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 January 31, 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.
3,849,938 shares of Common Stock ($0.005 par value per share)
outstanding at January 31, 1999
INDEX
MEDICAL ADVISORY SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet - January 31, 1999 and October 31, 1998
Statement of Operations - Three months ended January 31, 1999 and 1998
Statement of Cash Flow - Three months ended January 31, 1999 and 1998
Notes of Condensed Financial Statements: January 31, 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 SHEET
January 31 October 31
1999 1998
____________________________
UNAUDITED
ASSETS
CURRENT ASSETS
Cash $ 228,768 $ 579,331
Receivables, net 548,873 907,720
Inventory - Pharmaceuticals 38,549 26,745
Prepaid expenses and other 21,139 6,802
Current deferred tax asset 37,015 37,015
---------- ----------
TOTAL CURRENT ASSETS 874,344 1,557,613
PROPERTY AND EQUIPMENT, NET 954,376 1,015,055
OTHER ASSETS
Investments 1,144,467 660,000
Deferred assets 387,739 387,739
---------- ----------
TOTAL OTHER ASSETS 1,532,206 1,047,739
TOTAL ASSETS $ 3,360,926 $ 3,620,407
========== ==========
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET - CONTINUED
January 31 October 31
1999 1998
----------------------------
UNAUDITED
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current Maturities LT Debt $ 3,185 $ 315,617
Accounts payable & accrued expenses 239,304 437,249
Deferred income 75,422 327,565
---------- ----------
TOTAL CURRENT LIABILITIES 317,911 1,080,431
Long-term liabilities to Banks and Others 383,242 134,069
---------- ----------
TOTAL LIABILITIES $ 701,153 $ 1,214,500
JOINT VENTURER'S INTEREST (24,706)
SHAREHOLDERS' EQUITY
Convertible Preferred Stock, $1.75 par value
Authorized: 1,000,000 shares, Issued and
Outstanding at October 31, 1998 and
January 31, 1999: 0
Common Stock, $0.005 par value -
Authorized: 10,000,000 shares
Issued and Outstanding at October 31, 1998: 19,580 19,415
3,819,938; Issued and Outstanding at January
31, 1999: 3,849,938
Additional capital 3,858,363 3,824,778
Accumulated deficit (1,174,587) (1,369,997)
Treasury Stock at Cost - 65,940 (43,583) (43,583)
---------- ----------
NET SHAREHOLDERS EQUITY $ 2,659,773 $ 2,430,613
---------- ----------
TOTAL LIABILITIES AND EQUITY $ 3,360,926 $ 3,620,407
========== ==========
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months
Ended January 31
1999 1998
____________________________
Revenues:
Program Services $ 219,295 $ 207,149
Assistance Services 97,675 274,177
Pharmaceutical Sales 120,834 118,026
Chat Center Revenue 815,976
Training Services 24,687 15,830
Option Revenue 80,822
Other Income 7,695 403
Interest Revenue 5,543 10,495
---------- ----------
1,372,527 626,080
Cost and Expenses:
Program & Assistance Medical Services 63,798 75,213
Pharmaceutical Cost of Goods 53,019 55,709
Chat Center Medical Services 590,534
Other Chat Center Costs 16,446
Cost of Training Services 5,949 2,353
Salaries and Wages 287,181 232,782
Other selling, general and
Administrative expenses 198,503 161,408
Depreciation and Amortization 21,858 24,405
Interest expense 1,804 8,196
---------- ----------
1,239,092 560,066
Operating Income 133,435 66,014
Income Tax benefit (expense) (16,431)
---------- ----------
Profit (loss) before joint venturer's interest 133,435 49,583
Joint venturer's interest (16,930)
---------- ----------
NET EARNINGS $ 133,435 $ 32,653
========== ==========
Earnings per share:
Basic $0.03 $0.01
Diluted $0.03 $0.01
Weighted average shares outstanding:
Basic 3,828,090 3,819,938
Diluted 4,250,637 3,819,938
MEDICAL ADVISORY SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended January 31
1999 1998
---------- ----------
Cash flows from operating activities:
Net earnings from period $ 133,435 $ 32,653
Adjustment to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 21,858 24,405
Equity interest in joint venture income (losses) 16,930
(Increase) decrease in :
Accounts Receivable 358,847 277,714
Inventory - Pharmaceuticals (11,804) 1,729
Prepaid expenses and other (14,337) 8,306
Increase (decrease) in :
Accounts payable and accrued expenses (197,945) (98,171)
Deferred income (252,143) (10,684)
---------- ----------
Net cash provided by (used for) operating
activities $ 37,911 $ 252,882
Cash flows from investing activities:
Purchase of Investment (484,467)
(Purchase) disposal of property and
equipment, net 63,002 (42,627)
---------- ----------
