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 Sheets
October 31, January 31,
1998 1999*
--------------------------
Assets
Current
Cash $ 579,331 $ 228,768
Accounts receivable, less allowance for
doubtful accounts of $77,744 and $73,045 907,720 548,873
Inventories 26,745 38,549
Prepaid expenses and other 6,802 21,139
Deferred income taxes 37,015 37,015
___________ ___________
Total current assets 1,557,613 874,344
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 1,015,055 1,096,179
Investments 660,000 980,268
Deferred income taxes 387,739 387,739
___________ ___________
$3,620,407 $3,338,530
=========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
* Restated.
Medical Advisory Systems, Inc.
Consolidated Balance Sheets
October 31, January 31,
1998 1999*
---------------------------
Liabilities and Stockholders' Equity
Current
Current maturities of long term debt $315,617 $ 3,185
Current maturities of capital lease obligations - 18,160
Accounts payable and accrued expenses 437,249 301,278
Deferred income 327,565 75,422
--------- ---------
Total current liabilities 1,080,431 398,045
--------- ---------
Long-term debt 134,069 383,242
Capital lease obligations - 126,594
--------- ---------
Total liabilities 1,214,500 907,881
--------- ---------
Joint venturers's interest (24,706) -
Commitments and Contingencies
Stockholders' Equity
Common stock; $0.005 par value; 10,000,000 shares
authorized; 3,885,878 and 3,915,878 shares issued;
3,819,938 and 3,849,938 shares outstanding 19,430 19,580
Warrants to purchase common stock - 44,883
Additional paid-in capital 3,824,763 3,858,363
Accumulated deficit (1,369,997) (1,448,594)
Treasury stock, at cost (65,940 shares) (43,583) (43,583)
--------- ---------
Total stockholders' equity 2,430,613 2,430,649
--------- ---------
$3,620,407 $3,338,530
========= =========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
* Restated.
Medical Advisory Systems, Inc.
Consolidated Statements of Operations
Three Months Ended January 31, 1998 1999
- -----------------------------------------------------------------------------
Revenue:
Program Services $207,149 $219,295
Assistance Services 274,177 97,675
Pharmaceutical Sales 118,026 120,834
Chat Center Revenue - 815,976
Training Services 15,830 24,687
--------- ---------
Total Revenue 615,182 1,278,467
--------- ---------
Operating Expenses:
Program & Assistance Medical Services 75,213 63,798
Pharmaceutical Cost of Goods 55,709 53,019
Chat Center Medical Services - 590,534
Other Chat Center Costs - 16,446
Cost of Training Services 2,353 5,949
Salaries and Wages 232,782 287,181
Other Selling, General and Administrative 161,408 240,228
Depreciation & Amortization 24,405 26,744
--------- ---------
Total Operating Expenses 551,870 1,283,899
--------- ---------
Operating (Loss) Income 63,312 (5,432)
Other Income/(Expense):
Option Revenue - 14,673
Other Income 403 7,695
Interest Income 10,495 5,543
Interest Expense (8,196) (3,026)
Other expense (16,431) -
--------- ---------
Total Other Income/(Expense) (13,729) 24,885
--------- ---------
Income (loss before earnings (loss) of affiliate
and joint venture and extraordinary item 49,583 19,453
Equity in loss of affiliate - (164,199)
Joint venture minority interest (16,930) -
--------- ---------
Income (loss) before extraordinary item 32,653 (144,746)
Extraordinary gain - 66,149
--------- ---------
Net income (loss) $32,653 $(78,597)
========= =========
Three Months Ended January 31, 1998 1999*
- ------------------------------------------------------------------------------
Basic and diluted earnings $.01 $(.02)
(loss) per share
Weighted average shares outstanding 3,819,938 3,828,090
See accompanying summary of accounting policies and notes to
consolidated financial statements.
* Restated.
Medical Advisory Systems, Inc.
