
customers to unlimited-contract customers. The decrease in maritime
program service revenues is consistent with continued deactivation of
the U.S. Ready Reserve Fleet and competition from other service
providers. Management expects maritime revenues to be stable for 1996.
Net pharmaceutical revenue from sales to the Company's customers,
excluding freight, was $135,709 in fiscal year 1995 compared to
$102,874 in fiscal 1994. 1995 pharmaceutical sales of $432,433 were 6%
greater than the previous year. Cost of Pharmaceuticals has decreased
slightly. Having the ability to price its products more competitively
and the addition of new customers, the Company expects to increase
pharmaceutical sales in 1996.
Profits from net training services were $124,520 in fiscal 1995
compared to $123,542 in 1994. The company expects these revenues to
remain stable. The Company expects to have continued strong earnings in
this service line.
The Company reported sales of $387,277 and net revenue of $334,476 from
travel assistance services in fiscal 1995, compared to $225,911 and
$183,172, respectively, for fiscal 1995, an increase of reported sales
of 71%. The Company expects steady growth in this service line
consistent with projected increases in sales by the ASA subsidiary.
Profits from the sale of clinic services were $22,391 in fiscal 1995
compared to $32,803 for fiscal year 1994, a decrease of 31%. This
program is an adjunct service to the Company's medical advice program
whereby certain customers' employees are provided with physical
examinations according to standards established by the maritime
industry. As certain maritime unions have begun providing these
services, the Company anticipates continued falling demand for this
program.
Other selling, general and administrative expenses increased 11% to
$448,943 in fiscal 1995 from $402,724 in fiscal 1994. The primary
factor contributing to the increase were increased medical liability
insurance, labor costs from restructuring the pharmaceutical program
and general costs attributed to the travel assistance programs.
Interest revenue was greater than interest expense by $5,846 during
1995. Interest expenses for 1995 was $21,853 and $48,506 in 1994.
This decrease of 55% was due to the pay down of $100,000 on a
mortgage to secure lower interest rates.
Liquidity and Capital Sources.
Cash provided by operations was $324,732 in 1995 as compared to
$242,273 in fiscal 1994. The ratio of current assets to current
liabilities was 2 to 1 as compared to 1.6 to 1 at the end of fiscal
1994. The Company's adoption of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" on November 1, 1994
resulted in the recognition of a deferred tax asset of $357,376 in
1994 and an additional deferred tax asset of $11,053 in 1995. During
1995 capital expenditures of $47,867 were primarily for the purchase
of computer equipment and various building improvements. The Company
in August 1994 reduced its mortgage debt by $100,000. With the growth
of the company's pharmaceutical program, the company now carries
inventory valued on October 31, 1995 at $23,295. The Company has
various options available to meet its capital and/or operating needs,
including cash on hand at October 31, 1995 of $402,768, internally
generated funds and a secured commercial line of credit in the amount
of $38,604.
Medical Advisory Systems in conjunction with SACNAS International plans
during the current year to construct a new 8000 square foot building on
the headquarters property owned by MAS and located at 8050 Southern
Maryland Boulevard in Owings, MD. In return for 4500 shares of ASA
common stock, MAS will transfer to ASA the land and existing struc-
tures on this property. SACNAS will purchase 4500 shares of ASA
common stock for $450,000 with the proceeds of the purchase to be
used to construct the new building and purchase furniture and office
fixtures. ASA will seek long term financing should additional funds
become necessary to complete the new building project. Following the
property transfer ASA will then lease the new building and the two
existing buildings to the company at current lease rates.
Impact of Inflation and Changing Prices. The Company's costs
are comprised primarily of staff salaries and physician fees.
Medical staffing costs remained stable at $303,079 in fiscal
1995. Salaries and wages remained stable at $476,050.
Item 7. Financial Statements.
