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, 1997
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. [ ? ]
State issuer's revenues for its most recent fiscal year:
$2,646,289 for the fiscal year ending October 31, 1997.
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):
$816,987 based on stock sale price on February 13, 1998.
3,816,933 Shares of Common Stock ($ 0.005 par value per share) were
outstanding at January 31, 1998.
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 services
and;
o 24-hour-a-day call center services and assistance to Health
Maintenance Organizations (HMO's), multi-national corporations and the
international travel industry, and;
o customized pharmaceutical and medical supply kits which are
sold to the maritime and aviation industries.
The Company provides services from its 24 hour-a-day
call center located in Owings, Maryland. The Company utilizes an agent in
Hong Kong to maintain relations with customers. The Company
participates in a world-wide network of 24-hour call centers in 24 countries
and utilizes other centers in the network to provide certain services outside
the U.S.
a. History.
The Company began operations at the beginning of 1982
to take advantage of the privatization opportunity created by the U.S.
Government's decision to dismantle the U.S. Public Health Hospital and
Clinic System, thereby disenfranchising U.S. seafarers of free health care.
Revenues during the initial years only partially covered substantial losses
incurred first to establish and then to enhance the Company's operational
medical advice system. The Company has now operated at a profit for 8
consecutive years.
Key to acceptance of the Company's medical advice
services has been the Company's 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. Unnecessary diversions are made when 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
proved that by eliminating just one unnecessary diversion in ten years, its
customers benefited from the Company's services, since the cost of such a
diversion exceeded the fee which the Company charged for a ship during
the period. The Company succeeded in the maritime industry by identifying
and fulfilling a real need at a cost that paid for itself.
During fiscal year 1993, the company entered into an
agreement with SACNAS International of Paris, France to market services
under the 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
HMO's, 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 and to
SACNAS International for cases outside North America. SACNAS
International approached the Company in 1997 with a proposed
restructuring of ASA to capitalize on the strengths of SACNAS and MAS.
MAS granted SACNAS an option to acquire control of ASA in exchange
for cash and fees to service ASA customers. SACNAS agreed to fund and
coordinate all marketing activity for a now well-identified U.S. market (see
Item 1 h. "Subsequent Event").
b. Segments.
Revenues from the Company's medical assistance services can be
broken down as follows:
Percent of Revenues
Years Ended October 31, 1997 and October 31, 1996
1997 1996
Maritime Response Services 29% 33%
Pharmaceutical Sales 19% 18%
Assistance 42% 37%
Training 6% 8%
Clinic Services 1% 2%
Other/Ancillary Services 3% 2%
____ ____
100% 100%
Maritime Response Services.
A staff of physicians and communication specialists
operate out of the Company's newly constructed, state-of-the-art call 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. All
assistance is provided exclusively through telecommunications systems
utilizing telephones, satellite, high frequency radio, fax 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 staff physicians.
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
communication costs. 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
pharmaceutical 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. 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 North America. 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 and to
SACNAS International for cases outside North America. SACNAS
International approached the Company in 1997 with a proposed
restructuring of ASA to capitalize on the strengths of SACNAS and MAS.
MAS granted SACNAS an option to acquire control of ASA in exchange
for cash and fees to service ASA customers. SACNAS has agreed to fund
ASA exclusively and coordinate all marketing activity for a now well
identified U.S. market (see Item 1 h. "Subsequent Event").
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 / satellite / telephone
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.
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.
c. Markets.
Historically, the primary markets for the Company's
products and services have been 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 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 also provides services to 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 effort to sell to this market is enhanced by the effort
made to sell to the second market segment as most of the 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 large in number, the ships comprising the second and
third market segments historically are infrequent users of the service. This,
coupled with relatively high marketing costs led the Company into other
markets such as assistance, in which its response capabilities can be
marketed at higher margins.
Assistance
The assistance industry was founded and developed in Europe
during the 1960's and 1970's. Due to the close proximity of borders and the
variety of languages, 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 North American assistance market
to be in excess of one billion dollars.
