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, 1996
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 (IRS Employer Identification No.)
incorporation or organization)
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:
$2,216,221 for the fiscal year ending October 31, 1996.
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):
$622,027 estimated as of January 31, 1997.
3,869,938 Shares of Common Stock ($ 0.005 par value per share) were
outstanding at January 31, 1997.
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 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 Health
Maintenance Organizations (HMO's), multi-national
corporations and the international travel industry.
o customized pharmaceutical and medical supply kits
which are sold to maritime and aviation industries;
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 multi-national 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, 1996
1996 1995
Assistance 37% 20%
Maritime Response Services 33% 42%
Pharmaceutical Sales 18% 22%
Training 8% 8%
Clinic Services 2% 3%
Other/Ancillary Services 2% 5%
100% 100%
Maritime Response 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 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.
Pharmaceutical Sales.
The Company sells a variety of kits containing
pharmaceuticals and medical supplies. Included in the kits are both
prescription and nonprescription medications and controlled substances.
The kits are designed following US Government and international
guidelines and include the Company's Pharmaceutical Manual which
provides information on proper storage, use and inventory control. All
medications are specially labeled for use in the Company's system.
Previously the Company supplied customers through a subsidiary
pharmaceutical company and then through a subcontractor. Now the
Company directly supplies pharmaceuticals to its maritime and airline
customers through the Company's warehouse facility whose inventory
includes various commonly needed pharmaceuticals and supplies. This
internalization of the supply function has resulted in greater profitability
for the Company and greatly improved service for its customers, who
often have time-critical supply needs.
Assistance.
A major market for the Company's services is the
international travel insurance and assistance industry. Since 1991 the
Company has functioned as a correspondent for SACNAS International
(trade name Mondial Assistance), a Paris based assistance corporation
with branch offices in 24 countries. The Company provides medical
consultation and logistical support for Mondial subscribers who become
ill or injured while traveling in the U.S. Services include coordination of
medical care, physician consultation, translation assistance, claims
handling, and cost containment. The Company charges a fee for
consultation and additional fees if the traveler requires special
arrangements or other logistical services.
During fiscal year 1993, the company entered into an
agreement with SACNAS International to market services under the
trademark name, "Mondial Assistance," in the U.S., Canada, and Mexico.
A subsidiary 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. Assistance services are being marketed to
HMO's, multi-national corporations and insurance companies. Services
include medical consultation, logistical support, and access to the
Mondial Assistance worldwide network of correspondents 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.
Clinic Services.
The Company has established a network of
approximately 200 U.S. clinics and hospitals through which it provides
clinic services. Through this network the Company coordinates pre-
placement and periodic physical examinations and U.S. Coast Guard
required alcohol and drug testing. The Company receives fees for each
examination and for entering medical reports in the Company's
depository of more than 20,000 health records. The Company 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.
Markets.
The primary markets for the Company's products and
services are the maritime industry and the assistance industry.
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 400 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, research, 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.
Assistance
The assistance industry was founded and grew up in
Europe during the 1960's and 1970's. There was a need to provide
specialized claims handling services for international travelers who
purchased travel insurance. Insurance underwriters found that proper
claims handling required the availability of 24-hour call centers, language
services, and foreign medical correspondents. Assistance companies
were formed to provide these specialized services on behalf of multiple
underwriters. Subsequently services were expanded to provide
specialized and immediate claims handling for multiple types of insurance
policies and manufacturers' warranties. Examples include road-side
assistance, legal assistance, home assistance, family assistance, and
medical assistance. Assistance is now a multi-billion dollar industry in
Europe.
In the U.S. assistance services have not been developed
to the same extent as in Europe. However, based on population statistics,
and extrapolating from the experience of other Mondial Assistance
branch offices, the Company estimates the potential U.S. assistance
market to be in excess of one billion dollars. The goal of the Company is
to approach this market in a manner that emphasizes the Company's
competitive advantages.
There are three major types of clients to which The
Company's subsidiary, Assistance Services of America, has been able to
sell assistance services: insurance companies, multi-national corporations,
and HMO's. Insurance companies purchase assistance services to gain
access to the Company's specialized 24-hour claims handling capabilities.