Financial statements and supplementary data required by this
item are included at Part IV, item 14.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
On August 30, 1995 the company changed independent public accountants
from Grant Thornton to Stefanou & Company. The appropriate 8k was
filed with the Commission in a timely manner stating the change in
accountants.
PART III
Item 9. Directors, Executive Officers, Promoters, and
Control Persons, Compliance with Section
16(a) of the Exchange Act.
Listed below are the directors and executive officers of the
Company. Directors are elected for one year terms or until
their successors are elected and qualified. Officers hold
office until their successors are elected and qualified or
until their earlier resignation or removal.
Age at
Name Positions with Company January 31,1996
Ronald W. Pickett Chairman of the Board of Directors,
President & Treasurer 48
Thomas M. Hall, M.D. Chief Executive Officer,
President of Hall & Associates, P.A., 43
Chief Physician of the Company
Judith P. Hoyer Director 56
Jean-Paul Babey Director 40
Ronald W. Pickett is the founder of the Company, Chairman of
the Board of Directors, President and Treasurer. He has been
an officer and director of the Company since its inception in
1981. A graduate of Gordon College, Mr. Pickett served as
College Director for the Democratic National Committee during
Lyndon B. Johnson's administration. For the past twenty-five
years he has engaged in various entrepreneurial activities.
He is also a director of F & E Resource Systems Technology,
Inc., a public company in the waste management industry. Mr.
Pickett devotes only part of his time to the Company.
Thomas M. Hall, M.D., a graduate of George Washington
University School of Medicine, "with distinction", has served
as President of Hall & Associates, P.A., and its predecessor
firm since April, 1988, as Chief Physician of the Company
since 1982, and as Chief Executive Officer of the Company since
July 1992. Dr. Hall has been a director of the Company since
March, 1992. As Chief Physician, Dr. Hall is in charge of the
medical personnel utilized in the Company's medical advice and
training operations. As Chief Executive Officer of the
Company, he supervises all day-to-day operations. Dr. Hall is
a diplomate of the National Board of Medical Examiners, the
American Board of Internal Medicine, and the American Board of
Preventive Medicine (certified Occupational Medicine
Specialist). He is a member of Phi Beta Kappa and Alpha Omega
Alpha honor societies. Dr. Hall devotes full time to the
Company.
Judith P. Hoyer has been a director since 1984. She is a
Primary Project Resources instructor for Prince George's
County, Maryland and has held that position for more than the
last five years. She is the sister of Ronald W. Pickett.
Jean-Paul Babey, an electronic engineer, is a graduate of
Centrale School, Lilles (France) 1979, and received an MBA
at ISA, Paris (France) in 1981. After having worked as a
Consultant for 5 years, Mr. Babey has served as International
Director for Mondial Assistance Group (headquarters in Paris,
France) since April 1987. Additionally, Mr. Babey is the
Managing Director of Mondial Assistance UK Limited (London,
England) since January 1993. Mr. Babey is also a director of
ASCI Incorporated (Ireland) and DIMA Incorporated
(Netherlands).
Item 10. Executive Compensation.
The following is a table which summarizes the compensation
awarded to, earned by, or paid to executive officers of the
Company for services to the Company for the fiscal years
ended October 31, 1993, 1994 and 1995:
SUMMARY COMPENSATION TABLE
Annual Compensation
______________________________________________________________________________
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
______________________________________________________________________________
Thomas M. Hall, M.D. 1995 $ 50,000 $48,720 (2) $ 98,002 (3)
CEO and 1994 $ 49,860 $40,568 (2) $ 98,333 (3)
Chief Physician (1) 1993 $ 32,279 $32,336 (2) $103,766 (3)
Ronald W. Pickett (4) 1995 $50,000 0 $ 9,268 (5)
Chairman of the Board, 1994 $49,860 0 $ 8,195 (5)
President and Treasurer 1993 $40,092 0 $ 8,415 (5)
(1) Dr. Hall was elected Chief Executive Officer of the Company in
July 1992, but did not receive a separate salary for performing
the duties of that office until fiscal year 1993.
