<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
----------------------
(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
- --------- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
----------------------
Commission File Number: 1-11922
-------
MEDICALCONTROL, INC.
(Exact name of small business issuer as
specified in its charter)
Delaware 75-2297429
---------------------------- ------------------------
(State of incorporation) (IRS Employer ID Number)
9649 Webb Chapel Road; Dallas, Texas 75220
-------------------------------------------
(Address of principal executive offices)
(214) 352-2666
--------------
(Issuer's telephone number)
----------------------
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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: Common Stock -- 3,904,823 as of
August 12, 1996
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
<PAGE>
MEDICALCONTROL, INC.
Form 10-QSB for the Quarter ended June 30, 1996
Table of Contents
Page
----
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 8
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 10
2
<PAGE>
MEDICALCONTROL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
------ ------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,156,374 $ 1,651,475
Accounts receivable - trade, net of allowance
for doubtful accounts of $309,000 and
$352,000 1,778,937 1,908,415
Accounts receivable - premium 289,576 438,978
Accounts receivable - other 93,455 343,629
Prepaid income taxes 123,167 121,360
Prepaid expenses and other current assets 87,212 131,499
Deferred income taxes 199,497 199,497
----------- -----------
Total current assets 4,728,218 4,794,853
NOTE RECEIVABLE - OFFICER, including accrued interest 351,180 337,239
PROPERTY AND EQUIPMENT, NET 1,653,196 1,790,333
GOODWILL, NET 3,631,444 3,707,306
INTANGIBLE AND OTHER ASSETS, NET 1,110,970 1,270,400
----------- -----------
TOTAL ASSETS $11,475,008 $11,900,131
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable - trade $ 615,518 $ 826,902
Accounts payable - premium 540,536 634,161
Accrued liabilities 655,397 649,124
Current portion of long-term debt 782,157 763,416
----------- -----------
Total current liabilities 2,593,608 2,873,603
NON-CURRENT LIABILITIES
Borrowings under revolving bank lines of credit 550,000 1,000,000
Long-term debt, net of current portion 485,873 474,360
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 5,242,794 5,258,192
Retained earnings 2,437,206 2,128,473
----------- -----------
7,719,072 7,425,713
Less: Treasury stock (33,612 shares), at cost (268,896) (268,896)
----------- -----------
Total stockholders' equity 7,450,176 7,156,817
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,475,008 $11,900,131
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
MEDICALCONTROL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- --------------------------
1996 1995 1996 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES $3,847,618 $4,311,874 $7,857,015 $8,731,530
---------- ---------- ---------- ----------
OPERATING EXPENSES
Salaries and wages 2,042,512 2,524,456 4,044,869 5,096,897
Other operating expenses 1,425,343 1,379,227 2,901,171 2,707,939
Depreciation and amortization 208,453 168,843 416,563 293,378
---------- ---------- ---------- ----------
Total operating expenses 3,676,308 4,072,526 7,362,603 8,098,214
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 171,310 239,348 494,412 633,316
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest expense (32,072) (86,520) (74,015) (156,635)
Investment income 46,553 62,346 46,553 124,552
Other (2,490) 2,159 21,820 9,530
---------- ---------- ---------- ----------
Total other income (expense) 11,991 (22,015) (5,642) (22,553)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 183,301 217,333 488,770 610,763
Provision for income taxes 57,576 66,265 180,037 221,164
---------- ---------- ---------- ----------
NET INCOME $ 125,725 $ 151,068 $ 308,733 $ 389,599
========== ========== ========== ==========
Earnings per share $ 0.03 $ 0.04 $ 0.08 $ 0.09
========== ========== ========== ==========
Weighted average number ofshares outstanding 4,020,104 4,216,864 4,018,799 4,265,367
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
MEDICALCONTROL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
----------
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net income $ 308,733 $ 389,599
Adjustments to reconcile net income
to net cash provided by operations
Depreciation and amortization 416,563 293,378
Net changes in certain assets and liabilities
Accounts receivable - trade 129,478 (523,538)
Accounts receivable - premium 149,402 332,352