Consolidated Statement of Cash Flows
Three Months Ended January 31,
1998 1999*
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 32,653 $(78,597)
Adjustment to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 24,405 26,744
Equity in loss of affiliate - 164,199
Compensation expense for options and warrants - 44,883
Joint venture minority interest 16,930 -
(Increase) decrease in:
Accounts receivable 277,714 358,847
Inventory 1,729 (11,804)
Prepaid expenses and other 8,306 (14,337)
Increase (decrease):
Accounts payable and accrued expenses (98,171) (199,881)
Deferred income (10,684) (252,143)
--------- ---------
Net cash provided by (used for) operating activities 252,882 37,911
--------- ---------
Cash flows from investing activities:
Purchase of Investment - (484,467)
(Purchase) disposal of property and equipment, net (42,627) 63,002
--------- ---------
Net cash provided by (used in) investing activities (42,627) (421,465)
--------- ---------
Cash Flows from financing activities
Proceeds from sale of common stock, net of cost 33,750
Repayment of loans to banks and related parties (573) (759)
--------- ---------
Net cash provided by (used In) financing activities (573) 32,991
--------- ---------
Net increase (decrease) in cash 209,682 (350,563)
Cash at beginning of period 729,609 579,331
Cash at end of period $ 939,291 $ 228,768
Supplemental disclosure of Cash Flows information:
Cash paid during period for interest $ 4,030 $ 3,107
See accompanying summary of accounting policies and 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 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
there to 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 - 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 three 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
January 31, 1999
- ---------------------------------------------------------------------
Income as originally reported $ 133,435
Effect of accounting changes (212,032)
---------
Restated net loss $ (78,597)
---------
Income (loss) per share
As originally reported $ .03
Restated $(.02)
NOTE E - 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.
Pro Forma Balance Sheet
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 3,457,344
Property and equipment, net 1,096,179 1,096,179
Other assets:
Investments 980,268 (2) (24,507) 955,761
Deferred assets 387,739 - 387,739
--------- --------- ---------
TOTAL ASSETS $ 3,338,530 $ 2,558,493 $ 5,897,023
========= ========= =========
MEDICAL ADVISORY SYSTEMS, INC.
Pro Forma Balance Sheet
January 31, 1999
Historical Pro forma Pro forma
(UNAUDITED) Adjustments Balance Sheet
Current liabilities:
Current maturities (LT Debt) $ 21,345 $ 21,345
Accounts payable & accrued
expenses 301,278 (3) 57,000 358,278
Deferred Income 75,422 75,422
--------- ---------
Total current liabilities 398,045 455,045
Notes payable 509,836 (3) (250,000) 259,836
--------- ---------
Total Liabilities 907,881 714,881
Shareholders' Equity:
Redeemable convertible
Preferred stock - (1) 2,675,000 2,675,000
Common stock and additional
paid in capital 3,922,826 3,922,826
Accumulated deficit (1,448,594) (2) 25,000 (1,255,101)
(2) (24,507)
(3) 250,000
(3) (57,000)
Treasury stock, at cost (43,583) (4) (117,000) (160,583)
----------- --------- ----------
Total Shareholders' Equity 2,430,649 2,751,493 5,182,142
----------- --------- ----------
TOTAL LIABILITIES AND EQUITY $3,338,530 $2,558,493 $5,897,023
========== ========== ==========
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 less $493 ASA
accumulated deficit from previous years.
(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
Restatement of results of Quarter Ended January 31, 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 prorata 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 nonemployees. 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
January 31, 1999
- ---------------------------------------------------------------------------
Income as originally reported $ 133,435
Effect of accounting changes (212,032)
-----------
Restated net loss $ (78,597)
1999 Compared to 1998
The first quarter of FY 1999 sales were $1,278,467. First quarter sales
of last year were $615,182. 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 $461,680 for comparison to
the first quarter of FY 1999. Therefore, sales for the first
quarter of FY 1999 comparatively increased by 177%. 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 $815,976 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-E. 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: October 20, 1999 /s/ Thomas M. Hall, M.D., M.I.M.
___________________________________
Thomas M. Hall, M.D., M.I.M.
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Oct-31-1999
<PERIOD-START> Nov-01-1998
<PERIOD-END> Jan-31-1999
<CASH> 228768
<SECURITIES> 980268
<RECEIVABLES> 548873
<ALLOWANCES> 0
<INVENTORY> 38549
<CURRENT-ASSETS> 874344
<PP&E> 1732366
<DEPRECIATION> 636187
<TOTAL-ASSETS> 3338530
<CURRENT-LIABILITIES> 398045
<BONDS> 0
<COMMON> 19580
0
0
<OTHER-SE> 2411069
<TOTAL-LIABILITY-AND-EQUITY> 3338530
<SALES> 1278467
<TOTAL-REVENUES> 1303352
<CGS> 53019
<TOTAL-COSTS> 1283899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3026
<INCOME-PRETAX> (78597)
<INCOME-TAX> 0
<INCOME-CONTINUING> (78597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78597)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
