FORM 10-QSB
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 quarter ended April 30, 2000
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)
(301) 855-8070
--------------
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-QSB or any amendment of this Form 10-QSB [x]
Issuer's revenues for its most recent fiscal quarter: $2,,315,031
Common Stock, $.005 par value 5,093,240 Shares of Common Stock Outstanding
as of January 31, 2000
Item 1. Financial Statements
Consolidated Balance Sheets
October 31, April 30,
1999 2000
Assets
Current
Cash and cash equivalents $ 931,949 $3,317,458
Accounts receivable, less allowance for
doubtful accounts of $77,744 and $94,045 444,396 694,499
Inventories 25,108 38,900
Prepaid expenses and other 11,651 12,400
---------- ---------
Total current assets 1,413,104 4,063,257
Property and equipment, at cost, less
accumulated depreciation and amortization 1,042,653 1,100,889
Purchased software - 2,700,000
Investment in AmericasDoctor.com (Note 1) 639,171 639,171
Deferred investment advisory costs (Note 4) 757,607 -
Intangible assets, net 48,250 43,125
---------- ---------
$3,900,785 $8,546,442
========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
===============================================================================
Consolidated Balance Sheets
October 31, April 30,
1999 2000
Liabilities and Stockholders' equity
Current
Current maturities of long-term debt $ 3,395 $ 3,279
Current maturities of capital lease obligations 25,769 27,999
Accounts payable and accrued expenses 483,383 347,320
Deferred income 31,677 21,550
---------- ---------
Total current liabilities 544,224 400,148
---------- ---------
Long-term debt 131,230 128,846
Capital lease obligations 98,793 83,505
Customer advances 57,944 57,944
---------- ---------
Total liabilities 832,191 670,443
---------- ---------
Commitments and contingencies
Stockholders' equity (Notes 3, 4, 5 and 7)
Convertible preferred stock, par value, $1.75 par
share; 1,000,000 shares authorized; none issued
or outstanding - -
Common stock; $.005 par value; 10,000,000 shares
authorized; 4,411,060 and 5,093,240 shares issued
and outstanding 22,054 25,465
Additional paid-in capital 8,164,041 13,954,130
Accumulated deficit (5,073,918) (6,060,013)
Treasury stock, at cost (50,000 shares) (43,583) (43,583)
---------- ---------
Total stockholders' equity 3,068,594 7,875,999
---------- ---------
$3,900,785 $8,546,442
========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
===============================================================================
Consolidated Statements of Operations
Six months ended April 30, 1999 2000
-------------------------------------------------------------------------------
Revenue:
Internet chat services $1,552,137 $3,507,702
Maritime response services 463,990 415,703
Travel assistance 348,513 658,721
Pharmaceutical sales 228,553 309,634
Training services 37,742 39,177
eRT revenue - 84,000
Clinic services - 15,789
Doc Talk revenue - 3,250
---------- ---------
Total Revenue 2,630,935 5,033,976
---------- ---------
Operating Expenses:
Internet chat services (Note 2) 1,218,667 2,748,031
Maritime response & travel assistance services (Note 2) 175,308 653,676
Pharmaceutical cost of sales 128,837 208,720
Cost of training services 17,971 17,114
Doc-Talk services - 506,504
Clinic services - 29,272
eRT expenses - 2,827
Selling, general and administrative (Note 4) 1,126,254 1,791,938
Depreciation & amortization 48,196 90,660
---------- ---------
Total Operating Expenses 2,715,233 6,048,742
---------- ---------
Operating loss (84,298) (1,014,766)
Other Income/(Expense):
Other income 8,620 8,663
Gain on sale of joint venture investment 62,468 -
Interest income 22,241 31,833
Interest expense (70,038) (11,825)
---------- ---------
Total Other Income/(Expense) 23,291 28,671
---------- ---------
Income (loss) before earnings (loss) of
affiliate and extraordinary item (61,007) (986,095)
Equity in loss of affiliate (Note 1) (689,199) -
---------- ---------
Income (loss)before extraordinary item (750,206) (986,095)
Extraordinary gain 330,882 -
---------- ---------
Net loss $ (419,324) $(986,095)
========== =========
Basic and diluted loss per share before
extraordinary gain $ (.21) $ (.21)
Extraordinary gain .09 -
---------- ---------
Basic and diluted loss per share $ (.12) $ (.21)
Weighted average common shares outstanding 3,538,731 4,590,859
See accompanying summary of accounting policies and notes to
consolidated financial statements.
