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 April 30, 1999 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.
3,554,560 shares of Common Stock ($0.005 par value per share)
outstanding at April 30, 1999
INDEX
MEDICAL ADVISORY SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Balance Sheet - April 30, 1999 and October 31, 1998
Statement of Operations - Three and Six months ended
April 30, 1999 and 1998
Statement of Cash Flow - Six months ended April 30, 1999
and 1998
Notes of Condensed Financial Statements: April 30, 1999
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 Sheets
October 31, April 30,
1998 1999*
- ------------------------------------------------------------------------------
Assets
Current
Cash $ 579,331 $ 1,936,915
Accounts receivable, less allowance
for doubtful accounts of $77,744 and $73,045 907,720 326,618
Inventories 26,745 34,751
Prepaid expenses and other 6,802 6,455
Deferred income taxes 37,015 37,015
----------- -----------
Total current assets 1,557,613 2,341,754
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 1,015,055 1,080,297
Investments 660,000 1,584,045
Deferred investment advisory fees - 568,925
Deferred income taxes 387,739 387,739
----------- -----------
$ 3,620,407 $ 5,962,760
=========== ===========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
* Restated.
Medical Advisory Systems, Inc.
Consolidated Balance Sheets
October 31, April 30,
1998 1999*
- ------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current
Current maturities of long term debt $ 315,617 $ 3,253
Current maturities of capital lease obligations - 6,206
Accounts payable and accrued expenses 437,249 223,502
Deferred income 327,565 100,371
----------- -----------
Total current liabilities 1,080,431 333,332
----------- -----------
Long-term debt 134,069 132,397
Capital lease obligations - 126,594
----------- -----------
Total liabilities 1,214,500 592,323
----------- -----------
Joint venturers's interest (24,706) -
Commitments and Contingencies
Stockholders' Equity
Convertible preferred stock $1,75 par value,
1,000,000 shares authorized: 500,000 shares,
issued and outstanding - 2,706,661
Common stock; $0.005 par value; 10,000,000 shares
authorized; 3,885,878 and 4,232,378 shares issued;
3,819,938 and 3,871,060 shares outstanding 19,430 21,162
Warrants to purchase common stock - 900,306
Additional paid-in capital 3,824,763 3,740,425
Accumulated deficit (1,369,997) (1,838,271)
Treasury stock, at cost (65,940 and
361,318 shares) (43,583) (159,846)
----------- -----------
Total stockholders' equity 2,430,613 5,370,437
----------- -----------
$ 3,620,407 $ 5,962,760
=========== ===========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
* Restated.
Medical Advisory Systems, Inc.
Consolidated Statements of Operations
Three Months Ended April 30, 1998 1999*
- ------------------------------------------------------------------------------
Revenue:
Program Services $ 186,082 $ 244,695
Assistance Services 268,637 250,838
Pharmaceutical Sales 136,876 107,719
Chat Center Revenue - 736,161
Training Services 48,994 13,055
----------- -----------
Total Revenue 640,589 1,352,468
----------- -----------
Operating Expenses:
Program & Assistance Medical Services 88,629 55,657
Pharmaceutical Cost of Goods 81,922 56,580
Chat Center Medical Services - 547,738
Other Chat Center Costs - 29,491
Cost of Training Services 10,529 4,637
Salaries and Wages 246,911 332,006
Other Selling, General and Administrative 228,766 383,773
Depreciation & Amortization 24,406 21,452
----------- -----------
Total Operating Expenses 681,163 1,431,334
----------- -----------
Operating Loss (40,574) (78,866)
Other Income/(Expense):
Option Revenue 66,150 (14,673)
Other Income 62,129 925
Gain on sale of joint venture investment - 62,468
Interest Income 22,085 16,698
Interest Expense (2,375) (67,012)
----------- -----------
Total Other Income/(Expense) 147,989 (1,594)
----------- -----------
Income (loss before earnings (loss) of affiliate
and joint venture and extraordinary item 107,415 (80,460)
Equity in loss of affiliate - (525,000)
Joint venture minority interest 16,065 -
----------- -----------
Income (loss) before extraordinary item 123,480 (605,460)
Extraordinary gain - 264,733
----------- -----------
Net income (loss) $ 123,480 $ (340,727)
=========== ===========
* Restated.
Medical Advisory Systems, Inc.
Consolidated Statements of Operations
Three Months Ended April 30, 1998 1999*
- ------------------------------------------------------------------------------
Basic and diluted earnings $ .03 $ (.10)
(loss) per share
Weighted average shares outstanding 3,885,878 3,556,680
See accompanying summary of accounting policies and notes to
consolidated financial statements.