Dr. Hall also receives income from the Company as an
independent contractor and independent commissioned sales
agent, as detailed in notes (2) and (3) below. Dr. Hall is
required to pay certain of his own business and travel expenses
related to this income.
(2) Received as an independent commissioned sales agent, represent-
ing a percentage of the Company's gross sales of certain
travel-related medical advisory services. See Item 12.
"Certain Relationships and Related Transcations."
(3) Received as an independent contractor through the Company's
agreement with Hall & Associates, P.A., under which Hall &
Associates, P.A. provides the Company with medical staff
personnel. See Item 12. "Certain Relationships and Related
Transactions."
(4) Mr. Pickett also served as the Company's CEO until July 1992.
(5) Represents amounts paid on mobile phone and for premiums paid
for family portion of health insurance coverage.
No person who served as an executive officer of the Company
at the end of the fiscal year ended October 31, 1995 had total
annual salary and bonus for that year in excess of $100,000.
But see Item 12. "Certain Relationships and Related
Transactions."
Directors who are not officers of the Company receive $250
for each meeting of the Board of Directors or committee of
the Board of Directors that they attend. Officers of the
Company do not receive additional compensation for attending
board meetings.
Neither Dr. Hall nor Mr. Pickett has a written employment contract
with the Company. The terms and conditions of their employment are
set by the Board of Directors on an ad hoc basis. See item 12
"Certain Relationships and Related Transactions."
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Beneficial Ownership. As of February 1, 1996, the Company
was aware that the following persons owned beneficially more
than 5% of its Common Stock:
No. Shares
Name and Address Owned Beneficially Percent of Class
Thomas M. Hall, M.D. 1,115,300* 28.8%
8050 Southern Maryland Blvd.
Owings, MD 20736
Ronald W. Pickett 688,907 17.8%
P.O. Box 167
Mechanicsville, MD 20659
SACNAS International 305,378 7.9%
2, rue Fragonard
Paris XVII, France
* Includes immediately exercisable options to purchase 50,000 shares
of MAS common stock at $.875 per share and 150,000 shares of MAS
common stock at $.50 per share.
The following table sets forth the beneficial ownership of
shares of Common Stock of the Company as of February 1, 1996
for each director and executive officer and for all directors
and executive officers as a group:
No. Shares
Name Owned Beneficially Percent of Class
Thomas M. Hall 1,115,300* 28.8%
8050 Southern Maryland Blvd.
Owings, Maryland 20736
Ronald W. Pickett 683,907 17.6%
P.O. Box 167
Mechanicsville, Maryland 20659
Judith P. Hoyer 10,000 0.3%
2300 Belleview Avenue
Cheverly, Maryland 20785
Jean-Paul Babey 305,378** 7.9%
SACNAS International
2, rue Fragonard
Paris XVII, France
All directors and executive officers
as a group (4 individuals) 2,114,585* 55%
* Includes immediately exercisable options to purchase 50,000
shares of MAS Common Stock at $.875 per share and 150,000
shares at $.50 per share.
** Consists of 305,378 shares held in the name SACNAS Inter-
national, as to which Mr. Babey shares voting and investment
power, but of which Mr. Babey disclaims beneficial ownership.
Item 12. Certain Relationships and Related Transactions.
The Company has an agreement with Hall & Associates, P.A. to
provide the Company with medical personnel as needed to staff
its operations. The Company pays Hall & Associates, P.A. a
fee equal to $11,365 per two-week pay period for personnel
provided, plus reimbursement for professional liability
insurance, the direct costs of an extra physician, the
coverage of the response center, training costs and incidental
expenses. During the Company's last fiscal year, it paid Hall
& Associates $303,079 in fees. The agreement with Hall &
Associates derives from a written agreement with the pre-
decessor of Hall & Associates, Vaillancourt Associates, P.A.,
which was executed in 1982. The written agreement has been
modified by oral agreement on several occasions. Ronald W.