===============================================================================
Consolidated Statements of Operations
Three months ended April 30, 1999 2000
Revenue:
Internet chat services $ 736,161 $1,273,730
Maritime response services 244,695 193,517
Travel assistance 250,838 562,016
Pharmaceutical sales 107,719 156,252
Training services 13,055 34,946
eRT revenue - 84,000
Clinic services - 8,777
Doc Talk revenue - 1,793
---------- ---------
Total Revenue 1,352,468 2,315,031
---------- ---------
Operating Expenses:
Internet chat services (Note 2) 577,229 1,014,093
Maritime response & travel assistance services (Note 2) 55,657 501,448
Pharmaceutical cost of sales 56,580 98,681
Cost of training services 4,637 14,662
Clinic services - 14,496
Doc-Talk services - 216,617
eRT expenses - 2,827
Other selling, general and administrative (Note 4) 715,779 977,287
Depreciation & amortization 21,452 45,746
---------- ---------
Total Operating Expenses 1,431,334 2,885,857
---------- ---------
Operating loss (78,866) (570,826)
Other Income/(Expense):
Other income/(expense) (13,748) 77
Gain on sale of joint venture investment 62,468 -
Interest income 16,698 24,694
Interest expense (67,012) (7,890)
---------- ---------
Total Other Income/(Expense) (1,594) 16,881
---------- ---------
Income (loss) before earnings (loss) of affiliate
and extraordinary item (80,460) (553,945)
Equity in loss of affiliate (Note 1) (525,000) -
---------- ---------
Income (loss)before extraordinary item (605,460) (553,945)
Extraordinary gain 264,733 -
---------- ---------
Net loss $ (340,727) $ (553,945)
========== ==========
Basic and diluted loss per share before
extraordinary gain $ (.17) $ (.12)
Extraordinary gain .07 -
---------- ---------
Basic and diluted loss per share $ (.10) $ (.12)
Weighted average common shares outstanding 3,556,680 4,755,618
See accompanying summary of accounting policies and notes to
consolidated financial statements.
===============================================================================
Consolidated Statement of Cash Flows
Six months ended April 30, 1999 2000
Cash flows from operating activities:
Net loss $(419,324) $(986,095)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 48,811 90,660
Provision for doubtful accounts - -
Equity in loss of affiliate 689,199 -
Compensation expense for options and warrants 161,892 -
Bad debt expense - 15,000
Compensation expense for options and warrants - 757,607
Changes in assets and liabilities:
Accounts receivable 593,428 (265,103)
Inventory (8,006) (13,792)
Prepaid expenses and other 347 (749)
Accounts payable and accrued expenses (233,163) (136,063)
Deferred income (227,194) (10,127)
---------- ---------
Net cash provided by (used in) operating activities 605,990 (548,662)
---------- ---------
Cash flows from investing activities:
Investment in equity affiliate (1,587,047) -
Purchase of property and equipment 69,226 (143,771)
Purchase of software - (2,700,000)
---------- ---------
Net cash used in investing activities (1,517,821) (2,843,771)
---------- ---------
Cash Flows from financing activities
Proceeds from sale of common stock 42,003 5,775,000
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 (314,036) (15,558)
Exercise of stock options - 18,500
---------- ---------
Net cash provided by financing activities 2,269,415 5,777,942
---------- ---------
Net increase in cash 1,357,584 2,385,509
Cash at beginning of period 579,331 931,949
---------- ---------
Cash at end of the period $1,936,915 $3,317,458
========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
===============================================================================
Summary of Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Medical
Advisory Systems, Inc. (MAS or the Company) and its wholly-owned
subsidiaries, MAS Laboratories, Inc., Doc-Talk, LLC, and TLC., Inc.
Significant intercompany transactions have been eliminated in
consolidation.
Effective November 1, 1998, the Company began using the equity
method of accounting for its investment in AmericasDoctor.com. The
Company determined that the equity method was appropriate based on a
combination of its strict ownership percentage, which increased from 8%
in October 1998 to 13.5% in April 1999, coupled with the ability to have
a representative on the board of directors. Under the equity method,
original investments are recorded at cost, increased for subsequent
investments in and advances to the investee, and adjusted for the
Company's share of undistributed earnings and losses of the investee.