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 policyholders 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.
d. 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 a few U.S. companies 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. The Company has
elected to rely upon its French partner, SACNAS International, which
operates similar services in 24 countries to lead in the development of this
market. The Company's strength rests in its ability to provide cost effective
quality assistance services.
e. 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 direct medical licenses, but
utilizes the services of licensed physicians.
f. Insurance.
The Company maintains liability insurance for its opera-
tions. Physician personnel are provided through Hall & Associates, P.A.
which is covered by a comprehensive professional liability insurance policy.
g. 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 annual 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 31 people (19 in management and
administration, and 12 communications coordinators) 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.
h. Subsequent Event
Subsequent to the date of the financial statements, the
Company entered into an agreement with SACNAS International
(SACNAS), the Company's 50-50 partner in ASA. The agreement grants
SACNAS the option to purchase the Company's shares of ASA (50% of
total ASA shares) for $2,000,000 at anytime during the period January 1,
1998 through December 31, 1999. At the time SACNAS exercises its
option, SACNAS is required to tender the 305,378 shares of the
Company owned by SACNAS. These shares would then be repurchased
by the Company for the set price of $122,151.20, resulting in net
proceeds to the Company of $1,877,840.80 and a reduction in
outstanding shares by 305,378.
When SACNAS exercises its option the Company, in
its sole discretion, may elect to retain 8% of total ASA shares while
allowing SACNAS to retain its 305,378 shares of the Company (approximately
8% of the Company). If the Company makes this election, the SACNAS purchase
of the remaining ASA shares owned by the Company (42% of total ASA shares)
would result in net proceeds of $1,680,000 to the Company.
In return for the Company granting the option,
SACNAS has agreed to forgive the outstanding loan of $500,000 owed
by the Company. The Company may write off 1/8 of the loan at the end
of each quarter over the two-year option period. The option price for the
Company's shares of ASA is reduced by an amount equal to the write-off,
so that the total option cost to SACNAS does not increase if SACNAS
exercises its option. If SACNAS does not exercise its option, SACNAS
and the Company remain 50-50 partners in ASA and the $500,000 loan is
forgiven in full.
During the option period, the Company retains 2 of the
4 seats on the ASA board of directors and maintains fiscal oversight of
ASA. The Company continues to receive case fees and management fees
from ASA; such fees totaled $449,750 in FY1997. The agreement
requires SACNAS to fund any ASA capital requirements during the
option period in the form of 5-year loans that are non-recourse to the
Company.
The Company intends to continue to consolidate ASA
financial results during the option period.
Item 2. Description of Property.
The headquarters of the Company consists of a newly
constructed 12,000 square foot custom designed call center and
administrative office plus two original buildings containing
approximately 5,000 square feet, located on 1.44 acres of commercial
land in Owings, Maryland, approximately twenty miles from Washington,
D.C. The Company enjoys approval to construct approximately 6,000
additional square feet of office space at the headquarters site, when and if
needed, without additional site improvements. The Company's call
center is staffed 24-hours-a-day. The property is owned by the Company
and is secured by a mortgage of only $133,723. To finance the newly
constructed call center the Company received a $500,000 loan at 5%
simple interest from SACNAS International, which SACNAS has agreed
to forgive as part of the consideration for its option to purchase an
increased equity interest in ASA from the Company (see Item 1 h.
"Subsequent Event").
The medical call center is staffed by physicians, a Medical
Director, multi-lingual communications coordinators, call center manager,
and an experienced support staff. The center is equipped with a bank of
commercial telephone lines, inbound WATS lines, telex, fax,
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 call 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 re-election.
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 1,9347,207 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.
Judith P. Hoyer deceased in 1997 and the Board seat remains vacant.
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 on the "Bulletin Board" in the over-the-counter
market, and there were 271 shareholders of record on January 31, 1998.