Pickett, the Chairman, President and second largest share-
holder of the Company, is the Treasurer of Hall & Associates,
but has no direct or indirect financial interest in Hall &
Associates. Thomas M. Hall, M.D., who was elected Chief
Executive Officer of the Company on July 16, 1992 and is the
largest shareholder of the Company, controls Hall & Associates,
P.A. Until he was elected CEO, Dr. Hall served as Chief
Physician of the Company, and continues to serve the Company
as Chief Physician. Dr. Hall also has an agreement with the
Company by which he receives a commission on sales of certain
assistance-related servcies. See notes to Item 10 "Executive
Compensation."
Item 13. Exhibits List and Reports on Form 8-K.
(a) A list of the exhibits filed as part of this report is found in
the Exhibits Index at page 23.
(b) A report on Form 8k was filed with the Commission on August
30,1995 reporting a change in the Company's independent public
accountant.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MEDICAL ADVISORY SYSTEMS, INC.
Date: By:
Ronald W. Pickett
Chairman of the Board
President
Treasurer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: By:
Ronald W. Pickett
Chairman of the Board
President
Treasurer
Date: By:
Thomas M. Hall, M.D.
Chief Executive Officer
Director
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
Date: By:
Judith P. Hoyer
Director
Date: By:
Jean-Paul Babey
Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE EXCHANGE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
1. An annual report for fiscal year 1995 has not yet been sent to the
Company's stockholders.
2. No proxy statement, form of proxy or other proxy soliciting material
has been sent by the Company to more than 10 of its security holders
with respect to any annual or other meeting of security holders since
the Company last filed a report on this Form. The Company did,
however, send to all registered stockholders an Information Statement
relating to its annual meeting of Stockholders held August 25, 1994.
Four copies of the Information Statement are furnished herewith.
3. The Company will distribute an annual report to security holders
subsequent to the filing of this Form. When the Company prepares
such a report and distributes it to its stockholders the Company will
furnish copies of such material to the Commission when it is sent to
the stockholders.
EXHIBITS INDEX
Sequential
Exhibit No. Description of Exhibit Page Number
3(a) Restated Certificate of Incorporation,
filed as Exhibit 3(a) to Registration N.A.
Statement on Form S-18 (No. 2-98314) on
June 7, 1985*
3(b) Certificate of Amendment of certificate
of incorporation dated Sept. 8, 1988, N.A.
filed as Exhibit 3(a)(2) to Annual
Report on Form 10-K on March 28, 1990*
3(c) Bylaws, as amended, filed as Exhibit
3(b) to Registration Statement on Form S-18 N.A.
(No. 2-98314) on June 7, 1985*
4 Form of Common Stock Certificate, filed
as Exhibit 4 to Amendment No. 1 to N.A.
registration Statement on Form S-18
(No.33-02991) on February 28, 1986*
10(a) Letter dated December 2, 1988 evidencing
agreement between Medical Advisory Systems,
Inc. and Hall and Associates, P.A. with respect
to provision of medical services to Customers N.A.
of Medical Advisory Systems, Inc., filed as
Exhibit 10(c) to Form 8 amending Annual
Report on Form 10-K on April 18, 1989*
10(b) Joint Venture Agreement dated June 21, 1993 between N.A.
SACNAS International and Medical Advisory Systems, Inc.,
Agreement between the Company and filed as Exhibit 10(b) to
Annual Report on Form 10-KSB on March 15, 1994*
11 Statement regarding Computation of earnings or E-1
loss per share
*Incorporated herein by reference.
??
3
18
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
OCTOBER 31, 1995
FORMING A PART OF
ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-KSB
OF
MEDICAL ADVISORY SYSTEMS, INC.
Medical Advisory Systems, Inc.