The Company's ownership interest was reduced to 5.3% on October 31,
1999 and further reduced to 2.3% on January 6, 2000. Effective
November 1, 1999, the Company discontinued using the equity method
to account for its investment in AmericasDoctor.com and began to use
the cost method.
Business Operations
MAS provides medical advice to personnel on ocean-going vessels and
other individuals or entities located outside the continental United States,
operates an out-patient medical clinic and provides medical information
service via "chats" over the internet and telephone. MAS Laboratories is
currently inactive. The Company provides these various services through
five operating segments as described more fully in Note 8.
Risks and Uncertainties
The Company provides medical information and assistance services and
related products through various methods of distribution. The majority
of the Company's revenues result from providing medical information to
the public via the internet under an exclusive contract with
AmericasDoctor.com. AmericasDoctor.com has an exclusive contract
with America Online (AOL) to be an anchor tenant on the AOL Health
Page. AOL subscribers can "chat" with the Company's doctors located
in it's call center, which is staffed 24-hours-a-day. Because of the
exclusive nature of its agreement with AmericasDoctor.com, the
Company's ability to continue to generate significant internet chat
revenue and cash flow is directly related to the continued successful
operation of the AOL home page concept by AmericasDoctor.com.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions particularly regarding valuation of accounts receivable,
recognition of liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could
differ from those estimates.
Concentrations of Credit Risk
Financial instruments and related items which potentially subject the
Company to concentrations of credit risk consist primarily of cash and
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. Revenues from AmericasDoctor.com, Inc. were
$1,552,137 and $3,507,702 or 59% and 71% of consolidated revenues
for the six months ended April 30, 1999 and 2000, respectively.
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.
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.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over
their estimated useful lives by the straight line method (see Note 1)
Deferred Investment Advisory Costs
Deferred investment advisory and public relations costs consist of
approximately $1,500,000 representing the estimated fair value of
360,000 warrants issued to certain third parties for public and investor
relations services to be rendered over one and three-year periods,
respectively (see note 4). These amounts are being amortized on a
straight line basis over the lives of the service agreements.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles held and used by
the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, assets to be disposed of are reported at the
lower of the carrying amount or the fair value less costs to sell.
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.
Income Taxes
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109. Accounting for Income
Taxes ("SFAS 109"). Under SFAS 109, deferred taxes are determined
using the liability method which requires the recognition of deferred tax
assets and liabilities based on differences between financial statement
and income tax bases using presently enacted tax rates.
Stock Based Compensation
The Company accounts for stock based compensation using the intrinsic
value method prescribed in Accounting Principle Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has adopted
the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" with
respect to options and warrants granted to employees.
Earnings Per Share
The Company follows Statement of Financial Accounting Standards No.
128, "Earnings Per Share," specifying the computation, presentation and
disclosure requirements of earnings per share information. Basic
earnings per share has been calculated based upon the weighted average
number of common shares outstanding. Stock options and warrants have
been excluded as common stock equivalents in the diluted earnings per
share because they are antidilutive.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), establishes standards for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS 130 during the first
quarter of fiscal 1999 and has no items of comprehensive income to
report.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments" ("SFAS 133"). SFAS 133 establishes accounting
and reporting standards for derivative instruments and for hedging
activities. SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair market
value. Under certain circumstances, a portion of the derivative's gain or
loss is initially reported as a component of other comprehensive income
and subsequently reclassified into income when the transaction affects
earnings. For a derivative not designated as a hedging instrument, the
gain or loss is recognized in income in the period of change. SFAS 133
is effective for fiscal years beginning after June 15, 2000 and requires
application prospectively. Presently, the Company does not use
derivative instruments either in hedging activities or as investments.
Accordingly, the Company believes that adoption of SFAS 133 will have
no impact on its financial position or results of operations.
Reclassifications
Certain prior year balances have been reclassified to conform with the
current year presentation.
