<PAGE> 1
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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, 1999
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
------------------------ ------------------------
(State of incorporation) (IRS Employer ID Number)
8625 King George Drive, Suite 300; Dallas, Texas 75235
------------------------------------------------------
(Address of principal executive offices)
(214) 630-6368
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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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock - 4,195,824 as
of April 29, 1999.
Transitional Small Business Disclosure Format (Check one): YES [ ] NO [X]
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<PAGE> 2
MEDICALCONTROL, INC.
Form 10-QSB for the Quarter ended March 31, 1999
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 10
PART II - OTHER INFORMATION 13
</TABLE>
2
<PAGE> 3
MEDICALCONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 960,639 $ 1,112,653
Restricted Cash 593,609 308,002
Accounts receivable - trade, net of allowance
for doubtful accounts of $104,500 and $119,000
at March 31,1999 and December 31, 1998, respectively 1,247,676 1,312,043
Accounts receivable - premium 702,232 466,980
Accounts receivable - other 63,249 90,671
Income tax receivable 600,674 472,691
Prepaid expenses and other current assets 550,732 227,391
Deferred income taxes 169,028 169,028
------------ ------------
Total current assets 4,887,839 4,159,459
NOTE RECEIVABLE - OFFICER, including accrued interest 427,684 421,175
PROPERTY AND EQUIPMENT, NET 1,710,113 1,697,698
GOODWILL, NET 7,695,917 7,772,833
INTANGIBLE AND OTHER ASSETS, NET 71,866 97,991
DEFERRED TAXES 85,270 85,270
------------ ------------
TOTAL ASSETS $ 14,878,689 $ 14,234,426
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 923,655 $ 916,826
Accounts payable - premium 1,295,841 774,982
Accrued liabilities 965,187 773,749
Borrowings under bank line of credit 400,000 325,000
Current portion of long-term debt 908,754 1,115,515
------------ ------------
Total current liabilities 4,493,437 3,906,072
NON-CURRENT LIABILITIES
Long-term debt, net of current portion 1,540,827 1,554,484
Deferred gain on sale of option on real estate 766,667 789,417
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, 4,182,125 and 4,115,409 issued
in 1999 and 1998, respectively 41,821 41,154
Additional paid-in capital 6,507,080 6,210,002
Retained earnings 1,528,857 1,733,297
------------ ------------
Total stockholders' equity 8,077,758 7,984,453
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,878,689 $ 14,234,426
============ ============
</TABLE>
3
<PAGE> 4
MEDICALCONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET REVENUES $ 3,819,235 $ 3,404,957
------------ ------------
OPERATING EXPENSES
Salaries and wages 2,597,930 2,113,306
Other operating expenses 1,325,410 1,252,634
Depreciation and amortization 184,628 232,706
------------ ------------
Total operating expenses 4,107,968 3,598,646
------------ ------------
LOSS FROM OPERATIONS (288,733) (193,689)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (66,824) (2,206)
Investment income 23,134 40,838
Other income -- 1,143
------------ ------------
Total other income (expense) (43,690) 39,775
------------ ------------
LOSS BEFORE INCOME TAXES (332,423) (153,914)
Income tax benefit (127,983) (59,324)
------------ ------------
NET LOSS $ (204,440) $ (94,590)
============ ============
Basic loss per share $ (0.05) $ (0.02)
============ ============
Diluted loss per share $ (0.05) $ (0.02)
============ ============
Weighted average common shares outstanding 4,154,968 3,842,100
============ ============
Weighted average common and diluted shares outstanding 4,154,968 3,842,100
============ ============
</TABLE>
4
<PAGE> 5
MEDICALCONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net loss $ (204,440) $ (94,590)
Adjustments to reconcile net loss
to net cash provided by operations:
Depreciation and amortization 184,628 232,706
Amortization of deferred gain on real estate transaction (22,750) (22,750)
Net changes in certain assets and liabilities
Accounts receivable - trade 64,367 256,513
Income tax receivable (127,983) (65,215)
Prepaid expenses and other current assets (283,825) (32,923)
Accounts payable - trade 6,829 51,557
Accrued expenses 191,438 (289,672)
------------ ------------
Net cash provided by (used in) operating activities (191,736) 35,626
------------ ------------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Purchases of property and equipment (106,095) (35,489)
------------ ------------
Net cash used in investing activities (106,095) (35,489)
------------ ------------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Loan to officer, including accrued interest (6,510) (7,125)
Draw on bank line of credit 75,000 --
Payments on long-term debt (220,418) (20,129)
Proceeds from issuance of common stock 297,745 249,584
Acquisition of treasury stock -- (205,000)
------------ ------------
Net cash provided by financing activities 145,817 17,330
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (152,014) 17,467
Cash and cash equivalents at beginning of period 1,112,653 2,031,550
------------ ------------
Cash and cash equivalents at end of period $ 960,639 $ 2,049,017
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 70,189 $ 5,671
============ ============
Income taxes paid $ -- $ 370,466
============ ============
Restricted cash at period end date $ 593,609 $ 841,159
============ ============
</TABLE>
5
<PAGE> 6
MEDICALCONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(UNAUDITED)
NOTE 1 - BACKGROUND AND ORGANIZATION
MedicalControl, Inc. (the "Company"), a Delaware corporation, is a holding
company of healthcare cost management and administrative services companies.