INDEX TO FINANCIAL STATEMENTS
______________________________________________________________________________
Page
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheet at October 31, 1995 F-4
Consolidated Statements of Earnings for the two years
in the period ended October 31, 1995 F-6
Consolidated Statements of Stockholders' Equity for the
two years in the period ended October 31, 1995 F-7
Consolidated Statements of Cash Flows for the two years
in the period ended October 31, 1995 F-8
Notes to Consolidated Financial Statements F-10
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Medical Advisory Systems, Inc.
We have audited the accompanying consolidated balance sheet of Medical
Advisory Systems, Inc. and subsidiary as of October 31, 1995 and the
related statements of earnings, stockholders' equity, and cash flows
for the year ended October 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based upon our audit.
The statements of earnings, stockholders' equity, and cash flows of
Medical Advisory Systems, Inc. for the year ended October 31, 1994
were audited by other auditors whose report dated December 21, 1994
expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Medical Advisory Systems, Inc. and subsidiary as of October 31,
1995, and the consolidated results of their operations and their cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
STEFANOU & COMPANY
Certified Public Accountants
McLean, Virginia
January 17, 1996
F-3
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1995
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 402,768
Accounts receivable, less allowance for doubtful
receivables of $31,172 (note C) 430,474
Inventory, at lower of cost or market 23,295
Current deferred tax asset (Note F) 12,698
Total current assets 869,235
PROPERTY AND EQUIPMENT- AT COST:
(Notes A and C)
Land 65,078
Building and improvements 285,052
Furniture, fixtures and equipment 372,576
722,706
Less accumulated depreciation 452,833
269,873
OTHER ASSETS:
Investments (Note B) 427,468
Deferred income taxes (Notes A and F) 333,625
761,093
$ 1,900,201
See accompanying notes to consolidated financial statements.
F-4
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1995
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt (Note C) $ 39,660
Accounts payable and accrued expenses 303,745
Deferred income 79,689
Total current liabilities 423,094
LONG-TERM DEBT, less current maturities (Note C) 146,756
JOINT VENTURER'S INTEREST (Note A) 24,507
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value, $ 1.75 per share;
authorized, 1,000,000 shares; none issued -
Common stock, par value, $0.005 per share; authorized,
6,000,000 shares; issued 3,882,873 shares (Note E) 19,415
Additional paid-in capital 3,824,778
Accumulated deficit (2,494,766)
1,349,427
Less 65,940 shares of common stock held in treasury
- at cost (43,583)
1,305,844
$ 1,900,201
See accompanying notes to consolidated financial statements.
F-5
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED OCTOBER 31,
Revenues: 1995 1994
Program services $ 1,205,805 $ 1,085,943
Pharmaceutical sales 432,433 407,359
Clinic system 49,841 64,609
Training 162,717 157,936
Other 74,567 62,810
Interest 27,699 27,278
1,953,062 1,805,935
Cost and expenses:
Pharmaceuticals 296,724 304,485
Medical professional services 303,074 299,092
Clinic system 27,450 31,806
Training 38,197 34,394
Salaries and wages 476,051 470,239
Selling, general and administrative 448,943 402,724
Depreciation 48,416 30,493
Interest 21,853 48,506
1,660,708 1,621,739
Earnings before income taxes 292,354 184,176
Income tax benefit (expense) (Notes A and F) (11,053) 7,678
Earnings before Joint Venturer's interest and cumulative effect of change in
accounting for income taxes 281,301 191,874
Joint Venturer's interest (13,158) 13,651
Earnings before cumulative effect of change
in accounting for income taxes 268,143 205,525
Cumulative effect of change in accounting for
income taxes (Note F) - 349,698
NET EARNINGS $ 268,143 $ 555,223
Earnings per common share (Note J):
From continuing operations $ .07 $ .05
Cumulative effect of accounting change $ - $ .10
Net earnings $ .07 $ .15
See accompanying notes to consolidated financial statements
F-6
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1995 AND 1994
Balance at November 1, 1993
Common Additional Treasury
Stock Paid-in- Accumulated Stock
Shares Amount Capital Deficit Shares Amount Total
3,882,873 $19,415 $3,824,778 $(3,318,132) 65,940 $(43,583) $ 482,478
Net earnings
- - - 555,223 - - 555,223
Balance at October 31, 1994
3,882,873 19,415 3,824,778 (2,762,909) 65,940 (43,583) 1,037,701
Net earnings
- - - 268,143 - - 268,143
Balance at October 31, 1995
3,882,873 $19,415 $3,824,778 $(2,494,766) 65,940 $(43,583) $1,305,844
See accompanying notes to consolidated financial statements.