The availability of such services allows the insurance company to offer
more attractive programs to policy holders while monitoring claims and
controlling costs. Multi-national corporations are faced with the
challenge of providing medical and operational services to their
employees in foreign countries. The Company's specialized services
function as an additional employee benefit and allow the client to control
risk. HMO's provide managed health care by designating preferred
health care providers or by employing doctors directly. However,
enrollees who travel may not have direct access to these doctors. The
Company's services allow HMO's to monitor and control claims for
enrollees who travel outside the HMO catchment area.
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 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 pharmaceuticals. The Company does not hold any
medical licenses, but utilizes the services of licensed physicians.
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 30 people (14 in
management and administration, 11 communications coordinators, and 5
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 headquarters 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 $141,420. The
Company is in good standing with its commercial lender.
In April of 1996 the Company began construction of a
third building at its headquarter's site in Owings, Maryland. The building
will contain space for an expanded 24-hour call center, an outpatient
medical clinic, and additional administrative offices. The projected
completion date is February 1997 and the addition of this building will
increase the Company's total office space to approximately 17,000
square feet. To finance this building the Company received a $500,000
loan at 5% simple interest from SACNAS International. The Company
has pledged common stock as collateral against the loan (See note D of
the accompanying consolidated financial statements).
At peak times, the medical response center is staffed by two
physicians, a Medical Director, seven communications coordinators,
response center manager, and an experienced support staff. 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 management, is adequate to
cover the company's exposure.
Item 3. Legal Proceedings.
The company is not a party to any pending legal
proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
On September 20, 1996 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 1,934,207 shares of common stock (50.7% of 3,816,933 shares
issued) were in attendance at the meeting. All four members of the Board
of Directors stood for reelection.
A motion was made and duly seconded to increase the
authorized shares of Common Stock from six million to ten million
shares. The motion was passed by unanimous vote with 1,934,207
shares represented in favor of the resolution.
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 281 holders of record on January 17, 1997. 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
November 1, 1995 to January 31, 1996 3/16 3/16
February 1, 1996 to April 30, 1996 3/16 3/16
May 1, 1996 to July 31, 1996 3/16 3/16
August 1, 1996 to October 31, 1996 7/32 3/16
On January 31, 1997, the Common Stock was quoted by its
primary market maker at $ 7/32 bid, $ 1/2 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 from operations for
the fiscal year 1996 was $299,703 ($.08 per share), and $268,143 ($.07 per
share) for 1995, an increase of 11.8% primarily attributed to an increase in
assistance revenues. A non-operational loss on investment of $62,500
was incurred during 1996, resulting in consolidated net income after this
item of $237,206.
The Company reported sales of $813,564 and net revenue of
$742,101 from assistance services in fiscal 1996, compared to $387,277
and $334,476 respectively for fiscal 1995, an increase in reported sales of
110%. The increase is primarily the result of new contracts obtained by
the Company's subsidiary Assistance Services of America (ASA).
Growth of this program is expected to continue in 1997.
The Company's other business consists of maritime response
services, sales of pharmaceuticals and training services provided to
maritime customers. Revenue from maritime response 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 1996 was $698,296, 14%
lower than revenues reported in 1995.
The customer mix in fiscal year 1996 for unlimited contracts and
timed usage was 84% and 16%, respectively, compared with a product
mix for unlimited and timed of 76% and 24%, respectively, for 1995.
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
response service revenues is consistent with continued decrease in U.S.
government subsidies to the maritime industry plus competition from
other service providers. Management expects maritime response service
revenues to be stable for 1997.
Net pharmaceutical revenue from sales to the Company's
customers, excluding freight, was $126,223 in fiscal year 1996 compared
to $135,709 in fiscal 1995. 1996 pharmaceutical sales of $410,970 were
5% less than the previous year. Cost of pharmaceuticals decreased by
4% in 1996 as compared to the previous year. The decrease in revenues
is a result of new market competition for pharmaceutical sales to a major
client. Fiscal year 1996 fourth quarter results indicate that pharmaceutical
sales have stabilized and have begun to return to the level of the pervious
year.
Profits from net training services were $153,834 in fiscal 1996
compared to $124,520 in 1995, an increase of 24%. This increase
primarily represents the effect of periodic training cycles for several
existing clients. To strengthen service capabilities, the Company is using
more in-house personnel and fewer outside contractors to function as
instructors. This has resulted in some shifting of instructor costs from
"Cost of Training Services" to "Salaries and Wages" on the Company's
Consolidated Statement of Operations.
Profits from the sale of clinic services were stable for fiscal years
1996 and 1995. Clinic revenues were $22,428 in fiscal 1996 compared to
$22,391 for fiscal year 1995,. 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. The Company
anticipates this to be a stable program in fiscal year 1997.