===============================================================================
Notes to Consolidated Financial Statements
1. Investment in AmericasDoctor.com
In October 1998 the Company invested $660,000 which represented an
8% interest in AmericasDoctor.com. During 1999 the Company
increased its investment to $3,159,024 (13.5%), principally in February
and June. AmericasDoctor.com operates an interactive internet
healthcare information site for consumers which offers free, real-time
interaction with healthcare professionals and easy access to relevant and
reliable healthcare information. The site features a free 24-hour doctor
chat service that enables consumers to have live on-line, one-on-one
chats with doctors and other healthcare professionals, a variety of
interactive healthcare content including lectures and live educational
programs, a growing library of information on ailments, illnesses,
nutrition, pharmacology and other topics, and health and medical
publications and news.
The Company's remaining investment represents goodwill which has
been assigned a five-year life. On October 31, 1999, the Company's
ownership interest was reduced to 5.3% and further reduced to 2.3% on
January 6, 2000. Effective November 1, 1999, the Company began to
account for its investment using the cost method. Accordingly, the
Company will discontinue recording additional losses or amortizing the
remaining investment effective November 1, 1999.
2. Related Party Transactions
Hall & Associates, P.A., Hall & AmDoc, Associates, P.A., and Hall &
DocTalk, Associates, P.A., which are owned by the Company's Chief
Executive Officer, Thomas M. Hall, M.D., provide medical professional
services to MAS. Amounts paid to these companies represent fees for
professional services rendered and premiums on professional liability
insurance. Dr. Hall personally receives $1,000 per year for providing
administrative services to these companies but receives no other salary or
payments from them. During the six months ended April 30, 1999 and
2000, the Company paid Hall & Associates, P.A., Hall & AmDoc,
Associates, P.A. and Hall & DocTalk, Associates, P.A., a combined total
of $1,264,301 and $2,652,498, respectively, in fees and professional
liability insurance premiums. There were no amounts payable to these
affiliates at either April 30, 1999 or 2000.
3. Stockholder's Equity
In January 2000, the Company issued 95,180 shares of common stock in
connection with the exercise of previously recorded warrants issued to
third parties. In March 2000, the Company issued 550,000 shares of
common stock to Premier Research Worldwide ("PRWW") for
$5,775,000. Concurrently with this stock issuance, the Company signed
a five year sales, services and co-marketing agreement with eResearch
Technology ("eRT") a wholly owned subsidiary of PRWW. (See Note
8). In April, 2000, the Company issued 37,000 shares of common stock
in connection with the exercise of stock options.
4. Stock Warrants
In November 1998, the Company issued 300,000 warrants to purchase
the Company's common stock to a broker dealer as consideration for
certain investment advisory services, including services related to the
issuance of 500,000 shares of Convertible Preferred Stock in a private
placement. The Company determined the estimated aggregate fair value
of these warrants on the date of grant to be approximately $742,250
based on the Black-Scholes valuation model with the following weighted
average assumptions: dividend yield of 0%, expected volatility of 40%,
risk free interest rate of approximately 5.01% and expected life of
approximately 5 years. The Company recorded $124,605 as a reduction
in paid-in-capital in order to raise the effective commission paid to the
broker dealer to 15% to more accurately reflect the commission rate for
similar transactions being completed. The remaining $620,645 was
recorded as deferred investment advisory fees and was being amortized
over 36 months, the term of the service agreement. In June 2000, the
Company established an investment advisory relationship with another
investment banking firm. Accordingly, the Company wrote off the
remaining deferred investment advisory fees of approximately $387,000
as of April 30, 2000. In addition, the Company issued warrants to
purchase the Company's common stock to various marketing and public
relations consultants. The terms of the consulting agreements vary from
one month to one year. All of the warrants issued to third parties allowed
them to purchase common stock for $3.00 to $12.00 per share for up to
five years. There were no vesting requirements associated with these
warrants. The Company determined the estimated aggregate fair value of
these various warrants on the date of grant to be approximately $895,706
based on the Black-Scholes valuation model described above. The
majority of these warrants have been amortized into expense as of
October 31, 1999. As of April 30, 2000, all remaining deferred costs
have been amortized to general and administrative expense.
5. Stock Options
The Company has a nonqualified stock option plan to provide key
employees and non-employees the opportunity to participate in equity
ownership. Options may be granted at or below the fair market value of
the stock and have a five-year life (increased to ten years in December
1999). Options granted to certain individuals vest ratably over three
years. The Company has reserved 650,000 common shares for exercise
of these stock options.