Net cash provided by (used in) investing
activities (421,465) (42,627)
Cash Flows from financing activities
Proceeds from Sale of Common Stock, net of costs 33,750
Repayment of loans to banks and related parties (759) (573)
---------- ----------
Net cash provided by (used in) financing
activities 32,991 (573)
Net increase (decrease) in cash (350,563) 209,682
Cash at beginning of period 579,331 729,609
---------- ----------
Cash at end of the period $ 228,768 $ 939,291
========== ==========
Supplemental Disclosures:
Cash paid during period for interest $ 3,107 $ 4,030
========== ==========
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 three
month period ended January 31, 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 three months ended January 31, 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 three months ended January 31, 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 January 31, 1999 financial statements include
certain adjustments to reflect the Company discontinuing
operating ASA. Accordingly, the accompanying consolidated
balance sheet at January 31, 1999 and the statement of
operations for the three months ended January 31, 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 - Subsequent Events - Pro Forma Financial Information
The following pro forma condensed balance sheet assumes
the transactions described below (the closing of the Private
Placement in February, 1999, the sale of the Company's
equity interest in Assistance Services of America, Inc., the
forgiveness of the balance of the SACNAS International note
payable and the Company's acquisition of 295,378 shares of
the Company's common stock from SACNAS International
in March, 1999) had occurred on January 31, 1999:
(1) the issuance of 500,000 shares of the Company's Series A
Redeemable Convertible Preferred Stock through a private
placement yielding net proceeds of $2,675,000 (the "Private Placement"),
(2) the sale of the Company's equity interest in Assistance
Services of America, Inc. to SACNAS International for $25,000,
(3) the forgiveness by SACNAS International of the note
payable in the amount of $250,000,
(4) the accrual of $57,000 of interest expense related to the
SACNAS International note payable
and
(5) the Company's acquisition of 295,378 shares of Company
common stock from SACNAS International for approximately $117,000.
The pro forma condensed balance sheet should be read in
conjunction with the notes thereto and the financial
statements of the Company. The pro forma condensed
balance sheet is not necessarily indicative of what the actual
financial position would have been had the transactions
occurred at January 31, 1999 nor does it purport to represent
the financial position of the Company.
MEDICAL ADVISORY SYSTEMS, INC.
January 31, 1999
----------------
Historical Pro forma Pro forma
(UNAUDITED) Adjustments Balance Sheet
------------ ------------ --------------
Current assets:
Cash $ 228,768 (1) $ 2,675,000 $ 2,811,768
(4) (117,000)
(2) 25,000
Receivables, net 548,873 548,873
Inventory - Pharmaceuticals 38,549 38,549
Prepaid expenses and other 21,139 21,139
Current deferred tax asset 37,015 37,015
----------- ------------
Total current assets 874,344 3,459,344
Property and equipment, net 954,376 954,376
Other assets:
Investments 1,144,467 (2) (24,507) 1,119,960
Deferred assets 387,739 - 387,739
----------- ----------- -----------
TOTAL ASSETS $ 3,360,926 $ 2,558,493 $ 5,919,419
=========== =========== ============
MEDICAL ADVISORY SYSTEMS, INC.
January 31, 1999
----------------
Historical Pro forma Pro forma
(UNAUDITED) Adjustments Balance Sheet
------------ ------------ --------------
Current liabilities:
Current maturities (LT Debt) $ 3,185 $ 3,185
Accounts payable & accrued
expenses 314,726 (3) 57,000 371,726
----------- ------------
Total current liabilities 317,911 374,911
Notes payable 383,242 (3) (250,000) 133,242
Shareholders' Equity:
Redeemable convertible
Preferred stock - (1) 2,675,000 2,675,000
Common stock and additional
paid in capital 3,877,943 3,877,943
Accumulated deficit (1,174,587) (2) 493 (981,094)
(3) 250,000
(3) (57,000)
Treasury stock, at cost (43,583) (4) (117,000) (160,583)
----------- ----------- ------------
Total Shareholders' Equity 2,659,773 2,751,493 5,411,266
----------- ----------- ------------
TOTAL LIABILITIES AND EQUITY $ 3,360,926 $ 2,558,493 $ 5,919,419
=========== =========== ============
MEDICAL ADVISORY SYSTEMS, INC.