* Restated.
Medical Advisory Systems, Inc.
Consolidated Statements of Operations
Six Months Ended April 30, 1998 1999*
- ------------------------------------------------------------------------------
Revenue:
Program Services $ 393,231 $ 463,990
Assistance Services 542,814 348,513
Pharmaceutical Sales 254,902 228,553
Chat Center Revenue - 1,552,137
Training Services 64,824 37,742
----------- -----------
Total Revenue 1,255,771 2,630,935
----------- -----------
Operating Expenses:
Program & Assistance Medical Services 166,832 119,455
Pharmaceutical Cost of Goods 137,631 109,599
Chat Center Medical Services - 1,138,272
Other Chat Center Costs - 45,937
Cost of Training Services 12,882 10,586
Salaries and Wages 479,693 619,187
Other Selling, General and Administrative 403,615 624,001
Depreciation & Amortization 48,811 48,196
----------- -----------
Total Operating Expenses 1,249,464 2,715,233
----------- -----------
Operating Loss 6,307 (84,298)
Other Income/(Expense):
Option Revenue 66,150 -
Other Income 62,532 8,620
Gain on sale of joint venture investment - 62,468
Interest Income 32,580 22,241
Interest Expense (10,571) (70,038)
----------- -----------
Total Other Income/(Expense) 150,691 23,291
----------- -----------
Income (loss before earnings (loss) of affiliate
and joint venture and extraordinary item 156,998 (61,007)
Equity in loss of affiliate - (689,199)
Joint venture minority interest (865) -
----------- -----------
Income (loss) before extraordinary item 156,133 (750,206)
Extraordinary gain - 330,882
----------- -----------
Net income (loss) $ 156,133 $ (419,324)
=========== ===========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
* Restate
Medical Advisory Systems, Inc.
Consolidated Statements of Operations
Six Months Ended April 30, 1998 1999*
- ------------------------------------------------------------------------------
Basic and diluted earnings $.04 $(.12)
(loss) per share
Weighted average shares outstanding 3,885,878 3,538,731
See accompanying summary of accounting policies and notes to
consolidated financial statements.
* Restated.
Medical Advisory Systems, Inc.
Consolidated Statements of Cash Flows
Six Months Ended April 30,
1998 1999*
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 156,133 $ (419,324)
Adjustment to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 48,811 48,811
Equity in loss of affiliate - 689,199
Compensation expense for options and warrants - 161,892
Joint venture minority interest 865 -
(Increase) decrease in:
Accounts receivable 249,771 593,428
Inventory 9,205 (8,006)
Prepaid expenses and other 1,077 347
Increase (decrease):
Accounts payable and accrued expenses (54,404) (233,163)
Deferred income (21,994) (227,194)
----------- -----------
Net cash provided by (used for) operating
activities 389,464 605,990
----------- -----------
Cash flows from investing activities:
Purchase of Investment 26,738 (1,587,047)
(Purchase) disposal of property and equipment, net (55,684) 69,226
----------- -----------
Net cash provided by (used in) investing activities (28,946) (1,517,821)
----------- -----------
Cash Flows from financing activities
Proceeds from sale of common stock, net of cost - 42,003
Proceeds from sale of preferred stock, net of cost - 2,706,661
Dividends Paid - preferred stock - (48,950)
Purchase of treasury stock - (116,263)
Repayment of loans to banks and related parties (63,459) (314,036)
----------- -----------
Net cash provided by (used In) financing activities (63,459) 2,269,415
----------- -----------
Net increase in cash 297,059 1,357,584
Cash at beginning of period 729,609 579,331
Cash at end of the period $ 1,026,668 $ 1,936,915
- ------------------------------------------------------------------------------
Supplemental disclosure of Cash Flows information:
Cash paid during period for interest $ 5,883 $ 62,843
- ------------------------------------------------------------------------------
See accompanying summary of accounting policiesnd notes to
consolidated financial statements.
* Restated
MEDICAL ADVISORY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - Basis of Presentation
The accompanying unaudited condensed financial statements
have been prepared in accordance with the instructions to SEC
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 six
month period ended April 30, 1999 are not necessarily indicative
of the results that may be expected for the year ended October
31, 1999. The unaudited consolidated financial statement should
be read in connection with the consolidated financial statements
and footnotes thereto included in the Company's annual report
on 10-KSB for the year ended October 31, 1998.
