<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
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(Mark one)
[XX] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31,1996
[__] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-11922
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MEDICALCONTROL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 75-2297429
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(State of incorporation) (IRS Employer ID Number)
9649 Webb Chapel Road; Dallas, Texas 75220
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(Address of principal executive offices)
(214) 352-2666
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(Issuer's telephone number)
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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
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State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: Common Stock -- 3,873,578 as of
April 15, 1996.
Transitional Small Business Disclosure Format (check one): YES NO X
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<PAGE>
MEDICALCONTROL, INC.
Form 10-QSB for the Quarter ended March 31, 1996
Table of Contents
Page
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PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 9
PART II - OTHER INFORMATION
F-2
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MEDICALCONTROL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $1,785,270 $1,651,475
Accounts receivable - trade, net of allowance
for doubtful accounts of $308,573 and
$351,806 1,930,179 1,908,415
Accounts receivable - premium 324,766 438,978
Accounts receivable - other 84,820 343,629
Prepaid income taxes 29,665 121,360
Prepaid expenses and other current assets 113,273 131,499
Deferred income taxes 199,497 199,497
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Total current assets 4,467,470 4,794,853
NOTE RECEIVABLE - OFFICER, including accrued interest 344,262 337,239
PROPERTY AND EQUIPMENT, NET 1,719,101 1,790,333
GOODWILL, NET 3,675,040 3,707,306
INTANGIBLE AND OTHER ASSETS, NET 1,183,899 1,270,400
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TOTAL ASSETS $11,389,772 $11,900,131
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable - trade $598,281 $826,902
Accounts payable - premium 634,523 634,161
Accrued liabilities 556,905 649,124
Income taxes payable 11,464 -
Borrowings under revolving bank lines of credit 575,000 1,000,000
Current portion of long-term debt 758,912 763,416
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Total current liabilities 3,135,085 3,873,603
NON-CURRENT LIABILITIES
Long-term debt, net of current portion 511,658 474,360
Deferred income taxes 395,351 395,351
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - $.10 par; 4,000,000
shares authorized, no shares issued or outstanding - -
Common stock - $.01 par: 8,000,000 shares
authorized, 3,907,190 and 3,904,823 issued 39,072 39,048
Additional paid-in capital 5,266,021 5,258,192
Retained earnings 2,311,481 2,128,473
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7,616,574 7,425,713
Less: Treasury stock (33,612 shares), at cost (268,896) (268,896)
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Total stockholders' equity 7,347,678 7,156,817
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,389,772 $11,900,131
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</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
MEDICALCONTROL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
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(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
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1996 1995
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<S> <C> <C>
NET REVENUES $ 4,009,397 $ 4,413,152
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OPERATING EXPENSES
Salaries and wages 2,002,357 2,572,440
Other operating expenses 1,475,828 1,306,399
Depreciation and amortization 208,110 124,536
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Total operating expenses 3,686,295 4,003,375
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INCOME FROM OPERATIONS 323,102 409,777
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OTHER INCOME (EXPENSE)
Interest expense (41,943) (70,115)
Investment income - 46,905
Other 24,310 6,863
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Total other income (expense) (17,633) (16,347)
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INCOME BEFORE INCOME TAXES 305,469 393,430
Provision for income taxes 122,461 154,899
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NET INCOME $ 183,008 $ 238,531
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Earnings per share - primary $ 0.05 $ 0.06
============== ==============
Weighted average number of shares outstanding 3,998,132 4,328,313
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
MEDICALCONTROL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Common Stock Holding Gains
--------------------
Additional (Losses) of Total
Shares Paid-in Marketable Retained Treasury Stockholders'
Issued Amount Capital Securities Earnings Stock Equity
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<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 3,831,725 $ 38,317 $ 5,112,493 $ (280,560) $ 2,449,406 - $ 7,319,656
Exercise of stock options and warrants 60,450 605 239,981 - - - 240,586
Realized losses on sales
of marketable securities - - - 280,560 - - 280,560
Issuance of common stock 12,648 126 64,695 - - - 64,821
Stock and warrant registration costs - - (255,255) - - - (255,255)
Acquisition of treasury stock
in connection with sale of subsidiary (33,612) - - - - (268,896) (268,896)
Tax benefit on options exercised - - 96,278 - - - 96,278
Net loss - - - - (320,933) - (320,933)
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Balance at December 31, 1995 3,871,211 39,048 5,258,192 - 2,128,473 (268,896) 7,156,817
Exercise of stock options 2,367 24 7,829 7,853
Net income 183,008 183,008