6. Income Taxes
The Company has estimated its annual effective tax rate at 0% due to the
uncertainty over the level of earnings in 2000. Also, the Company has
net operating loss carryforwards of approximately $1.0 million for
income tax reporting purposes for which no income tax benefit has been
recorded due to the uncertainty over the generation of taxable income in
2000.
7. Technology Agreement
On March 9, 2000, the Company sold 550,000 shares of common stock,
in a private transaction, for total proceeds of $5,775,000 to Premier
Research Worldwide ("PRWW"), an unrelated third party.
Concurrently, the Company and eResearch Technology, a wholly owned
subsidiary of PRWW, executed a sales, service and marketing
agreement. Under the agreement, which has a five-year term, the
Company will assist eResearch Technology in deploying its suite of
integrated proprietary clinical research software to companies in the
pharmaceutical, medical device and biotechnology industries, as well as
clinical research organizations. Also, the Company will expand its
telecommunications and internet infrastructure to become an application
service provider for eResearch Technology's proprietary clinical
research software. Further, the two companies will work to increase the
efficiency and effectiveness of eResearch Technology's electronic
network by utilizing the Company's base of contract physicians to
expedite clinical research reporting. In addition, the companies will
cooperate to facilitate training of physicians to use proprietary software,
developed by eResearch Technology, which provides for the electronic
transmission of a centralized analysis of electrocardiograms used to
monitor the effects on the heart of new therapies.
8. Operating Segments
The Company has five operating segments: Internet chats, Maritime
response and travel assistance, Pharmaceutical sales, Doc-Talk and
other, which includes the outpatient clinic at the corporate headquarters..
All of the segments are engaged in the dispensing of medical advice and
information, but the method of distribution and customer bases are
different. The Internet chats segment provides medical information via
the AmericasDoctor.com button on America Online. The Maritime
response segment provides medical advice to personnel on ocean-going
vessels. The Travel assistance segment provides medical assistance to
travelers to the United States. The Pharmaceutical sales segment
provides pharmaceuticals to airlines and companies using ocean-going
vessels. The Doc-Talk segment provides medical information via local
and long distance telephone lines. The headquarters clinic is an outpatient
medical clinic providing laser treatments and related medical services.
The Company evaluates performance based on operating results of the
respective segments. The accounting policies of the segments are the
same as those described in the summary of accounting policies.
Summarized financial information concerning the Company's reporting
segments for the three months and six months ended April 30, 1999 and
2000 is presented below.
Six months ended Segment Total
April 30, 1999 Revenues Profit(loss) Assets
------------------------------------------------------------------------------
Internet chat services $1,552,137 $ 367,928 $1,993,055
Maritime response & travel
assistance services 812,503 693,048 472,577
Pharmaceutical sales 228,553 118,954 73,945
Doc-Talk - - -
Other 37,742 27,156 -
Unallocated corporate
expenses - (1,291,384) -
Unallocated assets - - 3,423,183
---------- ----------- ----------
$2,630,935 $ (84,298) $5,962,760
========== =========== ==========
Six months ended Segment Total
April 30, 2000 Revenues Profit(loss) Assets
------------------------------------------------------------------------------
Internet chat services $3,507,702 $ 759,671 $1,307,166
Maritime response & travel
assistance services 1,074,424 420,748 730,773
Pharmaceutical sales 309,634 100,914 116,262
Doc-Talk 3,250 (503,254) 43,125
eRT 84,000 81,173 2,700,000
Other 54,966 8,580 -
Unallocated corporate
expenses - (1,882,598) -
Unallocated assets - - 3,649,116
---------- ----------- ----------
$5,033,976 $(1,014,766) $8,546,442
========== =========== ==========
Three months ended Segment Total
April 30, 1999 Revenues Profit(loss) Assets
------------------------------------------------------------------------------
Internet chat services $ 736,161 $ 193,390 $1,993,055
Maritime response & travel
assistance services 495,533 495,729 472,577
Pharmaceutical sales 107,719 70,377 73,945
Doc-Talk - - -
Other 13,055 15,803 -
Unallocated corporate
expenses - (854,165) -
Unallocated assets - - 3,423,183
---------- ----------- ----------
$1,352,468 $ (78,866) $5,962,760
========== =========== ==========
Three months ended Segment Total
April 30, 2000 Revenues Profit(loss) Assets
------------------------------------------------------------------------------
Internet chat services $1,273,730 $ 259,637 $1,307,166
Maritime response & travel
assistance services 755,533 254,085 730,773