The high and low bid prices for the Common Stock have been:
Bid
High Low
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
November 1, 1996 to January 31, 1997 1/4 1/4
February 1, 1997 to April 30, 1997 1/4 1/4
May 1, 1997 to July 31, 1997 1/4 1/4
August 1, 1997 to October 31, 1997 1/4 1/4
On January 31, 1998, the Common Stock was quoted by its primary market
maker at $ 1/4 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..
Item 6. Management's Discussion and Analysis of Financial Condition.
Results of Operation.
The Company's consolidated net income for fiscal year 1997 was
$357,903 ($.09 per share), compared to $237,203 ($.06 per share) for 1996,
an increase of 50.9%. The increase of $120,700 is primarily the result of
increased revenues from several programs and recognition of tax benefits
from operating loss carry forwards. FY 1997 represents the eighth
consecutive profitable year for the Company.
The Company reported sales of $1,101,096 and net revenue of
$1,005,801 from assistance services in fiscal 1997, compared to $813,564
and $742,101 respectively for fiscal 1996, an increase in reported sales of
35%. The increase is primarily the result of growth of ongoing contracts
held by the Company's subsidiary Assistance Services of America (ASA).
Growth in the number of contracts for this program is expected to continue
in 1998. In accordance with the terms of a recent agreement (see Item 1 h.
"Subsequent Event"), the Company and its partner SACNAS have
restructured ASA to capitalize on each of the partners' respective strengths.
SACNAS will now be funding 100% of the growth capital and marketing
expertise required to pursue the vast American assistance market, allowing
the Company to focus on providing its consistently high quality assistance
services.
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. Total revenue from
contracts from medical advice to ships at sea during fiscal 1997 was
$756,246 as compared to revenues of $698,296 reported in fiscal 1996.
Net pharmaceutical revenue from sales to the Company's
customers, excluding freight, was $155,777 in fiscal year 1997 compared to
$126,223 in fiscal 1996 an increase of 24%. 1997 pharmaceutical sales of
$491,637 represent an increase of 20% when compared to the previous
year's sales of $410,970. These increases are attributed to the development
of new products resulting in an increased client base, as well as increased
marketing efforts
Profits from training services were $123,868 in fiscal 1997
compared to $153,834 in 1996, a decrease of 19%. This decrease primarily
represents the effect of periodic training cycles for several existing clients.
Salaries and wages were $759,332 in fiscal 1997 compared to
$651,498 in fiscal 1996, an increase of 37%. The increase reflects the
addition of staff to support the Company's call 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 33.8% to $759,402 in fiscal 1997
from $567,726 in fiscal 1996.
Management has assessed its strengths and decided to focus on
continued high quality assistance services to the maritime, North American
assistance, and international travel assistance industries. The financial
condition of the Company has been greatly strengthened by its revised
relationship with SACNAS, its ASA partner in the development of the now
well-defined U.S. assistance market. SACNAS's commitment to fund
100% of market development expenses, while simultaneously forgiving
over $500,000 of debt owed by the Company (see Item 1 h. "Subsequent
Event") has freed the Company's cash which management was preserving
to retire this loan, or use for assistance marketing development expenses.
Management is now committed to the development of new business lines
complimentary with the Company's strengths and compatible with its
financial resources. The Company will be undertaking to develop direct
patient care and additional clinical services at the Company's headquarter
site to enhance both the physician staff and Company profits. The
Company is also pursuing new customer and program development to take
advantage of its 24-hour call center expertise.
Liquidity and Capital Sources.
Cash provided by operations was $281,244 in 1997 as compared
to $344,838 in fiscal 1996. The ratio of current assets to current
liabilities was 1.3 to 1 at the end of fiscal 1997, with the current
liabilities including the $500,000 SACNAS loan discussed below, as compared
to 1.8 to 1 at the end of fiscal 1996. The cash flow 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. SACNAS International has agreed to forgive as part of the
consideration for its option to purchase an increased equity interest in ASA
from the Company (see Item 1 h. "Subsequent Event").