The Company is comprised of four main subsidiaries: MedicalControl Network
Solutions, Inc., providing managed care services primarily through its
preferred provider organization ("PPO") networks, Diversified Group
Administrators, Inc., providing third party administration ("TPA") services,
ppoONE.com, inc., providing repricing and administrative services for PPO's and
certain network healthcare providers, and ValueCheck, Inc., the newly-formed
subsidiary providing utilization review and case management services. All
significant intercompany transactions have been eliminated. The Company's
contracts with its customers are renewable annually and permit cancellation
upon 30 to 60 days' notice.
During September 1998, MedicalControl Network Solutions, Inc. acquired Business
Health Companies, Inc. ("BHC"). See Note 5 for further discussion.
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 for the fiscal year ended December 31, 1998, 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
Basic earnings per share are computed by dividing net income by the weighted
average common shares outstanding during the period. Diluted earnings per share
are computed by dividing net income by the weighted average dilutive shares
outstanding during the period. There was no impact from dilutive common
equivalent shares since losses were reported for the periods ended March 31,
1999 and 1998.
In 1999 and 1998, 1,750,324 and 1,415,089 common equivalent shares were
excluded from the calculation of diluted earnings per share because the effect
would have been anti-dilutive for the periods presented.
6
<PAGE> 7
NOTE 4 - REGISTRATION STATEMENT
During March 1998, the Company filed a registration statement with the
Securities and Exchange Commission to register certain existing outstanding
shares of common stock owned by the majority shareholder of the Company. The
stock registered serves as collateral for certain loans of the majority
shareholder.
NOTE 5 - ACQUISITION
Effective September 1, 1998, a wholly-owned subsidiary of the Company acquired
all of the issued and outstanding common stock of Business Health Companies,
Inc. ("BHC") for approximately $4,600,000 plus liabilities assumed of $264,138
and accrued acquisition costs of $150,000. BHC provides managed care services,
primarily through its PPO networks within the 15-county Houston, Texas market.
The purchase consideration consisted of $2,150,000 in cash, an aggregate of
$1,000,000 in subordinated convertible notes to the previous shareholders of
BHC and 270,900 shares of Company stock valued at approximately $1,422,000. The
acquisition was accounted for under the purchase method of accounting. The
purchase price exceeded the fair value of assets acquired and liabilities
assumed which resulted in the recording of goodwill of approximately
$4,500,000, which will be amortized over 25 years. Liabilities assumed included
$110,000 for severance related expenses for certain employees and other
identified contingencies.
NOTE 6 - DEBT
In connection with the acquisition of BHC, the Company obtained bank financing
in the form of a $1,600,000 term loan. The Company also issued an aggregate of
$1,000,000 in subordinated convertible notes to the selling shareholders of
BHC. The bank note bears interest at the bank's prime rate plus 1% (8.75% at
March 31, 1999) and is payable in monthly installments of principal and
interest through October 2003. The subordinated convertible seller notes bear
interest at 8.5% and are payable in quarterly installments of principal and
interest through October 2003. The notes are convertible into common stock of
the Company upon 30 days' notice, in $25,000 increments, at a conversion rate
of $5.25 per share.
In conjunction with the bank financing above, the Company's existing $1,000,000
line of credit was terminated and a new revolving credit facility was obtained.
This credit facility, secured by accounts receivable, allowed for maximum
borrowings of $500,000, since reduced to $400,000 in December 1998, and bears
interest at the bank's prime rate plus 1% (8.75% at March 31, 1999). As of
March 31, 1999, the Company had no availability under its line of credit.