Salaries and wages were $651,498 in fiscal 1996 compared to
$476,051 in fiscal 1995, an increase of 37%. The increase reflects the
addition of staff to support the Company's response center, and
marketing, claims handling, accounting, information technology, and
administrative departments. In conjunction with this the Company's
other selling, general and administrative expenses increased by 26.4% to
$567,726 in fiscal 1996 from $448,943 in fiscal 1995.
Liquidity and Capital Sources.
Cash provided by operations was $344,838 in 1996 as compared
to $324,732 in fiscal 1995. The ratio of current assets to current
liabilities was 1.8 to 1 at the end of fiscal 1996 as compared to 2.0 to 1 at
the end of fiscal 1995. The cash flows from ongoing operations is sufficient
to meet the Company's current and anticipated short-term liabilities. During
1996 capital expenditures of $547,552 were primarily for the construction of a
new 12,000 square foot building on the headquarters' property and the
purchase of computer equipment. To finance this building the Company
received a $500,000 loan at 5% simple interest from SACNAS
International. The Company has pledged common stock as collateral
against the loan (See note D of the accompanying consolidated financial
statements).
Impact of Inflation and Changing Prices.
The Company's costs are comprised primarily of staff salaries and physician
fees. Medical staffing costs increased by $4,447 in fiscal year 1996 due to
an increase in malpractice insurance costs and staff expansion to include
an Assistant Medical Director. Medical staff costs were $326,523 in fiscal
1996 and $322,076 in fiscal 1995. Salaries and wages were $651,498 in
fiscal 1996 and 476,051 in fiscal 1995 an increase of $118,783 in fiscal
year 1996. Increases in the number of employees comprise
approximately $71,200 of this increase with increased salaries due to
inflation and a tightening labor market accounting for the remaining
increase of $47,583.
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.
None
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.
Name Positions with Company Age at
January 31,1996
Ronald W. Pickett Chairman of the Board of
Directors, President & Treasurer 49
Thomas M. Hall, M.D. Chief Executive Officer,
President of Assistance Services
of America, Inc.
President of Hall & Associates, P.A.,
Chief Physician of the Company 44
Judith P. Hoyer Director 57
Jean-Paul Babey Director 41
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-six 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, 1994, 1995
and 1996:
SUMMARY COMPENSATION TABLE
Annual Compensation
_______________________________________________________________________________
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
_______________________________________________________________________________
Thomas M. Hall, M.D. 1996 $ 50,000 $ 65,135 (2) $ 87,625 (3)
CEO and 1995 $ 50,000 $ 48,720 (2) $ 98,002 (3)
Chief Physician (1) 1994 $ 49,860 $ 40,568 (2) $ 98,333 (3)
Ronald W. Pickett (4) 1996 $ 50,000 0 $ 7,498 (5)
Chairman of the Board, 1995 $ 50,000 0 $ 9,268 (5)
President and Treasurer 1994 $49,860 0 $ 8,195 (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,
representing 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 (other than the Chief Executive Officer) who
served as an executive officer of the Company at the end of the fiscal
year ended October 31, 1996 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 Percent of Class
Name and Address Owned Beneficially
Thomas M. Hall, M.D. 1,160,300* 30.0%
8050 Southern Maryland Boulevard
Owings, MD 20736
Ronald W. Pickett 666,407 17.2%
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 1,160,300* 30.0%
8050 Southern Maryland Blvd.
Owings, Maryland 20736
Ronald W. Pickett 666,407 17.2%
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 2,142,085* 55.4%
as a group (4 individuals)
* 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
International, 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 any extra physicians for 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 predecessor 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 shareholder 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. Prior to being elected
CEO, Dr. Hall served as Chief Physician of the Company, and he
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 services. 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 .
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 1996 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.
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 N.A.
of incorporation dated Sept. 8, 1988,
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 N.A.
3(b) to Registration Statement on Form S-18
(No. 2-98314) on June 7, 1985*
4 Form of Common Stock Certificate, filed N.A.
as Exhibit 4 to Amendment No. 1 to
registration Statement on Form S-18
(No.33-02991) on February 28, 1986*
10(a) Letter dated December 2, 1988 evidencing N.A.
agreement between Medical Advisory Systems,
Inc. and Hall and Associates, P.A. with respect
to provision of medical services to Customers
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 N.A.
between 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.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
OCTOBER 31, 1996
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, 1996 F-4
Consolidated Statements of Earnings for the two years
in the period ended October 31, 1996 F-6
Consolidated Statements of Stockholders' Equity for
the two years in the period ended October 31, 1996 F-7
Consolidated Statements of Cash Flows for the two
years in the period ended October 31, 1996 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, 1996
and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the two years in the period ended October 31, 1996.
