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 July 31, 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: $2,479,566
Common Stock, $.005 par value 5,111,000 Shares of Common Stock Outstanding
as of July 31, 2000
Item 1. Financial Statements
Medical Advisory Systems, Inc.
Consolidated Balance Sheet
October 31, July 31,
1999 2000
----------- -----------
Assets
Current
Cash and cash equivalents $ 931,949 $3,000,048
Accounts receivable, less allowance for doubtful
accounts of $77,744 and $101,544 444,396 665,428
Inventories 25,108 25,526
Prepaid expenses and other 11,651 9,100
---------- ----------
Total current assets 1,413,104 3,700,102
Property and equipment, at cost, less
accumulated depreciation and amortization 1,042,653 1,298,877
Purchased software, net of amortization
of $0 and $180,000 - 2,520,000
Investment in affiliates (Note 1) 639,171 1,154,229
Deferred investment advisory costs (Note 4) 757,607 243,968
Intangible assets, net 48,250 39,738
---------- ----------
$3,900,785 $8,956,914
========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
Medical Advisory Systems, Inc.
Consolidated Balance Sheet
October 31, July 31,
1999 2000
----------- ----------
Liabilities and Stockholders' Equity
Current
Current maturities of long-term debt $ 3,395 $ 3,355
Current maturities of capital lease obligations 25,769 28,705
Accounts payable and accrued expenses 483,383 524,544
Deferred income 31,677 790
---------- ----------
Total current liabilities 544,224 557,394
---------- ----------
Long-term debt 131,230 127,906
Capital lease obligations 98,793 76,058
Customer advances 57,944 22,560
---------- ----------
Total liabilities 832,191 783,918
---------- ----------
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 5,111,000 shares issued
and outstanding 22,054 25,554
Additional paid-in capital 8,164,041 14,344,127
Accumulated deficit (5,073,918) (6,153,102)
Treasury stock, at cost (50,000 shares) (43,583) (43,583)
---------- ----------
Total stockholders' equity 3,068,594 8,172,996
---------- ----------
$3,900,785 $8,956,914
========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
Medical Advisory Systems, Inc.
Consolidated Statements of Operations
Nine months ended July 31, 1999 2000
------------------------------------------------------------------------------
Revenue:
Internet chat services $2,802,057 $4,650,886
Maritime response services 702,186 617,822
Travel assistance 427,598 1,228,719
Pharmaceutical sales 357,142 547,469
Training services 57,217 97,783
eRT revenue - 336,000
Clinic services - 29,409
Doc Talk revenue - 5,454
---------- ----------
Total Revenue 4,346,200 7,513,542
---------- ----------
Operating Expenses:
Internet chat services (Note 2) 2,117,097 3,629,129
Maritime response & travel assistance
services (Note 2) 174,895 1,182,377
Pharmaceutical cost of sales 179,380 367,060
Cost of training services 18,802 45,013
Doc-Talk services - 628,711
Clinic services - 44,641
eRT expenses - 25,355
Selling, general and administrative (Note 4) 2,112,326 2,409,792
Depreciation & amortization 77,119 329,999
---------- ----------
Total Operating Expenses 4,679,619 8,662,077
---------- ----------
Operating loss (333,419) (1,148,535)
Other Income/(Expense):
Other income 11,258 9,326
Gain on sale of joint venture investment 62,468 -
Interest income 57,895 77,384
Interest expense (72,910) (17,359)
---------- ----------
Total Other Income/(Expense) 38,711 69,351
---------- ----------
Income (loss) before earnings (loss) of
affiliate and extraordinary item (294,708) (1,079,184)
Equity in loss of affiliate (Note 1) (1,825,359) -
---------- ----------
Income (loss) before extraordinary item (2,120,067) (1,079,184)
Extraordinary gain 330,882 -
---------- ----------
Net loss $(1,789,245) $(1,079,184)
============ ============
Basic and diluted loss per share before
extraordinary gain $ (.48) $ (.23)
Extraordinary gain .07 -
---------- ----------
Basic and diluted loss per share $ (.41) $ (.23)
Weighted average common shares outstanding 4,397,010 4,760,286
See accompanying summary of accounting policies and notes
to consolidated financial statements.
Medical Advisory Systems, Inc.