F-7
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31,
Increase (decrease) in cash and equivalents 1995 1994
Cash flows from operating activities
Net earnings for the year $ 268,143 $ 555,223
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Deferred income taxes (11,053) (357,376)
Equity interest in Joint Venture (income)
losses (13,158) 13,651
Depreciation 48,417 30,493
(Increase) decrease in:
Accounts receivable 5,992 (28,002)
Prepaid expenses and other 8,108 354
Inventory 23,295 -
Increase (decrease) in:
Accounts payable and accrued
expenses 3,155 (3,354)
Deferred income (8,167) 58,586
Net cash provided by operating activities 324,732 242,273
Cash flows used in investing activities:
Capital expenditures (47,867) (74,515)
Purchase of investment securities (100,000) (47,127)
Net cash used in investing activities (147,867) (121,642)
See accompanying notes to consolidated financial statements.
F-8
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMETS OF CASH FLOWS
YEARS ENDED OCTOBER 31,
(continued)
1995 1994
Cash flows used in financing activities:
Joint Venturer capital contribution - 25,000
Repayments of loans to banks and related parties (54,765) (628,635)
Net cash, debentures used in financing activities (54,765) (603,635)
Net (decrease) increase in cash and equivalents 122,100 (483,004)
Cash and equivalents at beginning of year 280,668 763,672
Cash and equivalents at end of year $ 402,768 $ 280,668
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Interest $ 21,853 $ 46,306
See accompanying notes to consolidated financial statements
F-9
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE A- SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows.
Basis of Presentation
The consolidated financial statements include the accounts of Medical
Advisory Systems, Inc. (MAS) and its wholly-owned subsidiary, MAS
Laboratories, Inc. Significant intercompany transactions have been eliminated
in consolidation.
The consolidated financial statements also include 100% of the assets,
liabilities and operating results of Assistance Services of America, Inc.
(ASA). Pursuant to a joint venture agreement, the Company formed ASA and
purchased 250 shares (50%) of ASA common stock in fiscal 1994 for $25,000
in cash. The Joint Venture's Interest reflected on the 1995 consolidated
balance sheet and the consolidated statement of earnings represents the other
joint venturer's share (50%) of ASA's equity and 1995 results of operations.
Business Operations
MAS provides medical advice to ocean-going vessels and other individuals or
entities located outside the continental United States. ASA commenced
operations in March, 1994 and provides medical assistance services to travel
insurance companies in Canada and the United States. MAS Laboratories is
currently inactive.
F-10
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE A- SUMMARY OF ACCOUNTING POLICIES-CONTINUED
Revenue Recognition
Revenues from contracts that provide unlimited services are recognized
ratably over the term of the contract. Revenues from contracts based on usage
are recognized when the services are rendered. Other revenues are recognized
at the time services or goods are provided.
Property and Equipment
For financial statement purposes, property and equipment are depreciated using
the straight-line method over their estimated useful lives (five years for
furniture, fixtures and equipment and 25 years for building and improvements).
The straight line method of depreciation is also used for tax purposes.