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 audits.
We conducted our audits in accordance with generally accepted
auditing standard. 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 our audits provide 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,
1996, and the consolidated results of their operations and their
consolidated cash flows for each of the two years in the period ended
October 31, 1996, in conformity with generally accepted accounting
principles.
/S/ Stefanou & Company, LLP
STEFANOU & COMPANY, LLP
Certified Public Accountants
McLean, Virginia
January 12, 1997
F-3
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 717,678
Accounts receivable, less allowance for doubtful
receivable of $ 24,900 842,439
Inventory, at lower of cost or market 20,133
Current deferred tax asset (Note F) 24,862
Prepaid expenses 544
_________
Total current assets 1,605,656
PROPERTY AND EQUIPMENT-AT COST:
(Notes A and C)
Land 65,078
Building and improvements 724,181
Furniture, fixtures and equipment 480,999
_________
1,270,258
Less accumulated depreciation 488,429
_________
781,829
OTHER ASSETS:
Investments (Note B) 364,969
Deferred income taxes (Notes A and F) 306,167
_________
671,136
_________
$ 3,058,621
=========
See accompanying notes to consolidated financial statements
F-4
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1996
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt (Note C) $ 25,392
Accounts payable and accrued expenses 607,728
Deferred income 241,797
Total current liabilities
874,917
LONG-TERM DEBT, less current maturities (Note C) 616,149
JOINT VENTURER'S INTEREST (Note A) 24,508
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value, $ 1.75 per share;
authorized, 1,000,000 shares; none issued
Common stock, par value, $ .005 per share; authorized,
10,000,000 shares; issued 3, 882,873 shares (Note E) 19,415
Additional paid-in-capital 3,824,778
Accumulated deficit (2,257,563)
_________
1,586,630
_________
Less 65,940 shares of common stock held in treasury-at cost ( 43,583)
_________
1,543,047
_________
3,058,621
=========
See accompanying notes to consolidated financial statements
F-5
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED OCTOBER 31,
Revenues: 1996 1995
Maritime response services $ 698,296 $ 818,528
Assistance service 813,564 387,277
Pharmaceutical sales 410,970 432,433
Clinic systems 52,202 49,841
Training 189,797 162,717
Other 51,392 74,567
Interest 35,896 27,699
_________ _________
2,252,117 1,953,062
Cost and expenses
Pharmaceuticals 284,748 296,724
Medical professional services 316,302 303,074
Clinic system 29,774 27,450
Training 35,963 38,197
Salaries and wages 651,498 476,051
Selling, general and administrative 567,726 448,943
Depreciation 35,579 48,416
Interest 15,530 21,853
_________ _________
1,937,120 1,660,708
Operating income before
write down of investment 314,997 292,354
Write-down of investment (62,500) -
_________ _________
Operating income 252,497 292,354
Income tax benefit (expense) (Notes A and F) (15,294) (11,053)
_________ _________
Earnings before joint Venturer's interest 237,203 281,301
Joint Venturer's interest - (13,158)
_________ _________
NET EARNINGS $ 237,203 $ 268,143
========= =========
Earnings per common share (Note J): $ .06 $ .07
========= =========
See accompanying notes to consolidated financial statements
F-6
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996 AND 1995
Common Stock Additional Accumulated Treasury Stock
Shares Amount Paid-in Deficit Shares Amount Total
-Capital
Balance at
11/1/94 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
10/31/95 3,882,873 19,415 3,824,778 (2,494,766) 65,940 (43,583) 1,305,844
Net earnings - - - 237,203 - - 237,203
_________ _______ __________ ___________ _______ _________ __________
Balance at
10/31/96 3,882,873 $19,415 $3,824,778 $(2,257,563) 65,940 $(43,583) 1,543,047
========= ======= ========== ============ ====== ========= =========
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 1996 1995
Cash flows from operating activities
Net earnings for the year $ 237,203 $ 268,143
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Deferred income taxes 15,294 (11,053)
Equity interest in Joint Venture (income)
losses - (13,158)
Depreciation 35,597 48,417
(Increase) decrease in:
Accounts receivable (411,965) 5,992
Prepaid expenses and other (544) 8,108
Inventory 3,162 23,295
Increase (decrease) in:
Accounts payable and accrued
expenses 303,983 3,155
Deferred income 162,108 (8,167)
_______ _______
Net cash provided by operating activities 344,838 324,732
Cash flows used in investing activities:
Capital expenditures (547,552) (47,867)
(Purchase) write-down ofinvestment securities 62,500 (100,000)
_______ _______
Net cash used in investing activities (485,052) (147,867)
See accompanying notes to consolidated financial statements