Consolidated Statements of Operations
Three months ended July 31, 1999 2000
------------------------------------------------------------------------------
Revenue:
Internet chat services $1,249,920 $1,143,184
Maritime response services 238,196 202,119
Travel assistance 79,085 569,998
Pharmaceutical sales 128,589 237,835
Training services 19,475 58,606
eRT revenue - 252,000
Clinic services - 13,620
Doc Talk revenue - 2,204
---------- ----------
Total Revenue 1,715,265 2,479,566
---------- ----------
Operating Expenses:
Internet chat services (Note 2) 932,888 881,098
Maritime response & travel assistance
services (Note 2) 55,440 528,701
Pharmaceutical cost of sales 69,781 158,340
Cost of training services 8,216 27,899
Clinic services - 15,369
Doc-Talk services - 122,207
eRT expenses - 22,528
Selling, general and administrative (Note 4) 869,138 617,708
Depreciation & amortization 28,923 239,485
---------- ----------
Total Operating Expenses 1,964,386 2,613,335
---------- ----------
Operating loss (249,121) (133,769)
Other Income/(Expense):
Other income/(expense) 2,638 663
Interest income 15,654 45,551
Interest expense (2,872) (5,534)
---------- ----------
Total Other Income/(Expense) 15,420 40,680
---------- ----------
Income (loss) before earnings (loss) of affiliate (233,701) (93,089)
Equity in loss of affiliate (Note 1) (1,136,106) -
---------- ----------
Net loss $(1,369,861) $ (93,089)
=========== ==========
Basic and diluted loss per share $ (.31) $ (.02)
Weighted average common shares outstanding 4,397,010 5,095,457
See accompanying summary of accounting policies and notes
to consolidated financial statements.
Medical Advisory Systems, Inc.
Consolidated Statements of Cash Flows
Nine months ended July 31, 1999 2000
------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(1,789,245) $(1,079,184)
Adjustment to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 77,119 329,999
Bad debt expense - 22,500
Equity in loss of affiliate 1,825,359 -
Compensation expense for options and warrants 447,862 785,975
Changes in assets and liabilities:
Accounts receivable 267,207 (243,532)
Inventory (11,459) (418)
Prepaid expenses and other (16,669) 2,551
Accounts payable and accrued expenses 44,312 41,161
Deferred income 7,886 (30,887)
Other (22,801) (35,384)
---------- ----------
Net cash provided by (used in) operating activities 441,942 (207,219)
---------- ----------
Cash flows from investing activities:
Investment in affiliate (2,432,019) (401,308)
Purchase of property and equipment (69,108) (397,711)
Purchase of software - (2,700,000)
---------- ----------
Net cash used in investing activities (2,501,127) (3,499,019)
---------- ----------
Cash Flows from financing activities
Proceeds from sale of common stock 112,047 5,775,000
Proceeds from sale of preferred stock, net of cost
Dividends paid - preferred stock (48,950) -
Purchase of treasury stock (116,263) -
Repayment of loans to banks and related parties (315,035) (23,163)
Exercise of stock options - 22,500
---------- ----------
Net cash provided by financing activities 2,338,460 5,774,337
---------- ----------
Net increase in cash 666,904 2,068,099
Cash at beginning of period 579,331 931,949
---------- ----------
Cash at end of the period $1,246,235 $3,000,048
========== ==========
See accompanying summary of accounting policies and notes
to consolidated financial statements.
Medical Advisory Systems, Inc.
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 its 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 nine months ended July 31, 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 the
estimated fair value of warrants issued to certain third parties for public
and investor relations services to be rendered over one, two 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 FASB issued SFAS No. 133, "Accounting for
Derivative Instruments" ("SFAS 133"). SFAS 133 establishes accounting
and reporting standards for derivative instruments including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives), and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment (far value hedge), (b) a
hedge of the exposure to variable cash flows of a forecasted transaction
(cash flow hedge), or (c) a hedge of the foreign currency exposure of a
net investment in a foreign operation, an unrecognized firm commitment,
an available for sale security, or a foreign-currency-denominated
forecasted transaction. At the time of issuance SFAS No. 133 was to be
effective on a prospective basis for all fiscal quarters of fiscal years
beginning after June 15, 1999. Subsequently the effective date of the
standard was delayed until years beginning after June 15, 2000. The
adoption of this standard is not expected to have a material effect of the
Company's financial condition or results of operations.
Reclassifications
-----------------
Certain prior year balances have been reclassified to conform with the
current year presentation.
Medical Advisory Systems, Inc.
Notes to Consolidated Financial Statements
1. Investment in Affiliates
---------------------------
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.
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
on July 21, 2000 the Company issued 10,000 shares of common stock to
CORIS with a fair value of $113,750 for a total investment of $513,750.
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 has been
accounted for using the cost method.
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 nine months ended July 31, 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 $2,226,758 and $3,544,052, respectively, in fees and professional
liability insurance premiums. The amounts payable to these affiliates at
July 31, 1999 and 2000, were $0 and $143,202, respectively.
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.
On July 21, 2000 the Company issued 10,000 shares of common stock to
CORIS with a fair value of $113,750 in connection with the equity
investment described in note 1.
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.
