<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

(Mark One)
   |X|     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934

           For the quarterly period ended March 31, 1999

                            OR

   |_|     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934

           For the transition period from _______ to _________


                        Commission File Number 000-21463
                                               ----------  

                       Murdock Communications Corporation
                       ----------------------------------
        (Exact Name of Small Business Issuer as Specified in Its Charter)

           Iowa                                              42-1337746
           ----                                              ----------
  (State or other jurisdiction of              (IRS Employer Identification No.)
   incorporation or organization)

                 1112 29th Avenue S.W., Cedar Rapids, Iowa 52404
                 ----------------------------------------------
                    (Address of principal executive offices)

Registrant's telephone number, including area code:  319-362-6900

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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
                         --------                 --------

On March 31, 1999, there were outstanding 10,329,867 shares of the Registrant's
no par value Common Stock.

Transitional Small Business Disclosure Format (check one):
               Yes                          No        X
                         --------                 --------


<PAGE>   2


                       MURDOCK COMMUNICATIONS CORPORATION

                                   FORM 10-QSB

                                 March 31, 1999

                                      INDEX

PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>

                                                                                          Page

<S>             <C>                                                                       <C>
Item 1.          Consolidated Balance Sheets as of March 31, 1999 and December 31,
                 1998.................................................................     3

                 Consolidated Statements of Operations for the Three Months Ended
                 March 31, 1999 and 1998..............................................     5

                 Consolidated Statement of Cash Flows for the Three Months Ended
                 March 31, 1999 and 1998..............................................     6

                 Notes to Consolidated Financial Statements...........................     7

Item 2.          Management's Discussion and Analysis of Financial Condition and
                 Results of Operations................................................    12

PART II - OTHER INFORMATION

Item 1.          Legal Proceedings....................................................    18

Item 2.          Changes in Securities and Use of Proceeds............................    18

Item 5.          Other Information....................................................    18

Item 6.          Exhibits and Reports on Form 8-K.....................................    18

                 Signatures...........................................................    20
</TABLE>







                                       2

<PAGE>   3


PART I   FINANCIAL INFORMATION

                       MURDOCK COMMUNICATIONS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                      March 31, 1999 and December 31, 1998
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                MARCH 31, 1999        DECEMBER 31, 1998
                                                                                --------------        -----------------
                                                                                 (Unaudited)

ASSETS
CURRENT ASSETS

<S>                                                                            <C>                        <C>                
       Cash                                                                    $        220                $    1,722
       Accounts receivable, less allowance for doubtful accounts:                     3,286                     1,752
       Prepaid expenses and other current assets                                        677                       281
                                                                               ------------               -----------
                   TOTAL CURRENT ASSETS                                               4,183                     3,755



PROPERTY AND EQUIPMENT

       Land and building                                                              1,226                     1,172
       Telecommunications equipment                                                   9,093                     9,013
       Furniture and equipment                                                          697                       748
                                                                               ------------               -----------
                                                                                     11,016                    10,933
              Accumulated depreciation                                               (8,270)                   (8,097)
                                                                               ------------               -----------
                                                                                      2,746                     2,836
              Telecommunications equipment under capital lease, net of
                accumulated amortization : 1999 - $3,349; 1998 - $3,326                 159                       182
                                                                               ------------               -----------
                  PROPERTY AND EQUIPMENT, NET                                         2,905                     3,018

OTHER ASSETS
       Goodwill - net of accumulated amortization:  1999 - $1,028; 1998 -
       $697                                                                          11,316                    11,644
       Cost of purchased site contracts, net of accumulated amortization:               140                       174
       1999 - $703; 1998 - $670
       Other intangible assets, net of accumulated amortization:                        602                       659
                 1999 - $463; 1998 - $348
       Investments, at cost                                                           3,039                     1,500
       Prepaid commissions                                                            1,809                     1,704
       Other noncurrent assets                                                          110                       224
                                                                               ------------               -----------
                  TOTAL OTHER ASSETS                                                 17,016                    15,905
                                                                               ------------               -----------