Notes to Pro Forma Unaudited
Condensed Balance Sheet
as of January 31, 1999
(1) Reflects the issuance of 500,000 shares of Series A redeemable convertible
preferred stock through a private placement at $6.00 per share yielding net
proceeds of $2,675,000 after offering costs and placement agent fees
aggregating $325,000. Each share has a par value of $1.75 per share, pays an
eight percent (8%) annual cumulative dividend, payable quarterly, and is
redeemable at the option of the Company one year after issuance and once the
average daily closing price of the Company's common stock is $15.00 per share
for ten (10) consecutive trading days. The preferred stock is also redeemable
at the option of the Company at any time three (3) years after issuance at the
original price, as adjusted for stock splits and similar events. The
preferred stock is convertible at the option of the holder of such shares at
any time into one share of the Company's
common stock.
(2) Reflects the sale of the Company's equity interest in Assistance Services
of America, Inc. to SACNAS International for $25,000.
(3) Reflects the forgiveness by SACNAS International of the balance of the
Company's $500,000 note payable to SACNAS in the amount of $250,000 and the
accrual of $57,000 of interest expense related to the note.
(4) Reflects the Company's acquisition of 295,678 shares of the Company's
common stock from SACNAS International for $117,000.
MEDICAL ADVISORY SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The first quarter of FY 1999 sales were $1,372,527. First quarter sales of
last year were $626,080. Sales for the first quarter reflect deleted business
from the sale of ASA (see NOTE-B). Deleting ASA sales from the first quarter
of FY 1998, results in sales of $505,405 for comparison to the first quarter
of FY 1999. Therefore, sales for the first quarter of FY 1999 comparatively
increased by 171%. The increase resulted primarily from chat center revenues,
a new business segment launched in the forth quarter of FY 1999.
Revenues from Program Services were $219,295 for the first three months of
FY 1999 compared to $207,149 for the same period in FY 1998, an increase of 6%.
This increase resulted from the stabilization of the size of the U.S.
merchant marine fleet, along with expanded marketing efforts.
The Company had assistance service revenues of $97,675 during the first three
months of FY 1999. First quarter sales of last year were $274,177. Sales
for the first quarter reflect deleted business from the sale of ASA (see
NOTE-B). Deleting ASA sales from the first quarter of FY 1998, results in
sales of $23,615 for comparison to first quarter FY 1999. Sales for the first
quarter of FY 1999 comparatively increased by 314%, resulting primarily from
increased use of the company as a foreign correspondent for assistance to
international travelers.
Revenues from pharmaceutical sales were $120,834 for the first quarter of
FY 1999 resulting in a flat growth period when compared to 1998.
Chat Center revenues totaled $817,976 during the first quarter 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's training program provided revenues of $ 24,687 for the period,
a 56% increase compared to training revenues of $ 15,830 in the first
quarter of FY 1998, resulting primarily from biannual variation in the
training schedule of a major customer.
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 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.
On March 11, 1999 the Company and SACNAS concluded a transaction whereby
SACNAS purchased the Company's shares in ASA. The results of operations
for the first quarter are reflected in the Financial Statements, and a
Pro-Forma Balance Sheet reflecting the sale is reported in NOTE-D. Terms
of the transaction with SACNAS included the sale of the Company's equity
interest in Assistance Services of America, Inc. to SACNAS for $25,000, the
forgiveness by SACNAS of a note payable in the amount of $250,000, the accrual
of $57,000 of interest expense related to the SACNAS note payable and the
Company's acquisition of 295,378 shares of the Company's common stock from
SACNAS International for approximately $117,000.
MEDICAL ADVISORY SYSTEMS, INC.
PART II - OTHER INFORMATION
Item 1. 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
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,
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: March 15, 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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