During March and May 1999, the Company restructured the terms and financial
covenants of its existing bank term note and revolving line of credit. Under the
revised terms of the note agreement, the Company made a principal reduction in
the amount of $200,000 on March 31, 1999. Further, the Company is required to
make additional principal reductions of $50,000 on or before June 15, 1999 and
$350,000 on or before August 1, 1999, the latter to be paid with proceeds from
an expected income tax refund. The revised new term note includes certain
revised financial covenants, including minimum cash flow, stockholders' equity
and working capital requirements, and is secured by a pledge of certain shares
of the Company's wholly-owned subsidiaries. The Company is required to make
monthly payments of principal and interest, as described above. Concurrently,
maximum borrowings under the Company's revolving credit facility were reduced
from $500,000 to $400,000. The Company had no availability under its line of
credit as of March 1999. No other modifications were made to this credit
facility.
7
<PAGE> 8
Although there can be no assurance, the Company believes that it will be in
compliance with its debt covenants through 1999.
Management believes that cash flows from operations and cash on hand will be
sufficient to fund liquidity needs and capital requirements in 1999.
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
Comprehensive Income
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company adopted SFAS No. 130 effective January 1,
1998. Management believes the impact of SFAS No. 130 was immaterial as there
were no items of other comprehensive income for the periods ended March 31,
1999 and 1998.
Business Segment Reporting
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of an Enterprise," replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal reporting that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of SFAS No. 131
did not affect results of operations or the financial position of the Company
but did affect the disclosure of segment information.
The Company manages its business segments primarily on a products and services
basis. The Company's reportable segments are comprised of managed care
services, primarily through its preferred provider organization ("PPO"), third
party administration services ("TPA"), repricing and administrative products
and services offered through its wholly-owned subsidiary, ppoONE.com
("ppoONE.com"), and utilization review and case management services through its
newly-formed wholly-owned subsidiary, ValueCheck, Inc. ("ValueCheck").
The Company evaluates the performance of its business units based on segment
operating profit. Segment revenues include an intercompany allocation for
services performed by ppoONE.com for the PPO segment. Segment operating profit
includes personnel, sales and marketing expenses and other operating expenses
directly attributable to the segment and excludes certain expenses that are
managed outside the segment. Costs excluded from the segment operating profit
consist of corporate expenses, including income taxes, amortization expense and
interest income and interest expense. Corporate expenses are comprised
primarily of executive compensation and other general and administrative
expenses that are separately managed. Corporate assets are not included in
segment assets. Corporate assets consist primarily of cash and cash
equivalents, deferred taxes and intangible assets.
8
<PAGE> 9
Summary information by segment as of and for the periods ended March 31, 1999
and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
PPO Segment:
Revenues $ 1,965,477 $ 1,808,600
Operating expenses 1,696,943 1,439,195
------------ ------------
Operating profit 268,534 369,404
Depreciation 41,340 74,103
Segment assets 2,025,155 2,514,357
TPA Segment:
Revenues $ 1,739,417 $ 1,526,673
Operating expenses 1,679,825 1,388,005
------------ ------------
Operating profit 59,592 138,668
Depreciation 41,244 31,163
Segment assets 3,253,528 4,094,524
ppoONE.com Segment:
Revenues $ 610,155 $ 348,530
Operating expenses 773,141 675,646
------------ ------------
Operating loss (162,986) (327,115)
Depreciation 24,234 21,280
Segment assets 340,881 248,285
ValueCheck Segment:
Revenues $ 31,662 $ --
Operating expenses 102,760 --
------------ ------------
Operating (loss) (71,098) --
Depreciation 893 --
Segment assets 63,499 --
</TABLE>
A reconciliation of the Company's segment revenues, operating profit (loss) and
segment assets to the corresponding consolidated amounts as of and for the
periods ended March 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Segment revenues $ 4,346,710 $ 3,683,803
Intercompany revenues 527,476 279,093
------------ ------------
Consolidated revenues $ 3,819,235 $ 3,404,710
============ ============
Segment operating profit $ 94,041 $ 180,957
Corporate expenses, net 382,774 374,646
------------ ------------
Consolidated operating loss $ (288,733) $ (193,689)
============ ============
Segment assets $ 5,683,063 $ 6,857,166
Corporate assets 9,195,626 4,928,622
------------ ------------
Consolidated assets $ 14,878,689 $ 11,785,788
============ ============
</TABLE>
9
<PAGE> 10
PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE QUARTER (OR THREE MONTHS) ENDED MARCH 31, 1999, COMPARED TO THE QUARTER (OR
THREE MONTHS) ENDED MARCH 31, 1998.
(1) RESULTS OF OPERATIONS
Net revenues for the three months ended March 31, 1999 were up $415,000 or
12% from the comparable 1998 period. PPO revenues increased approximately
$157,000 for the period primarily due to acquired BHC revenues, which were
$706,000 during the period, reduced by lower Dallas PPO revenues of
$549,000. TPA revenues increased approximately $213,000 for the quarter
primarily due to claims administration fees on new business sold and
increased volume from existing customers and revenues from expanding into
Harrisburg, Pennsylvania through an acquisition in November 1998.