TOTAL                                                                          $     24,104                $   22,678
                                                                               ============                ==========
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>   4


                       MURDOCK COMMUNICATIONS CORPORATION
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                      March 31, 1999 and December 31, 1998
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                             MARCH 31, 1999    DECEMBER 31, 1998
                                                                             --------------    -----------------
                                                                              (Unaudited)

<S>                                                                            <C>               <C>      
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
       Notes payable                                                           $    8,913        $   7,401
       Accounts payable                                                             2,165            1,205
       Accrued expenses                                                             1,413            2,059
       Current portion of capital lease obligation principally with a
       related party                                                                  875              869
       Current portion of long-term debt with related parties                         512              829
                  Current portion of long-term debt, others                           214              199
                                                                               ----------        ---------
              TOTAL CURRENT LIABILITIES                                            14,092           12,562

LONG-TERM LIABILITIES
       Capital lease obligations principally with a related party, less             
       current portion                                                              3,055            3,133
       Long-term debt with related parties, less current portion                    1,938            2,105
       Long-term debt, others, less current portion                                   746              725
       Accumulated losses of joint venture in excess of initial investment             53               61
       Deferred income                                                                 14               15
                                                                               ----------        ---------
                  TOTAL LIABILITIES                                                19,898           18,601
                                                                               ----------        ---------

SHAREHOLDERS' EQUITY
       8% Series A Convertible Preferred Stock, $100 stated value:
         authorized 50,000 shares; issued and outstanding:  1999 
         and 1998 - 18,920 shares ($1,892 liquidation value) 
                                                                                    1,844            1,837
       Common stock, no par or stated value:  Authorized - 20,000,000
         shares; issued and outstanding:  1999 and 1998 - 
         10,329,867 shares                                                         19,835           19,835
       Common stock warrants:  Issued and outstanding:  1999 -                        525              438
         4,740,763; 1998 - 4,420,763
       Additional paid-in capital                                                     134              134
       Accumulated deficit                                                        (18,132)         (18,167)
                                                                               ----------        ---------
                  TOTAL SHAREHOLDER'S EQUITY                                        4,206            4,077
                                                                               ----------        ---------
TOTAL                                                                          $   24,104       $   22,678
                                                                               ==========       ==========
</TABLE>



          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>   5


                       MURDOCK COMMUNICATIONS CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   Three Months Ended March 31, 1999 and 1998
                  (Dollars in thousands, except per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                     THREE MONTHS ENDED MARCH 31
                                                                      1999              1998
                                                                ------------------ ----------------
<S>                                                              <C>                     <C>         
REVENUES
       Call processing                                           $      9,940            $      5,363
       Other revenues                                                     847                     326
                                                                 ------------            ------------
                  TOTAL REVENUES                                       10,787                   5,689

COSTS OF SALES
       Call processing                                                  6,978                   3,453
       Other cost of sales                                                423                     110
       Nonstandard international bad debt expense                         141                      --
                                                                 ------------            ------------
                  TOTAL COST OF SALES                                   7,542                   3,563
                                                                 ------------            ------------
GROSS PROFIT                                                            3,245                   2,126

OPERATING EXPENSES
       Selling, general and administrative expenses                     1,796                   1,610
       Depreciation and amortization expense                              582                     458
                                                                 ------------            ------------
                  TOTAL OPERATING EXPENSES                              2,378                   2,068
                                                                 ------------            ------------
INCOME FROM OPERATIONS                                                    867                      58

NON-OPERATING INCOME (EXPENSE)
       Interest expense, net                                             (747)                   (446)
       Other income                                                         1                      35
                                                                 ------------            ------------
                  TOTAL NON-OPERATING INCOME (EXPENSE)                   (746)                   (411)
                                                                 ------------            ------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE AND
  JOINT VENTURE LOSS                                                      121                    (353)

  Loss from joint venture                                                  --                     (63)
  Income tax expense                                                      (37)                     (6)
                                                                 ------------            ------------
NET INCOME (LOSS)                                                          84                    (422)
DIVIDENDS AND ACCRETION ON 8% SERIES A CONVERTIBLE                        (49)                    (41)
       PREFERRED STOCK