Impact of Inflation and Changing Prices. The Company's
costs are comprised primarily of staff salaries and physician fees. Salaries
and wages were $759,332 in fiscal 1997 and 651,498 in fiscal 1996 an
increase of $107,834. These increases reflect both increases in the number
of employees from the prior year and increases in salaries due to a
tightening labor market. Medical staffing costs increased by $11,399 in
fiscal year 1997 due to an increase in malpractice insurance costs and the
full year effect of the prior year's staff expansion to include an Assistant
Medical Director.
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.
Age at
Name Positions with Company January 31,1998
Ronald W. Pickett Chairman of the Board of 50
Directors & President
Thomas M. Hall, M.D., M.I.M. Chief Executive Officer & Treasurer, 45
President of Assistance Services
of America, Inc.
President of Hall & Associates, P.A.,
Chief Physician of the Company
Jean-Paul Babey Director 42
Ronald W. Pickett is the founder of the Company,
Chairman of the Board of Directors and President. He has been an officer
and director of the Company since its inception in 1981. A graduate of
Gordon College, Mr. Pickett has engaged in various entrepreneurial
activities for 30 years.
Thomas M. Hall, M.D.,M.I.M., 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 Executive Officer of
the Company, Dr. Hall supervises all day-to-day operations. As Chief
Physician, Dr. Hall is in charge of the medical personnel utilized in the
Company's medical advice and training 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 also holds a
Masters degree in International Management from the University of
Maryland.
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, 1996 and 1997:
SUMMARY COMPENSATION TABLE
Annual Compensation
______________________________________________________________________________
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
______________________________________________________________________________
Thomas M. Hall, M.D., M.I.M. 1997 $ 50,000 $ 95,105 (2) $ 85,694 (3)
CEO and 1996 $ 50,000 $ 65,135 (2) $ 87,625 (3)
Chief Physician (1)
Ronald W. Pickett 1997 $50,000 0 0
Chairman of the Board, 1996 $50,000 0 0
President and Treasurer
(1) 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."
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, 1997 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, 1998, 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., M.I.M. 1,167,750 30.6%
8050 Southern Maryland Boulevard
Owings, MD 20736
Ronald W. Pickett 676,407 17.7%
P.O. Box 167
Mechanicsville, MD 20659
SACNAS International 305,378 8.0%
2, rue Fragonard
Paris XVII, France
* Includes immediately exercisable options to purchase 200,000 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, M.D., M.I.M. 1,167,750* 30.6%
8050 Southern Maryland Blvd.
Owings, Maryland 20736
Ronald W. Pickett 676,407 17.7%
P.O. Box 167
Mechanicsville, Maryland 20659
Jean-Paul Babey 305,378** 8.0%
SACNAS International
2, rue Fragonard
Paris XVII, France
All directors and executive officers
as a group (3 individuals) 2,149,535* 56.3%
* Includes immediately exercisable options to purchase 200,000
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. fees in equal
amounts every two-week pay period for personnel provided, plus
reimbursement for professional liability insurance, the direct costs of any
extra physicians for coverage of the call center, training costs and incidental
expenses. 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., M.I.M., 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: /s/ Ronald W. Pickett
Ronald W. Pickett
Chairman of the Board
President
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: /s/ Ronald W. Pickett
Ronald W. Pickett
Chairman of the Board
President
Date: By: /s/ Thomas M. Hall, M.D., M.I.M.
Thomas M. Hall, M.D., M.I.M.
Chief Executive Officer
Treasurer
Director
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
Date: By: /s/ Jean-Paul Babey
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 1997 has not yet been sent to the
Company's stockholders.