In May 2000, the Company issued 75,000 warrants to purchase its
common stock to an investment banking firm as consideration for
providing investment advisory services for two year. The holder of the
warrants may purchase 75,000 common shares at $10.50 per share,
subject to adjustment as specified in the warrant agreement, for up to
five years. There are no vesting requirements associated with these
warrants. The Company determined the estimated aggregate fair value of
these warrants on the date of grant to be $272,336 based on the Black-
Scholes valuation model. The Company recorded the $272,336 as
deferred investment advisory fees and is amortizing this cost to expense
over 24 months, the term of the agreement.
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 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 medical and laser clinic. 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 international travelers. 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 outpatient medical and laser clinic
is located in the company's headquarters building and provides
outpatient 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 nine months
ended July 31, 1999 and 2000 is presented below.
Nine months ended Segment Total
July 31, 1999 Revenues Profit(loss) Assets
------------------------------------------------------------------------------
Internet chat services $2,802,057 $ 684,960 $1,752,573
Maritime response & travel
assistance services 1,129,784 954,889 514,198
Pharmaceutical sales 357,142 177,762 88,928
Doc-Talk - - -
Other 57,217 38,415 8,875
Unallocated corporate
expenses - (2,189,445) -
Unallocated assets - - 2,597,468
---------- ---------- ----------
$4,346,200 $ (333,419) $4,962,042
========== ========== ==========
Nine months ended Segment Total
July 31, 2000 Revenues Profit(loss) Assets
------------------------------------------------------------------------------
Internet chat services $4,650,886 $1,021,757 $1,428,320
Maritime response & travel
assistance services 1,846,541 664,164 740,767
Pharmaceutical sales 547,469 180,409 100,785
Doc-Talk 5,454 (623,257) 39,738
eRT 336,000 310,645 3,119,058
Other 127,192 37,538 3,009,148
Unallocated corporate
expenses - (2,739,791) -
Unallocated assets - - 519,098
---------- ---------- ----------
$7,513,542 $(1,148,535) $8,956,914
========== =========== ==========
Three months ended Segment Total
July 31, 1999 Revenues Profit(loss) Assets
------------------------------------------------------------------------------
Internet chat services $1,249,920 $ 317,032 $1,752,573
Maritime response & travel
assistance services 317,281 261,841 514,198
Pharmaceutical sales 128,589 58,808 88,928
Doc-Talk - - -
Other 19,475 11,259 8,875
Unallocated corporate
expenses - (898,061) -
Unallocated assets - - 2,597,468
---------- ---------- ----------
$1,715,265 $ (249,121) $4,962,042
========== ========== ==========
Three months ended Segment Total
July 31, 2000 Revenues Profit(loss) Assets
------------------------------------------------------------------------------
Internet chat services $1,143,184 $ 262,086 $1,428,320
Maritime response & travel
assistance services 772,117 243,416 740,767
Pharmaceutical sales 237,835 79,495 100,785
Doc-Talk 2,204 (120,003) 39,738
eRT 252,000 229,472 3,119,058
Other 72,226 28,958 3,009,148
Unallocated corporate
expenses - (857,193) -
Unallocated assets - - 519,098
---------- ---------- ----------
$2,479,566 $ (133,769) $8,956,914
========== ========== ==========
Medical Advisory Systems, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operation
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 nine months ended July 31, 2000 was $1,079,184 compared
to a net loss of $1,789,245 for the comparable period in fiscal 1999. The
decrease in the net loss is due to income from the internet chat and the new
eRT technology segments offset by start up costs in the Doc Talk segment of
approximately $628,711 and amortization of deferred investment advisory fees
of approximately $787,975. 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 July 31, 2000 was $93,089. The net
loss in the third quarter of fiscal year 2000 was comprised of start up costs
of approximately $122,207 for the Doc Talk segment and amortization of
deferred investment advisory fees of approximately $28,368 offset by income
from the internet chat and eRT technology segments.
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 $252,000 in revenues under
the contract in the quarter ended July 2000.
The Company's construction of an office building in its office complex
continued during the third quarter of fiscal 2000. This building will be used
by the pharmaceutical department as a warehouse and office space and for the
eRT secured computer suite and offices. The Company anticipates expenditures
of approximately $610,000 for construction of this building.
INTERNET "CHAT" SERVICES
Revenues increased 66% from $2,802,057 in the first nine months of 1999 to
$4,650,886 in the first nine months of 2000. The third quarter revenues
decreased from $1,249,920 in fiscal 1999 to $1,143,184 in the same period of
fiscal 2000. Operating expenses increased from $2,117,097 in the first nine
months of 1999 to $3,629,129 in the first nine months of 2000. The third
quarter operating expenses decreased from $932,888 in 1999 to $881,098 in 2000.
Operating income increased 49% from $684,960 in the first nine months of 1999
to $1,021,757 in the first nine months of 2000. The third quarter operating
income decreased by $54,946 from $317,032 in 1999 to $262,086 in fiscal 2000.