NOTE B - Consolidated Statements
The consolidated financial statements include the accounts of
Medical Advisory Systems, Inc. (MAS) and its wholly-owned
subsidiaries MAS Laboratories, Inc., Doc-Talk, LLC and
TLC, Inc. Significant intercompany transactions have been
eliminated in consolidation.
The consolidated financial statements as of October 31, 1998
and for the six months ended April 30, 1998 also include
100% of the assets, liabilities and operating results of
Assistance Services of America, Inc. (ASA). The Joint
Venturer's Interest reflected on the October 31, 1998
consolidated balance sheet and the consolidated statements of
operations for the six months ended April 30, 1998 represent
the other joint venturer's share (50%) of ASA's equity
(deficit) and results of operations.
In March, 1999, the Company sold 100% of its equity
interest in ASA to ASA's remaining shareholder, SACNAS
International. The terms of the sale agreement included
SACNAS International assuming all responsibilities for
operations of ASA effective November 1, 1998. The
accompanying April 30, 1999 financial statements include
certain adjustments to reflect the Company discontinuing
operating ASA. Accordingly, the accompanying consolidated
balance sheet at April 30, 1999 and the statement of
operations for the three months ended April 30, 1999 do not
include the assets, liabilities and operating results of ASA.
NOTE C - Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date (s) of the financial
statements and the reported amounts of revenues and
expenses during the reporting period (s). Actual results could
differ from those estimates.
Note D - Restatement
As a result of a limited review of its financial statements for the nine
months ended July 31, 1999 by its newly retained independent auditors,
BDO Seidman, LLP, the Company concluded that it should change its method
of accounting for the investment in AmericasDoctor.com and
for options and warrants issued to non-employees. Effective November 1, 1998,
the Company changed to the equity method of accounting for its investment in
AmericasDoctor.com. Application of the equity method requires that the
Company record in its financial statements its prorata share of the losses of
AmericasDoctor.com for each quarterly reporting period. Previously, the
company accounted for its investment in AmericaDoctor.com using the cost
method. In addition effective November 1, 1998, the Company changed its
method of accounting for options and warrants issued to non-employees. The
Company has recorded the fair value of the options and warrants as an
additional expense, over the vesting period, if any, as required by
Statement of Financial Accounting Standards No. 123. In one instance, the
Company deferred a portion of the fair value of warrants issued to an
investment banking firm that was committed to provide investment advisory and
investor relations services to the Company for 3 years. The Company is
amortizing these deferred investment advisory fees to expense ratably over
three years.
The following table summarizes the effect of the restatement on net income and
income per share:
Quarter Ended Period Ended
April 30, 1999 April 30, 1999
- ------------------------------------------------------------------------------
Income as originally reported $ 291,752 $ 425,187
Effect of accounting changes (632,479) (844,511)
----------- -----------
Restated net loss $ (340,727) $ (419,324)
=========== ==========
Income (loss) per share
As originally reported $ .06 $ .10
Restated $(.10) $(.12)
MEDICAL ADVISORY SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Restatement of results of Quarter Ended April 30, 1999
As a result of a limited review of its financial statements for
the nine months ended July 31, 1999, the Company
concluded that it should change its method of accounting for
the investment in AmericasDoctor.com and for options and
warrants issued to non-employees. Effective November 1,
1998, the Company changed to the equity method of
accounting for its investment in AmericasDoctor.com. which
requires the Company to record in its financial statements its
pro rata portion of the losses generated by
AmericasDoctor.com for the period. In addition effective
November 1, 1998, the Company changed its method of
accounting for options and warrants issued to non-
employees. The Company has recorded the fair value of the
options and warrants issued to non-employees. The Company
has recorded the fair value of options and warrants as an
additional expense over the vesting period, if any, as required
by generally accepted accounting principles. The effect of the
restatement on net income is as follows:
The following table summarizes the effect of the restatement on net
income and income per share
Quarter Ended Period Ended
April 30, 1999 April 30, 1999
- -----------------------------------------------------------------------------
Income as originally reported $ 291,752 $ 425,187
Effect of accounting changes (632,479) (844,511)
----------- -----------
Restated net loss $ (340,727) $ (419,324)
1999 Compared to 1998
- ---------------------
For the first six months of FY 1999 sales were
$2,630,935. For the first six months of last year sales were
$1,255,771. Sales for the first six months of FY 1999 reflect
deleted business from the sale of ASA (see NOTE-B).