                                                                 ============            ============
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
                                                                 $         35            $       (463)
                                                                 ============            ============
BASIC NET INCOME (LOSS) PER COMMON SHARE                         $         --            $      (0.10)
                                                                 ============            ============
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                   10,329,867               4,720,661
                                                                 ============            ============
DILUTED NET INCOME (LOSS) PER COMMON SHARE
                                                                 $         --            $       (.10)
                                                                 ============            ============

DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                 12,163,994               4,720,661
                                                                 ============            ============
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       5



<PAGE>   6


                       MURDOCK COMMUNICATIONS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   Three Months Ended March 31, 1999 and 1998
                             (Dollars in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                       THREE MONTHS ENDED MARCH 31
                                                                                           1999           1998
                                                                                       ------------   ------------
<S>                                                                                    <C>            <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:

NET INCOME (LOSS)                                                                      $         84    $      (422)

ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH FLOWS
       FROM OPERATING ACTIVITIES:
       Depreciation and amortization                                                            582            456
       Noncash interest expense                                                                 124             22
       Loss from joint venture                                                                    -             60
       Changes in operating assets and liabilities
         Receivables                                                                         (1,534)        (1,004)
         Other current assets                                                                  (369)            30 
         Prepaid commissions                                                                   (105)             -
         Other noncurrent assets                                                                114             16
         Accounts payable                                                                       960            258
         Accrued expenses                                                                      (688)           194
         Deferred income                                                                         (1)           (13)
                                                                                       ---------------------------    
                  NET CASH FLOWS FROM OPERATING ACTIVITIES                                     (833)          (403)

CASH FLOW FROM INVESTING ACTIVITIES: 
       Purchases of property and equipment                                                      (84)          (135)    
       Cash paid for investments                                                             (1,547)            (1)
                                                                                       ---------------------------
                  NET CASH FLOWS FROM INVESTING ACTIVITIES                                   (1,631)          (136)

CASH FLOW FROM FINANCING ACTIVITIES:
       Payments on capital lease obligations, primarily to a related party                      (72)             -
       Proceeds from capital lease obligations with a related party                               -            492
       Borrowings on notes payable                                                            1,650            122 
       Borrowings on long-term debt with a related party                                          -            400
       Borrowings on long-term debt, others                                                     141              -
       Payments on notes payable                                                               (138)             -
       Payments on long-term debt with related parties                                         (493)          (271)
       Payments on long-term debt, others                                                      (106)             -
       Proceeds from issuance of 8% Series A Convertible Preferred Stock                          -             50
       Dividends on 8% Series A Convertible Preferred Stock                                       -            (21)
       Payments on offering costs costs and origination fees                                    (20)           (13)
                                                                                       ---------------------------
                  NET CASH FLOW FROM FINANCING ACTIVITIES                                       962            759

                                                                                       ---------------------------
NET INCREASE (DECREASE) IN CASH                                                              (1,502)           220

CASH AT BEGINNING OF PERIOD                                                                   1,722            316

                                                                                       ---------------------------
CASH AT END OF PERIOD                                                                  $        220    $       536
                                                                                       ===========================

SUPPLEMENTAL DISCLOSURES
       Cash paid during the period for interest, principally to a related party        $        359    $       390
       Cash paid during the period for income taxes                                              29              6
</TABLE>





          See accompanying notes to consolidated financial statements.


                                       6



<PAGE>   7
                       MURDOCK COMMUNICATIONS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE MONTHS ENDED MARCH 31, 1999 AND 1998

1. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been
prepared by Murdock Communications Corporation (the "Company") in accordance
with generally accepted accounting principles for interim financial reporting
and the regulations of the Securities and Exchange Commission for quarterly
reporting. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
information. The foregoing unaudited interim consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary to
reflect a fair presentation of the financial position, the results of the
operations and cash flows of the Company and its subsidiaries for the interim
periods presented. All adjustments, in the opinion of management, are of a
normal and recurring nature. Operating results for the three months ended March
31, 1999 are not necessarily indicative of the results that may be expected for
the full year ended December 31, 1999. For further information, refer to the
financial statements and footnotes thereto for the year ended December 31, 1998,
included in the Company's Annual Report on Form 10-KSB (Commission File #
00-21463) as filed with the Securities and Exchange Commission on March 31,
1999.

