SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 31, 1998 Commission File No. 2-98314-W
MEDICAL ADVISORY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1233960
(State of other Jurisdiction of (I.R.S. Employer Identification No.)
incorporated or organization)
8050 Southern Maryland Boulevard, Owings, Maryland 20736
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 855-8070
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
3,885,878 shares of Common Stock ($0.005 par value per share)
outstanding at January 31, 1998
INDEX
MEDICAL ADVISORY SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Balance Sheet - July 31, 1998 and October 31, 1997
Statement of Operations - Nine months ended July 31, 1998 and 1997
Statement of Cash Flow - Nine months ended July 31, 1998 and 1997
Notes of Condensed Financial Statements: July 31, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults from Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Reports on Form 8-K and Exhibits.
SIGNATURES
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
July 31 October 31
1998 1997
-----------------------------
UNAUDITED
(NOTE-A)
ASSETS
CURRENT ASSETS
Cash $ 927,013 $ 729,609
Receivables, net 522,970 1,044,612
Inventory - Pharmaceuticals 23,262 22,205
Prepaid expenses and other 9,100 14,012
Current deferred tax asset 41,830 41,830
----------- -----------
TOTAL CURRENT ASSETS 1,524,175 1,852,268
PROPERTY AND EQUIPMENT, NET 1,018,536 966,537
OTHER ASSETS
Investments 393,100 364,969
Deferred assets 346,860 346,860
TOTAL OTHER ASSETS 739,960 711,829
----------- -----------
TOTAL ASSETS $ 3,282,671 $ 3,530,634
=========== ===========
The accompanying notes are an integral part of these financial statements
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET - CONTINUED
July 31 October 31
1998 1997
-----------------------------
UNAUDITED
(NOTE-A)
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current Maturities LT Debt $ 2,089 $ 501,903
Accounts payable & accrued expenses 313,717 600,314
Deferred income 332,800 367,172
----------- -----------
TOTAL CURRENT LIABILITIES 648,606 1,469,389
Long-term liabilities to Banks and Others 504,809 131,819
----------- -----------
TOTAL LIABILITIES $ 1,153,415 $ 1,601,208
----------- -----------
JOINT VENTURER'S INTEREST 31,080 28,476
SHAREHOLDER'S EQUITY
Common Stock, $0.005 per value -
Authorized: 10,000,000 shares
Issued: 3,885,878 shares 19,430 19,415
Convertible Preferred Stock, $1.75 par value
Authorized: 1,000,000 shares
Issued: none
Additional capital 3,824,763 3,824,778
Accumulated deficit (1,702,434) (1,899,660)
Treasury Stock at Cost - 65,940 (43,583) (43,583)
----------- -----------
NET SHAREHOLDERS EQUITY $ 2,098,176 $ 1,900,950
----------- -----------
TOTAL LIABILITIES AND EQUITY $ 3,282,671 $ 3,530,634
=========== ===========
The accompanying notes are an integral part of these financial statements.
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Nine Months
Ended July 31 Ended July 31
1998 1997 1998 1997
---------------------- ----------------------
Revenues:
Maritime Program Services $ 204,790 $ 196,577 $ 598,021 $ 568,594
Assistance Services 246,993 287,064 789,807 799,430
Pharmaceutical Sales 120,921 145,839 375,823 339,211
Training Services 18,435 48,300 83,259 130,752
Med. Clinic Program 2,190 2,190
Option Revenue 66,149 132,299
Other Income 62,532
Interest Income 13,044 11,562 45,624 33,214
---------------------- --------------------
Total Revenue 672,522 689,342 2,089,555 1,871,201
---------------------- --------------------
Cost and Expenses:
Pharmaceutical Cost of Good $ 53,196 $ 78,177 $ 190,827 $ 171,190
Medical Professional Services 73,380 73,849 233,891 235,349
Cost of Med. Clinic Services 7,904 7,904
Cost of Training Services 6,590 11,322 19,472 27,145
Salaries and Wages 246,359 181,393 726,052 568,594
Other selling, general and
Administrative expenses 256,575 176,112 660,190 525,833
Depreciation and Amortization 25,405 16,294 74,216 44,340
Interest expense (income) net 3,232 10,204 13,803 22,904
---------------------- --------------------
Total costs and expenses 672,641 547,351 1,926,355 1,595,355
Profit (loss) before joint
venturer's interest (119) 141,991 163,200 275,846
Joint venturer's interest 34,890 (30,903) 34,025 (78,210)
Net Profit $ 34,771 $ 111,088 $ 197,225 $ 197,636
======================== ======================
Earnings per share $0.01 $0.03 $0.05 $0.05
Outstanding shares used to
calculate earnings per share 3,885,878 3,885,878 3,885,878 3,885,878
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended July 31
1998 1997
-------------------------
Cash flows from operating activities:
Net earnings from period $ 197,225 $ 197,636
Adjustment to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 74,216 44,340
Equity interest in joint venture income (losses) (34,025) 78,210
(Increase) decrease in:
Accounts Receivable 521,642 (189,266)
Inventory - Pharmaceuticals (1,057) (2,373)
Prepaid expenses and other 4,912 (23,906)
Increase (decrease) in:
Accounts payable and accrued expenses (286,599) (72,604)
Deferred income (34,372) 106,721
Net cash provided by (used for)
operating activities $ 441,942 $ 138,758
Cash flows from investing activities:
Purchase of Invesment Securities 8,499
Capital Expenditures (126,213) (224,037)
------------------------
Net cash provided by (used in)
investing activities (117,714) (224,037)
Cash Flows from financing activities
Repayment of loans to banks and
related parties (126,824) (7,538)
------------------------
Net cash provided by (used in) financing activities (126,824) (7,538)
Net increase (decrease) in cash 197,404 (92,817)
Cash at beginning of period 729,609 717,678
------------------------
Cash at end of the period $ 927,013 $ 624,861
========================
MEDICAL ADVISORY SYSTEMS, INC.