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Balance at March 31, 1996 3,873,578 $ 39,072 $ 5,266,021 $ - $ 2,311,481 $(268,896) $ 7,347,678
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
MEDICALCONTROL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net income $ 183,008 $ 238,531
Adjustments to reconcile net income
to net cash provided by operations
Depreciation and amortization 208,110 124,535
Net changes in certain assets and liabilities
Accounts receivable - trade (21,764) (370,118)
Accounts receivable - premium 114,212 116,167
Prepaid income taxes 91,695 -
Prepaid expenses and other current assets 19,063 (101,220)
Accounts payable - trade (228,621) 277,770
Accounts payable - premium 362 (591,588)
Accrued liabilities (68,744) 94,010
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Net cash provided by (used in) operating activities 297,321 (211,913)
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CASH FLOWS RELATED TO INVESTING ACTIVITIES
Purchases of property and equipment (18,948) (213,739)
Capitalized software development costs - (197,683)
Proceeds from sale of GAS 258,809 -
Net sales of marketable securities - 7,081
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Net cash provided by (used in) investing activities 239,861 (404,341)
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CASH FLOWS RELATED TO FINANCING ACTIVITIES
Increase in note receivable - officer (7,023) (838)
Net drawdowns/(repayments) on revolving bank lines of credit (425,000) 780,418
Proceeds (Payments) of long-term debt 20,783 (795,522)
Proceeds from issuance of common stock 7,853 29,691
Stock and warrant registration costs - (88,483)
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Net cash used in financing activities (403,387) (74,734)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 133,795 (690,988)
Cash and cash equivalents at beginning of period 1,651,475 1,329,902
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Cash and cash equivalents at end of period $1,785,270 $ 638,914
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SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 21,284 $ 48,242
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Income taxes paid $ 81,000 $ 3,200
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</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
MEDICALCONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(UNAUDITED)
NOTE 1 - BACKGROUND AND ORGANIZATION
MedicalControl, Inc. ("MCI"), a Delaware corporation, is a healthcare cost
management company providing managed healthcare services primarily to employers
which self-fund their benefit programs, insurance companies, and other managed
care organizations. Through MCI and its subsidiaries (collectively the
"Company"), the Company provides products and services which include healthcare
cost containment programs, preferred provider organization ("PPO") network,
large claim negotiation, third-party administration ("TPA") services, claims
administration and data analysis and reporting to its customers. The Company's
contracts with its customers are renewable annually and permit cancellation upon
30 to 60 days' notice.
NOTE 2 - BASIS OF PRESENTATION
The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC) and have
not been audited or reviewed by independent public accountants. In the opinion
of management, all adjustments (which consisted only of normal recurring
accruals) necessary to present fairly the financial position and results of
operations have been made. Pursuant to SEC rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from these statements unless significant changes have taken
place since the end of the most recent fiscal year. The Company believes that
the disclosures contained herein, when read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-KSB as
amended for the fiscal year ended December 31, 1995, are adequate to make the
information presented not misleading. It is suggested, therefore, that these
statements be read in conjunction with the statements and notes included in the
aforementioned Form 10-KSB.
NOTE 3 - EARNINGS PER SHARE
Earnings per share is computed using the weighted-average number of shares of
common stock and common stock equivalents (calculated using the treasury stock
method) outstanding during the year. Included in the 1996 and 1995 primary
earnings per share calculation are 98,892 and 494,762 common stock equivalents,
respectively.
NOTE 4 - REVOLVING BANK LINES OF CREDIT
The Company has revolving lines of credit with a bank with total availability of
$1,000,000. As of March 31, 1996, outstanding borrowings under these agreements
were $575,000. The lines of credit expire in May 1996. Management expects to
be able to refinance these lines prior to their maturity and is in the process
of making arrangements to negotiate new borrowing agreements. Outstanding
borrowings at December 31, 1995, and March 31, 1996, have been classified as
current liabilities in the accompanying consolidated balance sheets.
F-7
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NOTE 5 - REGISTRATION STATEMENTS
During 1996, MCI has filed two registration statements with the Securities and
Exchange Commission to register certain existing outstanding shares of common
stock and to extend the expiration date of warrants issued in connection with
MCI's 1993 initial public offering.
F-8
<PAGE>
PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE QUARTER (OR THREE MONTHS) ENDED MARCH 31, 1996, COMPARED TO THE QUARTER
(OR THREE MONTHS) ENDED MARCH 31, 1995.
(1) RESULTS OF OPERATIONS
Net revenues for the three months ended March 31, 1996 decreased 9% to
$4,009,397 from $4,413,152 for the comparable 1995 period. Excluding revenues
generated by Group Administrators -San Antonio, Inc. ("GAS") which was sold
effective December 31, 1995, net revenues decreased approximately $128,000 (3%).
This decrease line resulted from PPO revenues decreasing approximately
$212,000 primarily due to the loss of two clients, offset by increased TPA
revenues of approximately $84,000 due to the addition of new clients.