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has an accumulated
deficit of $18.1 million, and current liabilities exceed current assets by $9.9
million at March 31, 1999. These factors, among others, indicate that the
Company may be unable to continue as a going concern for a reasonable period of
time. Management's plans to sustain operations are discussed in Note 1 in the
Company's Annual Report on Form 10-KSB (Commission File # 00-21463) for the 
year ended December 31, 1998 as filed with the Securities and Exchange
Commission on March 31, 1999.

RECLASSIFICATIONS

Certain amounts in the 1998 unaudited interim consolidated financial statements
have been reclassified to conform to the current year's presentation.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company, the
accounts of Priority International Communications, Inc. and ATN Communications,
Incorporated ("PIC/ATN") and effective February, 1998, the accounts of Incomex,
Inc. ("Incomex"), the Company's wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.

2. NOTES PAYABLE AND LONG-TERM DEBT

During the first quarter of 1999, the Company received proceeds of $1,500,000
from the issuance of promissory notes to related parties. The notes bear
interest at 14% with accrued interest and principal due on November 30, 1999.
Warrants to purchase 300,000 shares of the Company's common stock were issued in
relation to the promissory notes at an exercise price of $3.25 per share. The
Company has assigned a fair value of $60,000



                                       7
<PAGE>   8


to the warrants, that has been capitalized as deferred loan costs and are being
written off over the life of the notes.

As of March 31, 1999 the Company had an unpaid balance past due to an affilate
of Berthel Fisher & Company (collectively with its subsidiaries and their
affiliated leasing partnerships, "Berthel") of approximately $266,000. The
unpaid balance is in violation of certain of the covenants in the Berthel lease
agreements. Berthel has the right to demand that the Company cure this
violation, but has not made such a demand as of the date of this report.

As of March 31, 1999 the Company was past due on a $400,000 note payable to a
financial institution and $2 million of notes payable to individuals. As of the
date of this report, the financial institution has not made a demand for the
$400,000 note.  Effective April 1, 1999, as provided for in the terms of the
notes, the interest rate on the $2.0 million of past due notes payable to
individuals increased from 14% to 18%. While not required by the terms of the
notes, the Company solicited from the note holders signed agreements to extend
the notes to June 30, 1999.

The Company currently anticipates paying all past due debt with the proceeds
from the proposed credit facility (as discussed in Note 7) upon closing.

3. INCOME TAX EXPENSE

The provision for income taxes consisted of the following for the periods ended
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
         

Current:                                                  1999          1998
                                                          ----          ----
<S>                                                      <C>          <C>  
            Federal                                      $   -        $   -
            State                                         37,500        5,821
</TABLE>


At March 31, 1999, the Company has net operating loss carryforwards for federal
income tax purposes of approximately $13 million to use to offset future taxable
income. These net operating losses will expire, if unused, from December 31,
2002 through 2012.

4. CONTINGENCIES AND LEGAL PROCEEDINGS

Incomex has commenced an arbitration proceeding against EILCO Leasing Services,
Inc.("Eilco"), a creditor of Incomex, to resolve a dispute regarding a loan
agreement between Incomex and Eilco. Eilco claims that Incomex is in violation
of certain covenants of the loan agreement, including provisions relating to
certain obligations of Incomex to make payments to Eilco based on Incomex's
income from telecommunications services provided to a group of hotels in Mexico.
Incomex disputes these claims and initiated the arbitration proceedings to
resolve the dispute. An arbitration hearing with respect to this matter
commenced on April 21, 1999. Eilco is seeking the amount due on the loan and
additional damages which may be in excess of $1,000,000 plus legal fees. The
Company's position is that the Company owes, at the most, the principal balance
due on the loan and is not in violation of any of the covenants.  The Company
intends to defend the claims vigorously, but






                                       8
<PAGE>   9


can not make any assurances as to the outcome of this matter. No loss has been
recorded in the consolidated financial statements with respect to the matter in
excess of the amount due on the loan.