Prepaid expenses and other current assets 42,478 (58,552)
Accounts payable- trade (211,384) 160,910
Accounts payable - premium (93,625) (415,392)
Accrued liabilities 6,273 271,947
---------- ----------
Net cash provided by operating activities 747,918 450,704
---------- ----------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Purchases of property and equipment (44,132) (316,609)
Capitalized software development costs - (511,844)
Proceeds from sale of subsidiary 250,174
Net sales of marketable securities - (10,962)
---------- ----------
Net cash provided by (used in) investing activities 206,042 (839,415)
---------- ----------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Increase in note receivable-officer (13,941) (13,941)
Net drawdowns/(repayments) on revolving bank lines of credit (450,000) 1,130,418
Proceeds (Payments) of long-term debt 30,254 (755,936)
Proceeds from issuance of common stock 7,853 104,853
Stock and warrant registration costs (23,227) (158,494)
---------- ----------
Net cash provided by (used in) financing activities (449,061) 306,900
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 504,899 (81,811)
Cash and cash equivalents at beginning of period 1,651,475 1,329,902
---------- ----------
Cash and cash equivalents at end of period $2,156,374 $1,248,091
========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 57,031 $ 156,635
========== ==========
Income taxes paid $ 141,000 $ 34,820
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
MEDICALCONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 six months ended June 30,
1996, primary earnings per share calculation are 112,585 common stock
equivalents and 112,914 for the quarter ended June 30, 1996.
NOTE 4 - DEBT
On May 31, 1996, the Company refinanced its revolving bank lines of credit
totaling $1,000,000 on terms substantially consistent with the prior
arrangements, except the lines were consolidated into a single note agreement
which matures on May 31, 1998. As of June 30, 1996, borrowings under this line
of credit were $550,000.
6
<PAGE>
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.
7
<PAGE>
PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE SIX MONTHS AND QUARTER ENDED JUNE 30, 1996, COMPARED TO THE SIX MONTHS AND
QUARTER ENDED JUNE 30, 1995
(1) RESULTS OF OPERATIONS
Net revenues for the three months ended June 30, 1996, decreased 11% to
$3,847,618 from $4,311,874 for the comparable period ended June 30, 1995, and
decreased 10% to $7,857,015 from $8,731,530 for the six months ended June 30,
1996, compared to the comparable period ended June 30, 1995. Excluding revenues
generated by Group Administrators - San Antonio, Inc. ("GAS") which was sold
effective December 31, 1995, revenues decreased 4% for the three months ended
June 30, 1996, compared to three months ended June 30, 1995, and 4% for the
comparable six month period ended June 30, 1996. This decline resulted from
PPO revenues declining primarily due to the loss of two clients in 1996.
Net income decreased 17% to $125,725 from $151,068 for the three months ended
June 30, 1996, and June 30, 1995, respectively. Net income decreased 21% to
$308,733 from $389,599 for the six months ended June 30, 1996, and June 30,
1995, respectively. Primary earnings per share decreased to $.03 from $.04 for
the three months ended June 30, 1996, and to $.08 from $.09 for the six month
period as compared to the prior year. Exclusive of the net operating results of
GAS, net income decreased approximately $9,900 (7%) for the three months ended
June 30, 1996, as compared to the three months ended June 30, 1995, and
decreased approximately $50,000 (14%) for the six months ended June 30, 1996,
compared to the same period ended June 30, 1995.
Salaries and wages decreased 19% to $2,042,512 from $2,524,456 for the three
months ended June 30, 1996, as compared to prior year period. For the six
months ended June 30, 1996, and 1995, respectively, salaries and wages decreased
21% to $4,044,869 from $5,096,897. Exclusive of the salaries and wages
attributable to GAS, salaries and wages decreased approximately $277,000 (12%)
for the three months ended June 30, 1996, as compared to the prior year period,
and decreased approximately $664,000 (14%) for the six month period ended June
30, 1996 as compared to the prior period. 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 $46,000 (3%) for the three
months ended June 30, 1996, as compared to the three months ended June 30, 1995.
Other operating expenses increased approximately $193,000 (7%) for the six
months ended June 30, 1996, as compared to the six months ended June 30, 1995.