Net income for the quarter ended March 31, 1996 decreased 21% to $188,276
compared to $238,531 for the same period in 1995. Primary earnings per share for
the first quarter of 1996 and 1995 were $.05 and $.06, respectively. Exclusive
of the net operating results of GAS, net income decreased approximately $35,000
(15%), and primary earnings per share would have been $.05 for the 1995 period.
Salaries and wages decreased 22% to $2,002,357 from $2,572,440 for the quarter
ended March 31, 1996, as compared to the prior year period. Excluding salaries
and wages attributable GAS, salaries and wages decreased approximately $387,000
(15%). During the first half of 1995, salaries and wages increased
significantly due to the Company's efforts to expand its contracted provider
hospital and physician network, increased claims processing volumes, and the
development of new products and services for its clients. During the last half
of 1995 and continuing into 1996, salaries and wages have been reduced due to
operating efficiencies identified in the above areas and continued improvements
made to the Company's information systems.
Other operating expenses increased by approximately $164,000 for the three
months ended March 31, 1996, or 13%, as compared to the three months ended March
31, 1995. Excluding operating expenses attributable to GAS, other operating
expenses increased approximately $224,000 (17%). This increase was due
primarily to approximately $210,000 of consulting costs (for information
systems, marketing, and personnel needs) and approximately $164,000 of increased
access fees (incurred in leasing host networks for national clients), offset by
reduced travel, printing, and other general operating costs.
Depreciation and amortization increased to $208,110 from $124,536, or 67% for
the comparable periods. This increase was due primarily to amortization of
internally developed software projects completed in the first half of 1995.
Exclusive of GAS, depreciation and amortization increased approximately $91,000
(72%) due to the reasons noted above.
(2) LIQUIDITY
The Company had net working capital of $1,337,653 at March 31, 1996, compared to
$921,250 at December 31, 1995. The increase is due primarily to payments made
primarily due to cash flow from operations used to reduce accounts payable and
outstanding borrowings under the Company's revolving lines of credit. Cash and
cash equivalents were $1,785,270 at March 31, 1996 compared to $1,651,475 at
December 31, 1995.
As of March 31, 1996, the Company had outstanding borrowings of $575,000 under
its $1,000,000 revolving lines of credit with a bank. These credit facilities
expire in May 1996. Management has begun negotiations to consolidate these
lines and to make other changes that would provide the Company more borrowing
flexibility. Management believes these negotiations to be successful.
F-9
<PAGE>
(3) CAPITAL REQUIREMENTS
Capital expenditures for the purchase of tangible property and equipment were
$18,948 for the three months ended March 31, 1996. Management currently expects
total capital expenditures for the remaining nine months of 1996 to be
approximately $175,000.
In connection with the acquisition of DGA/DGIA, the Company will be required to
make three semiannual note payments to these subsidiaries' former shareholders
of $366,667 commencing June 30, 1996.
Management believes that cash flows from operations, cash on hand, and the
anticipated extension of its revolving credit agreements, as discussed above,
will be sufficient to fund liquidity needs and capital requirements for the
foreseeable future.
Additionally, on March 29, 1996, the Company filed a post effective amendment to
its registration statement with the Securities and Exchange Commission to
maintain the registration of 1,080,000 shares of common stock underlying the
Warrants and Underwriters' Warrants included in the Company's May 1993 initial
public offering. The registration statement has not yet been declared
effective. To the extent these Warrants and Underwriters' Warrants are
exercised, the Company's liquidity would be further enhanced.
The Company has not paid dividends in the past and does not anticipate the
payment of such in the future.
F-10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
F-11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDICALCONTROL, INC.
May __, 1996 ___________________________________
John Ward Hunt
President, Chief Executive Officer,
and Chief Financial Officer
F-12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,785,270
<SECURITIES> 0
<RECEIVABLES> 2,563,518
<ALLOWANCES> (308,573)
<INVENTORY> 0
<CURRENT-ASSETS> 427,255
<PP&E> 2,491,754
<DEPRECIATION> (772,653)
<TOTAL-ASSETS> 11,389,772
<CURRENT-LIABILITIES> 3,135,085
<BONDS> 0
0
0
<COMMON> 39,072
<OTHER-SE> 7,313,874
<TOTAL-LIABILITY-AND-EQUITY> 11,389,772
<SALES> 4,009,397
<TOTAL-REVENUES> 4,009,397
<CGS> 0
<TOTAL-COSTS> (3,686,295)
<OTHER-EXPENSES> 24,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (41,943)
<INCOME-PRETAX> 305,469
<INCOME-TAX> (122,461)
<INCOME-CONTINUING> 183,008
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,008
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