Pharmaceutical sales 156,252 57,571 116,262
Doc-Talk 1,793 (204,684) 43,125
eRT 84,000 81,173 2,700,000
Other 43,723 14,565 -
Unallocated corporate
expenses - (1,033,173) -
Unallocated assets - - 3,649,116
---------- ----------- ----------
$2,315,031 $ (570,826) $8,546,442
========== =========== ==========
9. Subsequent Events
On May 22, 2000 the Company agreed to purchase 12% of the
outstanding common stock of CICP, the holding company for CORIS
Group International ("CORIS") of Paris, France for $400,000 in cash and
10,000 restricted shares of MAS common stock. CORIS provides
medical and non-medical travel assistance and insurance claims services
to the travel industry and insurance clients through an independent
network of 24-hour call centers in 37 countries. The investment
agreement with CORIS calls for the development of international
internet medical "chat" services and foreign language chat services in the
U.S., using CORIS 24-hour call centers to provide infrastructure and
personnel. It also calls for CORIS to serve as the international arm of
MAS' ASP Operations. This investment will be accounted for on the
cost method.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements made by the Company in
its disclosures to the public. There is certain information contained herein
in the Company's press releases and in oral statements made by
authorized officers of the company which are forward-looking statements
as defined by such Act. When used herein in the Company's press
releases and in such oral statements, the words "estimate", "project",
"anticipate", "expect", "intend", "believe", "plan", and similar
expressions are intended to identify forward-looking statements.
The following selected financial data and Management's Discussion and
Analysis of Financial Conditions and Results of Operations should be
read in conjunction with the Company's interim financial statements and
notes thereto, included elsewhere in this Form 10QSB.
NET LOSS
The net loss for the six months ended April 30, 2000 was $986,095
compared to a net loss of $419,324 for the comparable period in fiscal
1999. The increase in the net loss is due to start up costs in the Doc Talk
segment of approximately $503,000 and amortization of deferred
investment advisory fees of approximately $596,000 offset by income
from the internet chat and the new eRT technology segments. The fiscal
1999 results included an extraordinary gain of approximately $331,000
related to sale of the travel assistance joint venture which did not recur in
fiscal 2000.
The net loss for the three months ended April 30, 2000 increased
approximately $213,000 to $553,945. The net loss in fiscal 2000 was
comprised of start up costs of approximately $215,000 for the Doc Talk
segment and amortization of deferred investment advisory fees of
approximately $438,000 offset by income from the internet chat and eRT
technology segments. The fiscal 1999 period included the Company's
share of losses of an affiliate of approximately $525,000 offset by an
extraordinary gain of approximately $265,000 related to the sale of the
ownership interest in the travel assistance joint venture both of which did
not recur in fiscal 2000.
On March 9, 2000, the Company sold 550,000 shares of common stock,
in a private transaction, for total proceeds of $5,775,000 to Premier
Research Worldwide, ("PRWW"), an unrelated third party.
Concurrently, the Company and eResearch Technology, ("eRT") a
wholly owned subsidiary of PRWW, executed a sales, service and
marketing agreement. Under this agreement, which has a five-year term,
the Company will assist eRT in deploying its suite of integrated
proprietary clinical research software to companies in the
pharmaceutical, medical device and biotechnology industries, as well as
clinical research organizations. Also, the Company will expand its
telecommunications and Internet infrastructure to become an application
service provider for eRT's proprietary clinical research software.
Further, the two companies will work to increase the efficiency and
effectiveness of eRT's electronic network by utilizing the Company's
base of contract physicians to expedite clinical research reporting. In
addition, the companies will cooperate to facilitate training of physicians
to use proprietary software, developed by eRT, which provides for the
electronic transmission of a centralized analysis of electrocardiograms
used to monitor the effects on the heart of new therapies. As part of the
service agreement the Company purchased a software license from eRT
for $2,700,000. Also, the Company expects capital expenditures of
approximately $300,000 for upgrading its computer hardware and
telecommunications infrastructure. The sales, service and marketing
agreement guarantees the Company a minimum of approximately
$1,000,000 in revenues during the first year of the contract beginning
April 1, 2000. The company recognized $84,000 in revenues under the
contract in the quarter ended April 30, 2000.