2. 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, N.A.
filed as Exhibit 3(a) to Registration
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 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.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
OCTOBER 31, 1997
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, 1997 F-4
Consolidated Statements of Earnings for the two years
in the period ended October 31, 1997 F-6
Consolidated Statements of Stockholders' Equity for
the two years in the period ended October 31, 1997 F-7
Consolidated Statements of Cash Flows for the two
years in the period ended October 31, 1997 F-8
Notes to Consolidated Financial Statements F-9
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, 1997 and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the two years in the period
ended October 31, 1997. 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 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 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, 1997, and the consolidated results of their operations and
their consolidated cash flows for each of the two years in the period
ended October 31, 1997, in conformity with generally accepted
accounting principles.
/s/ STEFANOU & COMPANY, LLP
STEFANOU & COMPANY, LLP
Certified Public Accountants
McLean, Virginia
February 3, 1998
F-3
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 729,609
Accounts receivable, less allowance for doubtful
receivable of $ 43,568 1,044,612
Inventory, at lower of cost or market 22,205
Current deferred tax asset (Note F) 41,830
Prepaid expenses 14,012
_________
Total current assets 1,852,268
PROPERTY AND EQUIPMENT-AT COST:
(Notes A and C)
Land 65,078
Building and improvements 878,756
Furniture, fixtures and equipment 580,339
_________
1,524,173
Less accumulated depreciation 557,636
_________
966,537
OTHER ASSETS:
Investments (Note B) 364,969
Deferred income taxes (Notes A and F) 346,860
_________
$ 3,530,634
=========
See accompanying notes to consolidated financial statements
F-4
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt (Notes C and K) $ 501,903
Accounts payable and accrued expenses 600,314
Deferred income 367,172
_________
Total current liabilities 1,469,389
LONG-TERM DEBT, less current maturities (Note C) 131,819
JOINT VENTURER'S INTEREST (Note A) 28,476
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value, $ 1.75 per share;
1,000,000 shares authorized; none used -
Common stock, par value, $ .005 per share;
10,000,000 shares authorized; 3,882,873
shares issued (Note E and K) 19,415
Additional paid-in-capital 3,824,778
Accumulated deficit (1,899,660)
_________
1,944,533
Less 65,940 shares of common stock held in treasury-at cost ( 43,583)
_________
1,900,950
$ 3,530,634
=========
See accompanying notes to consolidated financial statements
F-5
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED OCTOBER 31,
Revenues: 1997 1996
Maritime response services $ 756,246 $ 698,296
Assistance services 1,101,096 813,564
Pharmaceutical sales 491,637 410,970
Clinic systems 33,736 52,202
Training 153,294 189,797
Other 65,309 51,392
Interest 44,971 35,896
_________ _________
2,646,289 2,252,117
Cost and expenses
Pharmaceuticals 335,860 284,748
Medical professional services 321,260 316,302
Clinic system 20,420 29,774
Training 29,425 35,963
Salaries and wages 759,332 651,498
Selling, general and administrative 759,402 567,726
Depreciation 84,725 35,579
Interest 29,562 15,530
Write-down of investment - 62,500
_________ _________
2,339,986 1,999,620
Operating income 306,303 252,497
Income tax benefit (expense) (Notes A and F) 55,567 (15,294)
Earnings before joint Venturer's interest 361,870 237,203
Joint Venturer's interest (3,967) -
_________ _________
NET EARNINGS $ 357,903 $ 237,203
========= =========
Earnings per common share (Note J): $ .09 $ .06
See accompanying notes to consolidated financial statements
F-6
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1997 AND 1996
Common Stock Additional Accumulated Treasury Stock
Shares Amount Paid-in Deficit Shares Amount Total
Capital
Balance at
Nov.1,1995 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
Oct.31,1996 3,882,873 19,415 3,824,778 (2,257,563)65,940 (43,583) 1,543,047
Net earnings - - - 357,903 - - 357,903
_________ ______ __________ __________ ______ _______ _________
Balance at 3,882,873 $19,415 $3,824,778$ (1,899,660)65,940 $(43,583) 1,900,950
Oct.31,1996
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 1997 1996
Cash flows from operating activities
Net earnings for the year $ 357,903 $ 237,203