F-8
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31,
(continued)
1996 1995
Cash flows used in financing activities:
Proceeds from loans 500,000 -
Repayments of loans to banks and related parties (44,876) (54,765)
_______ ______
Net cash, provided (used) in financing activities 455,124 (54,765)
_______ ______
Net (decrease) increase in cash and equivalents 314,910 122,100
Cash and equivalents at beginning of year
402,768 280,668
_______ ______
Cash and equivalents at end of year $ 717,678 $ 402,768
======= =======
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Interest $ 15,530 $ 21,853
======= =======
See accompanying notes to consolidated financial statements
F-9
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
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
1996 consolidated balance sheet and the consolidated statements of
earnings represents the other joint venturer's share (50%) of ASA's
equity and 1996 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 multi-national corporations, health maintenance
organizations, and insurance companies in Canada and the United
States. MAS Laboratories is currently inactive.
Inventories
Inventories are stated at the lower of cost or market determined by the
first-in, first-out (FIFO) method. Inventories consist of pharmaceuticals
available for sale to contract clients.
F-10
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
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 Statements 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 Statements 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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly actual results could differ from those estimates.
F-11
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
NOTE B-INVESTMENTS
Investments, at original cost, are comprised of the following as of
October 31, 1996:
U.S. Government Obligations (market value of $ 298,679) $ 327,469
100,000 shares of Waste Masters, Inc. (formerly F&E Resource
Systems Technology, Inc.) restricted common stock
(market value of $ 37,500) 37,500
_______
$ 364,969
=======
The investments are U.S. Government obligations classified as
noncurrent assets and are stated at cost as it is management's intention to
hold the securities.
At October 31, 1996, the Company wrote down to fair market value its
investment in Waste Masters, Inc. Common Stock. The write-down
amounted to $ 62,500 and was due to a decline in fair value considered
to be other than temporary. The Company's President and Chairman of
the Board was a member of the Board of Directors of Wastemasters,
Inc.
NOTE C-LONG-TERM DEBT
Long-term debt at October 31, 1996 consists of the following:
Bank loan payable in monthly installments of $ 3,200,
including interest at 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 2,592
Mortgage loan payable in monthly installments of $ 1,235,
including interest at 9% per annum, secured by first deed of
trust on Company's Building and Landlord 138,949
Note Payable to SACNAS International including
interest at 5% per annum; unsecured 500,000
_______
641,541
Less current portion 25,392
_______
$ 616,149
=======
F-12
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
NOTE C-LONG-TERM DEBT-CONTINUED
Aggregate maturities of long-term debt as of October 31, 1996 are as follows:
Year Amount
1997 $ 25,392
1998 502,300
1999 2,500
2000 2,700
2001 and after 108,649
_______
$ 641,541
=======
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 1996 and 1995, the Company
paid Hall & Associates, P.A. $ 326,523 and $322,076, respectively, in
fees and professional liability insurance premium payments made on
Hall & Associates, P.A.'s behalf.
During fiscal years 1996 and 1995, Thomas M. Hall, M.D., received $ 65,135
and $ 48, 720, respectively, representing a percentage of the
Company's gross sales of certain travel-related medical services.
The Company entered into a cooperative venture with SACNAS
International (trade name- Mondial Assistance) through ASA, the
Company's 50% owned joint venture. Additionally, as a result of its
affiliation with SACNAS International (which is also a shareholder in the
Company), the Company derived net revenues of $ 128,000 and $
225,000 during 1996 and 1995, respectively, exclusive of the joint
venture activities. At October 31, 1996, the net accounts receivable
from various Mondial centers were approximately $ 25,800.
During 1996 the Company began construction of a new 12,000 square
foot office building. The Company entered into an agreement with a
contractor whose owners are related to the Company's President and
Chairman of the Board to develop and construct the building. The
amount of the contract, together with approved change orders is $
497,908. As of October 31, 1996 the Company has paid $ 413,744 to
the Contractor.