Deleting ASA sales from the first six months of FY 1998,
results in sales of $1,044,071 for comparison to the first six
months of FY 1999. Therefore, sales for the first six months
of FY 1999 comparatively increased by 152%. For the three
months ended April 30, 1999 sales where $1,352,468
compared to the same period of FY 1998 with sales of
$640,589. Deleting ASA sales from the second quarter of
1998 resulted in sales of $582,391, an increase of 132%. The
increase resulted primarily from chat center revenues, a new
business segment launched in the forth quarter of FY 1998.
Revenues from Program Services were $463,990 for
the first six months of FY 1999 compared to $393,231 for the
same period in FY 1998, an increase of 18.0%. Revenues for
the second quarter of FY 1999 were $244,695 compared to
$186,082 for the same period of FY 1998. This increase
resulted from the stabilization of the size of the U.S.
merchant marine fleet along with expanded marketing efforts,
plus the addition of outpatient clinical services at the
Company's headquarters building.
The Company had assistance service revenues of
$348,513 during the first six months of FY 1999. First six
month sales for last year were $542,814. Sales for the first
half reflect deleted business from the sale of ASA (see
NOTE-B). Deleting ASA sales from the first six months of
FY 1998, results in sales of $89,829 for comparison to the
first half of FY 1999. Sales for the first half of FY 1999
comparatively increased by 288% resulting primarily from a
one-time transition fee of $164,500 paid by SACNAS
International related to its purchase of the Company's interest
in Assistance Services of America, Inc. (See Sale of the
Company's Affiliate, Assistance Services of America, Inc.
below). The second quarter of FY 1999 had revenues of
$250,838 as compared to $268,637 for FY 1998. Deleting
ASA sales from the second quarter of FY 1998 resulted in
revenues of $210,439, an increase of 19%. The Company is
in negotiations with SACNAS International with respect to a
new service contract, and continuing revenues from this
business line are not assured.
Revenues from pharmaceutical sales were
$228,553 for the first six months of FY 1999 reflecting a
decrease in revenues of $26,349 or 10.3% when compared to
the same period of 1998. The second quarter of FY 1999
had revenues of $107,719 as compared to the same period of
FY 1998 revenues of $136,876, a second quarter decrease of
$29,157 or 21%. The decrease reflects the loss of a
pharmaceutical contract with a major customer. The
Company has recently obtained additional contracts that are
expected to bring pharmaceutical revenues back in line with
the previous fiscal year.
Chat Center revenues totaled $1,552,137
during the first half of 1999. These revenues were derived
from a new business segment launched in the forth quarter of
FY 1998. The Company provides professional medical
information "chats" via the internet to internet service
providers and internet users on behalf of
AmericasDoctor.Com. The Company anticipates continuing
increases in revenues from this business segment.
The Company's training program provided revenues
of $ 37,742 for the period, a 41.8% decrease compared to
training revenues of $ 64,824 in the first six months of FY
1998. The second quarter of FY 1999 had revenues of
13,055 compared to FY 1998 revenues of $48,994. The
decrease is primarily the result of the off year of the biannual
training schedule of a major customer.
Sale of the Company's affiliate, Assistance Services of
America, Inc.
On March 9, 1999 the Company entered into an agreement to sell its
interest in Assistance Services of America, Inc (ASA) to SACNAS
International (SACNAS). Under the terms of the agreement
SACNAS paid the Company a transition fee of $164,500, forgave an
outstanding note payable of $250,000, and sold 295,378 shares of
the Company's common stock back to the Company for $116,248.
The Company paid SACNAS $57,000 representing accrued interest
on the note payable. These items were completed on March 12,
1999 and the 295,378 MAS shares were returned to the Company's
treasury. The final step of the transaction calls for SACNAS to
complete due diligence and enter into a stock purchase agreement
with the Company, at which time SACNAS is to pay the Company
$25,000 for the ASA shares and enter into a service agreement
defining the future relationship between SACNAS and the Company.
This final step has not yet been completed.
MEDICAL ADVISORY SYSTEMS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
In February, 1999 the Company sold 500,000 shares of a
Series A Redeemable Convertible Preferred Stock in a private
placement. On May 01, 1999 all of the preferred
shareholders elected to convert these shares into MAS
common stock.
Item 3. Defaults from Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
In 1986 the Company filed an S-1 registration under the
Securities Act of 1933. The Company files 10-KSB and 10-
QSB reports on a voluntary basis.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None
(b) Reports on Form 8-K. On file
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: October 20, 1999 /s/ Thomas M. Hall, M.D. M.I.M.
___________________________________
Thomas M. Hall, M.D. M.I.M.
Chief Executive Officer
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