MARITIME AND TRAVEL ASSISTANCE SERVICES
Revenues in the first nine months increased by 63% from $1,129,784 in the
first nine months of 1999 to $1,846,067 in the first nine months of 2000.
Operating expenses increased 577% from $174,895 in the first nine months of
1999 to $1,182,377 in the first nine months of 2000. Operating income decreased
from $954,889 in the first nine months of 1999 to $664,164 in the first nine
months of 2000. The third quarter revenues increased from $317,281 in 1999 to
$772,117 in fiscal 2000. Operating expenses increased by 853% during the
third quarter of 2000 from $55,440 in 1999 to $528,701 in 2000. Operating
income decreased from $261,841 in the third quarter of 1999 to $243,416 in
the third 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 $190,327 or 53% from $357,142 in the first nine months of
1999 to $547,469 in the first nine months of 2000. Revenues increased by 85%
in the third 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 $187,680 or 104% from $179,380 in
the first nine months of 1999 to $367,060 in the first nine months of 2000.
The third quarter operating expenses increased by $88,559 from $69,781 in
1999 to $158,340 in 2000. Operating income remained relatively unchanged
for the first nine months of 1999 and 2000 due to increased revenues offset
by increased staff expenses and increased price competition in the
pharmaceutical industry. However, the third quarter operating income increased
by 35% compared to the third quarter of fiscal 1999.
eRT SERVICES
A contract with eRT Services has resulted in revenues of $252,000 in the third
quarter of fiscal year 2000 and will continue to generate similar revenues
for the next 8 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 $5,454 and
operating expenses of $628,711 during the first nine months of fiscal
2000. DocTalk generated revenues of $2,204 and operating expenses of $122,207
during the third quarter of fiscal 2000. The Company reduced advertising and
personnel expenses approximately $100,000 in the quarter ended July 31, 2000
which led to a comparable decrease in the operating loss. 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 122% from $57,217 in the first nine months of 1999 to
$127,192 in the first nine months of 2000. Operating expenses increased 376%
from $18,802 in the first nine months of 1999 to $89,654 in the first nine
months of 2000. Operating income was $37,538 in the first nine months of 2000
as compared to $38,415 in the first nine months of 1999. Revenues for the
third quarter of 1999 were $19,475 compared to $72,226 for the same period of
2000. Operating expenses for the third quarter of 1999 were $8,216 compared
to $43,268 for the same period of 2000 resulting in operating income of
$11,259 and $28,958 respectfully. Revenues and expenses in this segment
primarily reflect the operations of the training program and the outpatient
medical clinic.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 14% from $2,112,326 in
the first nine months of 1999 to $2,409,792 in the first nine months of 2000.
The third quarters' expenses were $869,138 and $617,348 respectfully. The
decrease is primarily due to a decrease in the amortization of deferred
investment advisory costs. The amortization was approximately $447,862 in
the first nine months of 1999 compared to $785,975 in the first nine months
of 2000. In June 2000, the Company established an investment advisory
relationship with another investment banking firm resulting in the issuance
of 75,000 stock warrants totaling $272,336. These warrants will be expensed
over the two-year period beginning in May 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $77,119 in the first nine months
of 1999 to $329,999 in the first nine months of 2000, an increase of 328%.
This increase is due to the purchase of new computer equipment to support both
the AmericasDoctor.com program and the eRT program along with furniture and
fixtures for the DocTalk, Inc. program.
EXTRAORDINARY GAIN
In the first nine months of 1999 the Company recorded an extraordinary gain of
$330,882 due to the forgiveness of debt from SACNAS International. There was
no comparable amount in 2000.
INCOME TAX BENEFIT/EXPENSE
The Company did not record an income tax provision or benefit for the nine
months ended July 31, 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 $207,219 in the first nine months of 2000
compared to cash provided by operations of $441,942 in the first nine months
of 1999. The cash used in operations is primarily attributable to the start
up costs of Doc Talk ($623,257). Cash used in investing activities totaled
$3,449,019 for the first nine months of 2000 compared to $2,501,127 in the
first nine months of 1999. During the first nine months of fiscal 2000 the
Company purchased a software license from eRT for $2,700,000. In the first
nine months of fiscal 1999 the company made an investment in an equity
affiliate of $2,432,019. Cash provided by operating activities totaled
$5,774,337 in the first nine months of 2000 compared to $2,338,460 in the
first nine 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 $610,000. 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. In June 2000
the Company issued 8,000 shares of common stock to employees of MAS
in connection with the exercise of stock options and 10,000 shares in
a purchase agreement with C.I.C.P.
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: September 15, 2000 By: /s/ Thomas M. Hall, M.D., M.I.M.
___________ _______________________________________
Thomas M. Hall, M.D., M.I.M.
Chief Executive Officer