During the second quarter of 2000 the Company has begun the
construction of an office building in its office complex. This building
will be used by the pharmaceutical department as a warehouse and office
space and for the eRT computer room and offices. The Company
anticipates expenditures of approximately $500,000 for construction of
this building.
INTERNET "CHAT" SERVICES
Revenues increased 126% from $1,552,137 in the first six months of
1999 to $3,507,702 in the first six months of 2000. The second quarter
revenues increased from $736,161 in fiscal 1999 to $1,273,730 in the
same period of fiscal 2000, a 73% increase. Operating expenses
increased 125% from $1,218,667 in the first six months of 1999 to
$2,748,031 in the first six months of 2000. The second quarter operating
expenses increased from $577,229 in 1999 to $1,014,093 in 2000, a 57%
increase. Operating income increased 128% from $333,470 in the first
six months of 1999 to $759,671 in the first six months of 2000. The
second quarter operating income increased by $100,705 from $158,932
in 1999 to $259,637 in fiscal 2000. This increase is primarily due to an
increase in the number of consumers engaging in medical chats using
AmericasDoctor.com.
MARITIME AND TRAVEL ASSISTANCE SERVICES
Revenues in the first six months increased by 32% from $812,503 in the
first six months of 1999 to $1,074,424 in the first six months of 2000.
Operating expenses increased 273% from $175,308 in the first six
months of 1999 to $653,676 in the first six months of 2000. Operating
income decreased from $637,195 in the first six months of 1999 to
$420,748 in the first six months of 2000. The second quarter revenues
increased from $495,533 in 1999 to $755,533 in fiscal 2000. Operating
expenses increased by 801% during the second quarter of 2000 from
$55,657 in 1999 to $501,448 in 2000. Operating income decreased from
$439,876 in the second quarter of 1999 to $254,085 in the second quarter
of 2000. The decrease in operating income is due to increased expenses
caused by the termination of the ASA service contract and the costs
associated with unlimited service contracts.
PHARMACEUTICAL KITS AND SERVICES
Revenues increased $81,081 or 35% from 228,553 in the first six months
of 1999 to $309,634 in the first six months of 2000. Revenues increased
by 45% in the second quarter of fiscal 2000 when compared to the same
quarter of 1999. This increase is due to an increase in the volume of kits
and services provided. Operating expenses increased $79,883 or 62%
from $128,837 in the first six months of 1999 to $208,720 in the first six
months of 2000. The second quarter operating expenses increased by
$42,101 from $56,580 in 1999 to $98,681 in 2000. Operating income
remained relatively unchanged for the first six months of 1999 and 2000
due to increased revenues offset by increased staff expenses and
increased price competition in the pharmaceutical industry. However the
second quarter operating income increased in the second quarter of fiscal
2000 by 12.5% compared to the second quarter of fiscal 1999.
eRT SERVICES
As discussed previously during the second quarter of fiscal year 2000 the
Company executed an agreement with eRT. This contract resulted in
revenues of $84,000 in the month of April and will continue to generate
similar revenues for the next 11 months. Under the agreement, which has
a five-year term, the Company will assist eRT in deploying its suite of
integrated proprietary clinical research software to companies in the
pharmaceutical, medical device and biotechnology industries, as well as
clinical research organizations. Also, the Company will expand its
telecommunications and internet infrastructure to become an application
service provider for eRT's proprietary clinical research software.
Further, the two companies will work to increase the efficiency and
effectiveness of eRT's electronic network by utilizing the Company's
base of contract physicians to expedite clinical research reporting. In
addition, the companies will cooperate to facilitate training of physicians
to use proprietary software, developed by eRT, which provides for the
electronic transmission of a centralized analysis of electrocardiograms
used to monitor the effects on the heart of new therapies.
THE DOCTALK, INC. SERVICE
The launch of the DocTalk, Inc. service occurred in October 1999. Since
then, DocTalk has entered its initial prototype operational phase. The
phasing in of this service has permitted the Company to continuously
fine tune its operational procedures, more precisely identify the
demographics of its customer base and identify additional alliances and
strategic programs to increase its revenue sources. DocTalk generated
revenues of $3,250 and operating expenses of $506,504 during the first
six months of fiscal 2000. DocTalk generated revenues of $1,793 and
operating expenses of $216,617 during the second quarter of fiscal
2000. There were no revenues or expenses in the comparable periods in
fiscal 1999. If business conditions warrant accelerated expansion of the
DocTalk operation, the Company will explore financing alternatives to
provide the necessary funding.