Net loss for the quarter ended March 31, 1999 was $(204,440), or $(.05)
per share, compared with $(94,590), or $(.02) per share, for the same
period in 1998. This decline was due primarily to increases in personnel
costs and operating expenses more fully discussed below.
Salaries and wages increased $485,000 or 23% for the quarter ended March
31, 1999, as compared to the prior year period. Of this increase,
approximately $49,000 was attributable to normal salary adjustments
effected between periods, and $392,000 related to additional personnel in
both the PPO, mainly those added through the BHC acquisition, and TPA
operations, as the result of increased claims volume, systems conversion
efforts and the Harrisburg acquisition.
Other operating expenses increased by approximately $73,000 for the three
months ended March 31, 1999, or 6%, as compared to the three months ended
March 31, 1998. This increase was primarily due to increased postage
expense associated with higher TPA claims volume, higher
telecommunications expense primarily in the TPA, increased business
insurance premiums and other increases arising from the acquisitions,
reduced by substantially lower access fees paid to affiliate PPO networks
and the relative mix of capitated versus percentage of savings client
fees.
Depreciation and amortization for the quarter ended March 31, 1999
declined approximately $48,000 from the same period in 1998 as a result of
the Company's write-off of capitalized software development costs in
September 1998.
Other income (expense) declined from income of approximately $40,000,
primarily interest income, for the first quarter of 1998 to expense of
approximately $44,000 in the 1999 quarter mainly as the result of interest
expense on debt incurred to acquire BHC.
(2) LIQUIDITY AND CAPITAL REQUIREMENTS
The Company had net working capital of approximately $394,000 at March 31,
1999, compared with $253,000 at December 31, 1998. Unrestricted cash and
cash equivalents were $961,000 at March 31, 1999, compared with $1,113,000
at December 31, 1998. Cash used in operations during the first quarter of
1999 was approximately $192,000 compared with cash provided by operations
of approximately $36,000 during the same period in 1998.
Capital expenditures for the purchase of tangible property and equipment
were approximately $106,000 for the three months ended March 31, 1999.
These expenditures were primarily for data
10
<PAGE> 11
processing equipment for the Company's TPA operations and for leasehold
improvements in the ppoONE.com and ValueCheck operations.
Effective September 1, 1998, a wholly-owned subsidiary of the Company
purchased BHC for approximately $4,600,000. The purchase consideration
consisted of $2,150,000 cash, an aggregate of $1,000,000 in subordinated
convertible notes to the previous shareholders of BHC and common stock of
the Company valued at approximately $1,422,000. In connection with the
acquisition, the Company obtained bank financing in the form of a
$1,600,000 term loan which bears interest at the bank's prime rate plus 1%
(8.75% at March 31, 1999) and is payable in sixty monthly principal
installments of $26,667 plus interest through October 2003. The
convertible seller notes bear interest at 8.5% and are payable in
quarterly principal installments of $50,000 plus interest through October
2003. The notes are convertible into common stock of the Company at any
time, in $25,000 increments, at a conversion rate of $5.25 per share.
At March 31, 1999, the Company had $400,000 of outstanding borrowings
under its revolving line of credit arrangement. This credit facility,
secured by accounts receivable, allows for maximum borrowings of $400,000
and bears interest at the bank's prime rate plus 1% (8.75% at March 31,
1999).
In March and May 1999, the Company restructured certain covenants and other
terms of the bank agreement. Under the revised terms, the Company was
required to make a principal reduction of $200,000 on March 31, 1999 and is
required to make additional principal reductions of $50,000 on or before
June 15, 1999 and $350,000 on or before August 1, 1999, the latter to be
paid with proceeds from an expected income tax refund. The revised term
note includes covenants which impose minimum requirements for cash flow,
stockholders' equity and working capital, and is secured by a pledge of
certain shares of the Company's wholly-owned subsidiaries. Concurrently,
maximum borrowings under the Company's revolving credit facility were
reduced from $500,000 to $400,000. Although there can be no assurance, the
Company believes that it will be in compliance with its debt covenants
throughout 1999.
Management believes that cash flows from operations, cash on hand, and the
borrowing capacity under the Company's line of credit will be sufficient
to fund liquidity needs and capital requirements for the fiscal year 1999.
During the first quarter of 1999, the Company eliminated certain employee
positions and reduced certain other expenses that will result in
approximately $70,000 in salary and other cost savings per month.