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Deferred income taxes (57,661) 15,294
Equity interest in Joint Venture (income)
losses (3,968) -
Depreciation 84,725 35,597
(Increase) decrease in:
Accounts receivable (202,173) (411,965)
Prepaid expenses and other (13,468) (544)
Inventory (2,072) 3,162
Increase (decrease) in:
Accounts payable and accrued
expenses (7,414) 303,983
Deferred income 125,375 162,108
_______ _______
Net cash provided by operating activities 281,247 344,838
Cash flows used in investing activities:
Capital expenditures, net of disposals (261,498) (547,552)
Write-down of investment securities - 62,500
_______ _______
Net cash used in investing activities (261,498) (485,052)
Cash flows used in financing activities:
Proceeds from loans - 500,000
Repayments of loans to banks and related parties (7,818) (44,876)
_______ _______
Net cash, provided (used)in financing activities (7,818) 455,124
_______ _______
Net (decrease) increase in cash and equivalents 11,931 314,910
Cash and equivalents at beginning of year 717,678 402,768
Cash and equivalents at end of year $729,609 $717,678
======= =======
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest $ 16,789 $ 15,530
======= =======
See accompanying notes to consolidated financial statements
F-8
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
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
1997 consolidated balance sheet and the consolidated statements of
earnings represents the other joint venturer's share (50%) of ASA's
equity and results of operations for 1996 and 1997
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-9
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
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-10
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
NOTE B-INVESTMENTS
Investments, at original cost, are comprised of the following as of
October 31, 1997:
U.S. Government Obligations (market value of $ 314,577) $ 327,469
100,000 shares of Waste Masters, Inc. (formerly F&E
Resource Systems Technology, Inc.) common stock
(market value of $ 37,500) 37,500
________
$ 364,969
========
The investments are U.S. Government obligations classified as non-current
assets and are stated at cost as it is management's intention to hold the
securities.
During 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. until September, 1996.
NOTE C-LONG-TERM DEBT
Long-term debt at October 31, 1997 consists of the following:
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 Land 133,722
Note Payable to SACNAS International including
interest at 5% per annum; unsecured (See Note K) 500,000
_______
633,723
Less current portion 501,903
_______
$ 131,819
=======
F-11
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
NOTE C-LONG-TERM DEBT-CONTINUED
Aggregate maturities of long-term debt as of October 31, 1997 are as
follows:
Year Amount
1998 $ 501,903
1999 2,500
2000 2,700
2001 2,900
2002 and after 123,720
_________
$ 633,723
=========
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 1997 and 1996, the
Company paid Hall & Associates, P.A. $ 337,922 and $326,523,
respectively, in fees and professional liability insurance premium
payments made on Hall & Associates, P.A.'s behalf.
During fiscal years 1997 and 1996, Thomas M. Hall, M.D., received
$ 95,104 and $ 65,135, 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 $ 160,177 and
$ 128,000 during 1997 and 1996, respectively, exclusive of the joint
venture activities. At October 31, 1997, the net accounts receivable
from various Mondial centers were approximately $ 215,000.
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 was
$528,176, which management believes approximates the market value
for the services rendered. The Company took occupancy of the
building in February, 1997.
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, was restructured subsequent of the date of the
financial statements (See Note K).
F-12
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
NOTE E-STOCK OPTIONS AND WARRANTS
The Company has issued options to purchase 200,000 shares of its
common stock to its Chief Executive Officer, 100,000 of which are
exercisable at $.50 per share through February, 28 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 40,000 options to a key employee,
10,000 of which are exercisable at $.50 per share through February 28,
1999, 10,000 exercisable at $.50 per share through February 28, 2000,
and 10,000 exercisable at $.50 per share through February 28, 2001,
and 10,000 exercisable at $.50 per share through February 28, 2002.