OTHER
Revenues increased 46% from $37,742 in the first six months of 1999 to
$54,966 in the first six months of 2000. Expenses increased 158% from
$17,971 in the first six months of 1999 to $46,386 in the first six months
of 2000. Net revenues were $8,580 in the first six months of 2000 as
compared to $19,771 in the first six months of 1999. Revenues for the
second quarter of 1999 were $13,055 compared to $43,723 for the same
period of 2000. Operating expenses for the second quarter of 1999 were
$4,637 compared to $29,158 for the same period of 2000 resulting in
operating profits of $8,418 and $14,565 respectfully. The changes
where primarily due to start-up costs associated with the new primary
care clinic.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses increased 59% from
$1,126,254 in the first six months of 1999 to $1,791,938 in the first six
months of 2000. The second quarters expenses were $715,779 and
$977,287 respectfully. The increase is primarily due to an increase in the
amortization of deferred investment advisory costs. The amortization
was approximately $162,000 in the first half of 1999 compared to
$757,607 in the first half of 2000. In June 2000, the Company established
an investment advisory relationship with another investment banking
firm. Accordingly, the Company wrote off the remaining deferred
investment advisory fees of approximately $387,000 as of April 30,
2000. This $387,000 write-off has been included in the $757,607
amortization mentioned above.
DEPRECIATION AND AMORTIZATION
Depreciation increased from $48,196 in the first six months of 1999 to
$90,660 in the first six months of 2000, an increase of 88%. This
increase is due to the purchase of new computer equipment to support the
AmericasDoctor.com program and furniture and fixtures for the
DocTalk, Inc. program.
EXTRAORDINARY GAIN
In the first six months of 1999 the Company recorded an extraordinary
gain of $330,882 with an extraordinary gain in the second quarter of
1999 of $264,733 due to the forgiveness of debt from SACNAS
International. There was no comparable amount in the first or second
quarters of 2000.
INCOME TAX BENEFIT/EXPENSE
The Company did not record an income tax provision or benefit for the
six months ended April 30, 1999 and 2000 due to the net loss for the
period. The Company has provided a valuation allowance related to the
deferred tax asset represented by the net operating losses due to the
uncertainty surrounding the amount of taxable income to be generated in
2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations totaled $548,662 in the first six months of 2000
compared to cash provided by operations of $605,990 in the first six
months of 1999. The cash used in operations is primarily attributable to
the start up costs of Doc Talk ($503,000) and an increase in accounts
receivable. Cash used in investing activities totaled $2,843,771 for the
first six months of 2000 compared to $1,517,821 in the first six months
of 1999. During the first six months of fiscal 2000 the Company
purchased a software license from eRT for $2,700,000. In the first six
months of fiscal 1999 the company made an investment in an equity
affiliate of $1,587,047. Cash provided by operating activities totaled
$5,777,942 in the first six months of 2000 compared to $2,269,415 in the
first six months of 1999. During the second quarter, the Company issued
550,000 shares of common stock to PRWW for $5,775,000. The capital
raised is being used to support the development of eRT programs and for
the general operation of the Company's other business lines. The
Company has begun construction of a 4,800 square foot building located
in the company's office complex with an estimated cost of approximately
$500,000. This building is expected to be completed within the next six
months and will house both the pharmacy warehouse and the eRT
computer room and offices.
The Company currently has a $500,000 credit agreement with a bank. At
April 30, 2000 there is no outstanding balance. The agreement extends
through October 2000.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
In January 2000 the Company issued 95,180 shares of common
stock in connection with the exercise of previously recorded
warrants issued to third parties. In March 2000 the Company
sold 550,000 shares of common stock to PRWW for a total
investment of $5,775,000. In April 2000 the Company issued
37,000 shares of common stock to employees of MAS in
connection with the exercise of stock options.
Item 3. Defaults from Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
Item 5. Other Information
NONE
Item 6. Exhibits
NONE
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: June 14, 2000 By: /s/ Thomas M. Hall, M.D., M.I.M.
------------- --------------------------------
Thomas M. Hall, M.D., M.I.M.
Chief Executive Officer