The Company has not paid dividends in the past and does not anticipate the
payment of such in the future.
(3) RELIANCE ON DATA PROCESSING
The Company's management has recognized the need to ensure that its
operations and relationships with vendors and other third parties will not
be adversely impacted by software processing errors arising from
calculations using the year 2000 and beyond ("Year 2000"). Management
recognizes that failure by the Company to timely resolve internal Year
2000 issues could result, in the worst case, in an inability of the
Company to store, retrieve, process, and manage data in support of its
claims repricing and third party administration services. However, Company
management believes that scenario is unlikely based on the progress made
in its Year 2000 remediation plan. Failure of one or more third party
service providers on whom the Company relies to address Year 2000 issues
could also result, in a worst case scenario, in some business
interruption. The lost revenues, if any, resulting from a worst case
scenario such as those examples described above would depend on the time
period during which the failure goes uncorrected and on how widespread the
impact.
11
<PAGE> 12
The Company began a formal program in 1998 to evaluate, assess and make
the needed changes to its core information technology ("IT") systems and
applications to comply with Year 2000 issues. Management has completed its
review of all essential IT systems and believes that they are Year 2000
compliant with the exception of IT systems used in providing TPA services.
Beginning in 1996, the TPA started converting its clients from an
operating system that was not Year 2000 compliant to a current Year 2000
compliant claims processing system operated in the software vendor's data
center. Such conversion has taken longer than expected and has cost the
Company approximately $700,000 to date in non-recurring expenses and is
estimated to cost an additional $300,000 in non-recurring expenses during
the remainder of 1999 before such conversion is completed.
The Company's primary PPO IT systems and applications have been developed
and placed into production within the past twenty-four months.
Accordingly, such systems and applications were developed employing
contemporary software tools to be Year 2000 compliant from their initial
design phase. Management is continuing to inventory and evaluate all
non-essential software programs and hardware used in the Company's
business. Management expects this process to be complete by September 30,
1999. Non-compliant systems are being replaced, modified or outsourced as
they are reviewed. The Company has communicated, and will continue to
communicate, with its suppliers, financial institutions and others with
which it does business to monitor and evaluate Year 2000 conversion
progress.
With regard to non-IT systems, such as general office security systems and
phone systems, the Company is currently evaluating the compliance of such
systems. Systems that are not compliant, if any, will be remediated,
upgraded or replaced by September 30, 1999. Management anticipates that
expenditures related to these activities will not exceed $20,000.
Direct expenditures associated with Year 2000 issues, excluding costs
associated with the development of the underlying core IT systems, have
been immaterial to date and have been funded through the Company's normal
IT operations budget.
The Company has had each of its departments or divisions develop basic
contingency plans to restore the material functions of each of its
material systems or activities in the case of a Year 2000 related failure.
The contingency plans cover all material levels of activity within each
business location. The Company plans to continually refine these plans and
to make them more comprehensive as more information becomes available from
testing and third party suppliers.
Although there can be no assurance that the Company will be able to
complete all of the modifications in the required time frame, nor that
unanticipated events will occur, or that the Company will be able to
identify all Year 2000 issues before problems manifest themselves, it is
management's belief that the Company is taking adequate action to address
Year 2000 issues. Management does not expect the Year 2000 compliance
efforts or related expenditures to be material to the Company's
consolidated financial position, results of operations or cash flows.
12
<PAGE> 13
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
Exhibit 27.1 Financial Data Schedule
13
<PAGE> 14
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 11, 1999 /s/ John Ward Hunt
----------------------------------
John Ward Hunt
President and
Chief Executive Officer
/s/ Bob E. Buddendorf
----------------------------------
Bob E. Buddendorf
Senior Vice President and
Chief Financial Officer
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 960,639<F1>
<SECURITIES> 0
<RECEIVABLES> 1,247,676
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,887,839
<PP&E> 1,710,113
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,878,689
<CURRENT-LIABILITIES> 4,493,437
<BONDS> 0
0
0
<COMMON> 41,821
<OTHER-SE> 8,035,937
<TOTAL-LIABILITY-AND-EQUITY> 14,878,689
<SALES> 3,819,235
<TOTAL-REVENUES> 3,819,235
<CGS> 0
<TOTAL-COSTS> 4,107,968
<OTHER-EXPENSES> (23,134)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,824
<INCOME-PRETAX> (332,423)
<INCOME-TAX> (127,983)
<INCOME-CONTINUING> (204,440)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (204,440)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
<FN>
<F1>EXCLUDES RESTRICTED CASH OF $593,609.
</FN>
</TABLE>