Subsequent to the date of the financial statements, the Company's
Board of Directors approved a modification to the expiration dates of
the options granted (See note K).
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.
The warrant has expired.
F-13
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
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, 1997 are as
follows:
Current
Deferred income $ 30,290
Allowance for doubtful accounts 11,540
________
Current deferred tax asset 41,830
Noncurrent
Net operating loss carryforwards 721,105
Other 663
________
Noncurrent deferred tax asset 742,297
Valuation allowance 395,431
________
346,866
________
Net deferred tax asset $ 388,696
========
F-14
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
NOTE F-INCOME TAXES CONTINUED
Deferred tax components are included in the following balance sheet
captions:
Current assets $ 41,830
Deferred income taxes 346,866
_________
$ 388,696
=========
Deferred income taxes (asset) were increased in 1997 by $57,567 and
decreased in 1996 by $15,294.
The Company has sustained profitable operations for the past eight
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 $ 388,700 over the next
five years.
In 1997 and 1996, MAS utilized approximately $ 296,000 and $ 237,000, of
operating loss carryforwards on its tax return. For tax reporting
purposes, unused net operating losses approximate $2,066,000, which expire
as follows:
Year Amount
1998 207,000
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 $ 2,066,000
===========
F-15
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
NOTE F-INCOME TAXES-CONTINUED
The deferred tax asset related to the carryforward is approximately $
721,000. Approximately $375,000 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 $ 518,307 or 19.5%
of sales for the year ended October 31, 1997. Revenue from two
major customers approximated $463,423 or 21% of sales for the year
ended October 31, 1996.
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 1997 and 1996 were $ 2,364 and $ 2,491,
respectively.
F-16
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
NOTE J - NET INCOME PER SHARE
Earnings per common share for the years ended October 31, 1997 and
1996 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.
NOTE K - SUBSEQUENT EVENT
Subsequent to the date of the financial statements, 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 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
(See Note C) 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 $500,000 loan
not forgiven plus any accrued interest, shall be forgiven in its entirety.
Subsequent to the date of the financial statements, the Company's
Board of Directors approved a modification to the expiration dates of
stock options granted to the Company's Chief Executive Officer and
key employee (See Note E).
The employee stock options scheduled to expire during the period
SACNAS has an option to purchase 100% of ASA's common stock
(January 1, 1998 through December 31, 1999), have been extended to
60 days after SACNAS exercises its option. If SACNAS does not
exercise its option, the employees' stock options that would have
otherwise expired, will be extended to January 31, 2000.
F-17
EXHIBITS
EXHIBIT INDEX
Number Description of Exhibit Page
(11) Computation of Earnings per Common
and Common Share Equivalents E-1
MEDICAL ADVISORY SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARES
For the years ended October 31, 1997 and 1996
1997 1996
_________ _________
Shares outstanding at beginning of period 3,816,933 3,816,933
Weighted average of common shares issued
during the period - -
_________ _________
Weighted average of common shares
outstanding during the period
3,816,933 3,816,933
Stock options and warrants outstanding-not
included as they have no dilutive effect
- - -
Shares used in computing earnings per
common share 3,816,933 3,816,933
Earnings per common share ($ 357,903 / 3,816,933) $ .09
=========
Earnings per common share ($ 237,203 / 3,816,933 $ .06
=========
E-1
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-START> Nov-01-1996
<PERIOD-END> Oct-31-1997
<CASH> 253050
<SECURITIES> 476458
<RECEIVABLES> 1088180
<ALLOWANCES> 43568
<INVENTORY> 22205
<CURRENT-ASSETS> 1852268
<PP&E> 1524173
<DEPRECIATION> 557636
<TOTAL-ASSETS> 3530634
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<BONDS> 0
<COMMON> 19415
0
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<OTHER-SE> 1929006
<TOTAL-LIABILITY-AND-EQUITY> 3529817
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<TOTAL-REVENUES> 2646289
<CGS> 335860
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<INCOME-PRETAX> 306303
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