Income Taxes
Income taxes are provided based on the liability method for financial reporting
purposes in accordance with the provisions of Statement of Financial Standards
No. 109, " Accounting for Income Taxes". Deferred and prepaid taxes are
provided for on items which are recognized in different periods for financial
and tax reporting purposes.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
F-11
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE B- INVESTMENTS
Investments, at original cost, are comprised of the following as of
October 31, 1996:
U.S. Government Obligations (market value of $ 308,755) $ 327,468
100,000 shares of F & E Resource Systems Technology, Inc.
restricted common stock (market value of $ 100,000) 100,000
$ 427,468
The investments are classified as noncurrent assets and are stated at cost
as it is management's intention to hold the securities.
NOTE C-LONG-TERM DEBT
Long-term debt consists of the following:
Note payable to law firm $ 4,860
Note payable, monthly payments of principal and interest of
$3,200 through June, 1997 (rate of 10.5% per annum); secured
by the Company's accounts receivable, mortgage secured by a
second deed of trust on the Company's building, and
guaranteed by an officer/shareholder 38,604
Mortgage payable secured by first deed of trust on Company's
building and land 142,952
186,416
Less current maturities 39,660
Net long-term debt $ 146,756
F-12
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE C- LONG-TERM DEBT- CONTINUED
Aggregate maturities of long-term debt as of October 31, 1995 are as follows:
Year Amount
1996 $ 39,660
1997 4,100
1998 2,500
1999 2,700
2000 and after 137,456
$186,416
NOTE D- RELATED PARTY TRANSACTIONS
Hall & Associates, P.A., which is owned by the Company's Chief Executive
Officer, Thomas M. Hall, M.D., provides medical professional services to MAS.
Amounts paid to Hall & Associates, P.A. represent fees for professional
services rendered and premiums on professional liability insurance. During
1995 and 1994, the Company paid Hall & Associates, P.A. $ 322,076 and
$309,434, respectively, in fees and professional liability insurance premium
payments made on Hall & Associates, P.A.'s behalf.
During fiscal years 1995 and 1994, Thomas M. Hall, M.D., received $48,720 and
$44,448, respectively, representing a percentage of the Company's gross sales
of certain travel-related medical services.
The Company entered into a cooperative venture with Mondial Assistance of
Paris, France (Mondial) to market the programs and services of Mondial
through ASA, the Company's 50%-owned joint venture. Additionally, as a result
of its affiliation with Mondial (which is also a shareholder in the Company),
the Company derived revenues of $ 225,000 and $216,000 during 1995 and 1994,
respectively, exclusive of the joint venture activities. At October 31, 1995,
accounts receivable from Mondial were approximately $ 91,000.
F-13
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE E-STOCK OPTIONS AND WARRANTS
MAS has issued options to purchase 200,000 shares of its common stock to its
Chief Executive Officer, 50,000 of which are exercisable at $.875 per share
and have no expiration date, 50,000 of which are exercisable at $.50 per
share through February, 1998, 50,000 of which are exercisable at $.50 per
share through February 28, 1999 and 50,000 of which are exercisable at $.50
per share through February 28, 2000. The Company has issued 50,000 options
to two key employees, 10,000 of which are exercisable at $.50 per share through
February 28, 1998, 20,000 exercisable at $.50 per share through February 28,
1999 and 20,000 exercisable at $.50 per share through February 28, 2000.
During 1991, The Company entered into a receipt and release agreement with a
creditor which included a detachable warrant for the purchase of MAS common
stock. The warrant entitles the holder to purchase a number of MAS common
shares at $.50 per share in an amount equal to the outstanding balance of the
note multiplied by a factor of 2.90, plus the dollar amount of principal paid
on the note multiplied by a factor of 1.45 (up to a maximum of 290,000 shares).
The warrant is exercisable in whole or in part commencing April 16, 1991 and
expires six months after the note is paid in full. The warrant provides for
the reservation of warrant shares, protection against dilution, registration
under the Securities Act of 1933 and certain other items as described in the
warrant agreement. The noteholder has not acquired any shares of MAS common
stock pursuant to the detachable warrant.