NOTES OF CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - Summary of Accounting Policies
The accompanying unaudited condensed financial statements
have been prepared in accordance with the instructions to form
10-QSB, and therefore, do not include all information necessary
for a fair presentation of financial position, results of operations
and cash flows in conformity with generally accepted
accounting principles.
In the opinion of management, all adjustments (consisting of
only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine
month period ended July 31, 1998 are not necessarily indicative
of the results that may be expected for the year ended October
31, 1998. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended
October 31, 1997.
MEDICAL ADVISORY SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Total revenues for the Company were $2,089,555 for the first nine
months of FY 1998 compared to $1,871,201 for the same period in FY
1997, an increase of 11.6%. Total General and Administrative expenses
increased from $1,161,671 for the first nine months of FY 1997 to
$1,474,261 for the same period in 1998. The Company's consolidated net
income for the first nine months remained unchanged when compared to
the same period of FY 1997. Increases in revenue are primarily due to
Option Revenue of $132,299 recognized in FY 1998 (see "Subsidiary
Option and Restructuring Agreement" below) and gains recognized on the
sale of the Company's stock in Wastemasters, Inc., which had previously
been written down in F.Y.1996.
The Company had $789,807 in revenues from sales of assistance
services during the first nine months of FY 1998, a 1.2% decrease
compared to $799,430 reported for the same period in FY 1997.
Revenues from maritime program services were $598,021 for the
first nine months of FY 1998 compared to $568,594 for the same period in
FY 1997, a 5.2% increase. This increase is the result of the stabilization in
the size of the U.S. merchant marine fleet along with expanded marketing
efforts.
Revenues from pharmaceutical sales were $375,823 for the
first nine months of FY 1998 compared to revenues of $339,211 for
the same period of FY 1997 an increase of 10.8%. The increase is
attributed to the offering of an expanded product line resulting in an
increased client base, as well as a cyclical upturn in purchasing by
existing clients.
The Company's training programs provided revenues of $83,259
for the first nine months of FY 1998, compared to training revenues of
$130,752 in the first nine months of FY 1997 a decrease of 36.3%. The
completion of a multi year training program for a major client during the
beginning of this fiscal year has resulted in the loss of revenues during the
nine month period. During the first nine months of FY 1998 many of the
Company's clients delayed enrollment in training sessions due to the
introduction of new International Maritime Organization (IMO) training
standards. The Company has modified its training program to incorporate
the new standards and received US Coast Guard approval of its new
curriculum in July of 1998.
During the quarter the Company opened an outpatient medical
clinic at its headquarters building in Owings, MD.
Subsidiary Option and Restructuring Agreement
During the first quarter of FY 1998, the Company entered
into an agreement with SACNAS International (SACNAS), the
50% shareholder of ASA. The agreement grants SACNAS an
option to purchase 100% of the Company's shares in ASA for
$2,000,000 during the period January 1, 1998 through December
31, 1999. At the time SACNAS exercises its option, SACNAS
shall tender to the Company the 305,378 shares of the Company
shares that SACNAS owns. The Company's shares shall be sold by
SACNAS to the Company for $122,151 and the proceeds shall be
used to offset the $2,000,000 purchase of the Company's ASA
shares. The Company has the option to retain 8% of total ASA
shares while allowing SACNAS to retain their 305,378 Company
shares. If the Company exercises this option, the SACNAS option
to purchase the remaining ASA shares shall be reduced to
$1,680,000.
Provided SACNAS has not exercised the option agreement,
beginning January 1, 1998, and at the end of each quarter,
SACNAS shall forgive 12.5%, or $62,500, of the $500,000
unsecured loan to the Company along with interest accrued to that
date. Any principal loan amount forgiven shall be credited to the
option price.
If SACNAS does not elect to exercise the option agreement during
the term provided, the remaining principal balance of the $500,000 loan not
forgiven plus any accrued interest, shall be forgiven in its entirety. During
the quarter the Company wrote down 1/8th of the outstanding $500,000
loan and accumulated interest.
The Company is continuing to consolidate ASA financial results
during the option period.
MEDICAL ADVISORY SYSTEMS, INC.
PART II - OTHER INFORMATION
Item I. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults from Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None
(b) Reports on Form 8-K. None
MEDICAL ADVISORY SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, and
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDICAL ADVISORY SYSTEMS, INC.
(Registrant)
Date: September 14, 1998 ___________________________________
Thomas M. Hall, M.D. M.I.M.
Chief Executive Officer
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