During 1996, SACNAS International, a significant Company
shareholder, lent $500,000 to the Company in the form of an unsecured
loan (see Note C). The note together with accrued interest at 5% per
annum, is due in 1998. If the Company does not repay the loan and
accrued interest at maturity, SACNAS International has the right to
convert the loan principal and interest to the company's common stock
at the rate of two (2) shares of the Company's common stock for every $
1 of loan principal and interest not repaid.
F-13
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
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 30,000 options to a key employee, 10,000 of
which are exercisable at $.50 per share through February 28, 1998,
10,000 exercisable at $.50 per share through February 28, 1999 and
10,000 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 was exercisable
in whole or in part commencing April 16, 1991 and expired six months
after the note was 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
agreements. The noteholder was paid in full during 1996 and elected
not to acquire any shares of MAS common stock pursuant to the
detachable warrant.
F-14
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
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
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the defferences 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, 1996 are as
follows:
Current
Deferred income $ 6,282
Allowance for doubtful accounts 18,580
______
Current deferred tax asset 24,862
Noncurrent
Net operating loss carryforwards 741,634
Other 663
Noncurrent deferred tax asset 742,297
Valuation allowance 436,130
_______
306,167
_______
Net deferred tax asset $ 331,029
=======
F-15
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
NOTE F-INCOME TAXES CONTINUED
Deferred tax components are included in the following balance sheet captions:
Current assets $ 24,862
Deferred income taxes 306,167
_______
$ 331,029
=======
Deferred income taxes (asset) were decreased in 1996 by $15,294 and in 1995 by
$11,083.
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 $ 331,000 over the next five years.
In 1996 and 1995, MAS utilized approximately $ 237,000 and $
272,000, of operating loss carryforwards on its tax return. For tax
reporting purposes, unused net operating losses approximate
$2,106,000, which expire as follows:
Year Amount
1998 247,000
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 $ 2,106,000
=========
F-16
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
NOTE F-INCOME TAXES-CONTINUED
The deferred tax asset related to the carryforward is approximately $ 742,000.
Approximately $436,000 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 $ 463,423 or 21% of sales for the
year ended October 31, 1996. Revenue from two major customers approximated
$685,000 or 35% of sales for the year ended October 31, 1995.
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
contribution in 1996 and 1995 were $ 2,491 and $898, respectively.
F-17
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
NOTE J - NET INCOME PER SHARE
Earnings per common share for the years ended October 31, 1996 and
1995 are based upon 3,816,933 shares representing the weighted average
number of shares outstanding. Stock options and warrants have not
been included as they would not materially affect share amounts.
F-18
EXHIBITS
EXHIBIT INDEX
Number Description of Exhibit Page
(11) Computation of Earnings per Common
and Common Share Equivalents E-1
MEDICAL ADVISORY SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARES
For the years ended October 31, 1996 and 1995
1996 1995
Shares outstanding at beginning of period 3,816,933 3,816,933
Weighted average of common shares issued
during the period - -
_________ _________
Weighted average of common shares
outstanding during the period 3,816,933 3,816,933
Stock options and warrants outstanding-not
included as they have no dilutive effect - -
Shares used in computing earnings per
common share 3,816,933 3,816,933
Earnings per common share ($ 237,203 / 3,816,933) $ .06
=========
Earnings per common share ($ 268,143 / 3,816,933) $ .07
=========
E-1
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1996
<PERIOD-START> Nov-01-1995
<PERIOD-END> Oct-31-1996
<CASH> 309426
<SECURITIES> 408253
<RECEIVABLES> 867339
<ALLOWANCES> 24900
<INVENTORY> 20133
<CURRENT-ASSETS> 1605656
<PP&E> 1270258
<DEPRECIATION> 488429
<TOTAL-ASSETS> 3058621
<CURRENT-LIABILITIES> 874917
<BONDS> 0
<COMMON> 19415
0
0
<OTHER-SE> 1567215
<TOTAL-LIABILITY-AND-EQUITY> 3058621
<SALES> 2216221
<TOTAL-REVENUES> 2252117
<CGS> 284748
<TOTAL-COSTS> 284748
<OTHER-EXPENSES> 2014914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 252497
<INCOME-TAX> 15294
<INCOME-CONTINUING> 299703
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237203
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