F-14
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE F-INCOME TAXES
The Company adopted FAS 109 in 1994. FAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company adopted FAS 109 on a
prospective basis resulting in a noncash tax benefit of $349,698, representing
the cumulative effect on prior years of adopting the accounting change in 1994.
Components of deferred tax assets as of October 31, 1995 are as follows:
Current
Deferred income $ 5,627
Allowance for doubtful accounts 7,069
Current deferred tax asset 12,698
Noncurrent
Net operating loss carryforwards 830,333
Other 663
Noncurrent deferred tax asset 830,996
Valuation allowance 497,371
333,625
Net deferred tax asset $ 346,323
F-15
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE F- INCOME TAXES-CONTINUED
Deferred tax components are included in the following balance sheet captions:
Current assets $ 12,698
Deferred income taxes 333,625
$ 346,323
Deferred income taxes (asset) were increased in 1995 by $11,083 and in 1994
by $7,678.
The Company has sustained profitable operations for the past five years and
management expects this to continue. Therefore, management believes it is
more likely than not that it can realize deferred tax assets totaling
approximately $346,000 over the next five years.
The Company's effective tax rate differs from the U.S. statutory rate due to
availability of net operating loss deductions.
In 1995 and 1994, MAS utilized approximately $272,000 and $137,000, of
operating loss carryforwards on its tax return. For tax reporting purposes,
unused net operating losses approximate $2,380,000, which expire as follows:
Year Amount
1997 $ 104,000
1998 417,000
1999 25,000
2000 229,000
2001 315,000
2002 376,000
2003 226,000
2004 316,000
2005 106,000
2006 266,000
Total $ 2,380,000
F-16
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE F-INCOME TAXES-CONTINUED
The deferred tax asset related to the carryforward is approximately $830,000.
Approximately $ 497,000 of this amount has been reserved and included in the
valuation allowance.
Prior to the adoption of FAS 109, the Company did not record deferred taxes.
NOTE G- MAJOR CUSTOMERS
Revenue from two major customers approximated $ 685,000 or 35% of sales for
the year ended October 31, 1995. Revenue from two major customers approximated
$521,000 or 29% of sales for the year ended October 31, 1994.
NOTE H- CONCENTRATIONS OF CREDIT RISK
Financial instruments and related items which potentially subject the Company
to concentrations of credit risk consist primarily of cash, cash equivalents
and trade receivables. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit. The Company's customers are not
concentrated geographically and it periodically reviews its trade receivables
in determining its allowance for doubtful accounts.
NOTE I- RETIREMENT PLAN
In 1994 the Company adopted a retirement savings plan (Plan) in accordance
with section 401(k) of the Internal Revenue Code. The Plan is available to all
eligible employees, as defined in the Plan's agreement. Participants are
allowed to contribute up to 15% of their annual compensation to the maximum
amounts prescribed by law. The Company provides for discretionary matching
contributions to the Plan equal to a percentage of the participant's
contributions. The Company's contributions in 1995 and 1994 were $ 898 and
$1,169, respectively.
F-17
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE J- EARNINGS PER SHARE
Earnings per common share for the years ended October 31, 1995 and 1994 are
based upon 3,816,933 shares representing the weighted average number of shares
outstanding. Stock options and warrants have not been included as they would
not materially affect per share amounts.
F-18
EXHIBITS
EXHIBIT INDEX
Number Description of Exhibit Page
(11) Computation of Earnings per Common
and Common Share Equivalents E-1
MEDICAL ADVISORY SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARES
For the years ended October 31, 1995 and 1994
1995 1994
Shares outstanding at beginning of period 3,816,933 3,816,933
Weighted average of common shares issued
during the period - -
Weighted average of common shares outstanding
during the period 3,816,933 3,816,933
Stock options and warrants outstanding- not
included as they have no dilutive effect - -
Shares used in computing earnings per
common share 3,816,933 3,816,933
Earnings per common share ($268,143/3,816,933) $.07
Earnings per common share ($555,223/3,816,933) $.15
E-1