Exclusive of the other operating expenses attributable to GAS, other operating
expenses increased approximately $101,000 (8%) for the three months ended June
30, 1996, as compared to the prior year period, and increased approximately
$307,000 (12%) for the six month period ended June 30, 1996 as compared to the
prior period. The increase was primarily due to increased consulting costs (for
information systems, marketing, and personnel needs) and increased access fees
(incurred in leasing host networks for national clients), offset by reduced
travel, printing, and other general operating costs.
8
<PAGE>
Depreciation and amortization increased to $208,453 from $168,843, or 23% for
the three month comparable periods ending June 30, 1996, and June 30, 1995,
respectively. Depreciation and amortization increased to $416,563 from
$293,378, or 42% for the six month comparable periods ending June 30, 1996, and
June 30, 1995, respectively. 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 48,000
(30%) and $139,000 (50%) for the three and six month periods ended June 30,
1996, respectively, as compared to the same periods during 1995.
(2) LIQUIDITY
The Company had net working capital of $1,584,610 at June 30, 1996, compared to
$921,250 at December 31, 1995. The increase is primarily due to cash flow from
operations used to reduce accounts payable and outstanding borrowings under the
Company's revolving line of credit. Cash and cash equivalents were $2,156,374
at June 30, 1996 compared to $1,651,475 at December 31, 1995.
On May 31, 1996, the Company refinanced its revolving bank lines of credit
totaling $1,000,000 on terms substantially consistent with the prior
arrangements, except the lines were consolidated into a single note agreement
which matures on May 31, 1998. As of June 30, 1996, borrowings under this line
of credit were $550,000.
(3) CAPITAL REQUIREMENTS
Capital expenditures for the purchase of tangible property and equipment were
$44,132 for the six months ended June 30, 1996. Management currently expects
total capital expenditures for the remaining six months of 1996 to be
approximately $200,000.
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. The June 1996 installment was paid
immediately subsequent to the quarter end. Accordingly, the accompanying
balance sheet reflects this debt as being outstanding at June 30, 1996.
Management believes that cash flows from operations, cash on hand, and the
borrowing capacity under the company's line of credit, 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 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.
9
<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
Submissions of matters through the solicitation of proxies were provided to
security holders during the three month period ended June 30, 1996. These
matters were voted on May 15, 1996, at the annual shareholders meeting. The
annual meeting involved the election of directors. The following individuals
were elected as directors of the Company:
<TABLE>
<CAPTION>
NAME POSITION FOR AGAINST ABSTAIN
- --------------------------- ---------------------- --------- ------- -------
<S> <C> <C> <C> <C>
John Ward Hunt President, Chief 3,582,996 0 2,366
Executive Officer,
Chairman of the Board
of Directors
David Samuel Coats Director 3,582,996 0 2,366
Robert W. Philip Director 3,582,996 0 2,366
William L. Amos , M.D. Director 3,582,996 0 2,366
</TABLE>
One additional item was voted on during the shareholders meeting.
The ratification and approval of the selection by the Board of Directors of
Arthur Andersen LLP as independent auditors of the Company and its subsidiaries
for fiscal year ending December 31, 1995.
For: 3,580,865 Against: 4,397 Abstain: 100
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
10
<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.
August 12, 1996 /S/ JOHN WARD HUNT
_______________________________________
John Ward Hunt
President
Chief Executive Officer
/S/ DAVID A. HANSON
_______________________________________
David A. Hanson
Principal Accounting Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERNECE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,156,374
<SECURITIES> 0
<RECEIVABLES> 1,778,937
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,728,218
<PP&E> 1,653,196
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,475,008
<CURRENT-LIABILITIES> 2,593,608
<BONDS> 0
0
0
<COMMON> 39,072
<OTHER-SE> 7,411,104
<TOTAL-LIABILITY-AND-EQUITY> 7,450,176
<SALES> 7,857,015
<TOTAL-REVENUES> 7,857,015
<CGS> 0
<TOTAL-COSTS> 7,362,603
<OTHER-EXPENSES> (68,373)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,015
<INCOME-PRETAX> 488,770
<INCOME-TAX> 180,037
<INCOME-CONTINUING> 308,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308,733
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