On July 20, 1998, Oncor Communications, Inc. ("Oncor") filed a lawsuit in the
District Court of Dallas County, Texas against the Company, Incomex and an
unrelated third party. Oncor alleged that the defendants improperly teminated a
long distance service agreement with Oncor and claimed damages based on amounts
which Oncor alleged to have advanced to Incomex, lost profits for the period in
which the Company was alleged to have breached the contract, attorneys' fees and
for interference with contractual relations in an unspecified amount. The
Company asserted a counterclaim for accounting, breach of contract,
misrepresentation and payment of attorneys' fees. On April 21, 1999 an agreement
was reached with Oncor to settle this claim. Under the settlement, the Company
paid $150,000 to Oncor in return for a release by Oncor of its claims. Such
liability was accrued as of March 31, 1999.

5. INVESTMENTS

During 1998, the Company reached an agreement to invest in ACTEL Integrated
Communication, Inc. ("ACTEL") of Mobile, Alabama. As of March 31, 1999, the
Company had invested $1,676,711, and from April 1, 1999 through May 10, 1999 had
invested an additional $980,000.

During 1998, the Company reached an initial lending/investment agreement with
AcNet S.A. de C.V. ("AcNet") of Mexico. As of March 31, 1999, the Company had
invested $1,361,974, and from April 1, 1999 through May 10, 1999 had invested an
additional $563,258.

6. COMMON STOCK WARRANTS

In accordance with the anti-dilutive provisions contained in the common stock
warrants issued in connection with the Company's initial public offering, the
number of shares issuable upon exercise of the warrants has increased as
follows: 

<TABLE>
<CAPTION>     
      
           Warrants                 Applicable
      (Previously convertible         Common         Exercise       Expiration
      on a one-for-one basis)         Shares          Price           Date
      -----------------------       ----------       --------       ----------
<S>                                  <C>              <C>              <C>
            880,000                  1,819,918        $3.14            1999
            160,000                    338,762         3.07            2001
             80,000                    149,755         9.75            2001
</TABLE>
      
7. BUSINESS SEGMENT INFORMATION

In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information", was issued effective
for fiscal years ending after December 15, 1998. The Company's reportable
segments are structured into a decentralized organizational structure resulting
in three stand-alone business units. While all three business units are engaged
in the business of providing telecommunications services to hospitality and
payphone businesses, they are managed separately largely due to a series of
acquisitions the Company completed in 1997 and 1998.

The Company's three reportable segments are PIC/ATN, Incomex and Murdock
Technology Services ("MTS"). The Company provides long-distance
telecommunications services to hotels and payphone owners in the United States
through the PIC/ATN business unit. The services include, but are not limited to,
live operator services, credit card billing services, automated collection and
messaging delivery services, voice mail services, telecommunications consulting
and providing carrier services for long-distance telecommunications companies.  
The incoming operator





                                       9
<PAGE>   10


assisted calls are processed with the PIC/ATN operators on location. The Incomex
business unit provides international operator services to hotels and payphone
owners in Mexico on international calls from Mexico to the United States. The
MTS business unit was created in 1998 to meet the needs of the hospitality
telecommunications management market by providing database profit management
services and other value added services. The MTS business unit was formerly the
operating unit of the Company responsible for marketing of AT&T operator
services until the contract was terminated during the fourth quarter of 1998.

The accounting policies of the reportable segments are the same as those
described above. The Company evaluates the performance of its operating units
based on income (loss) from operations.

Summarized financial information concerning the Company's reportable segments is
shown in the following table as of and for the three months ended March 31, 1999
and 1998 (amounts expressed in thousands). The "Other" column includes the
effect of corporate related items and eliminating inter-business unit
transactions. 
<TABLE>
<CAPTION>

                                                   PIC/ATN        INCOMEX          MTS        OTHER          TOTAL

1999
<S>                                                 <C>            <C>        <C>          <C>              <C>    
Revenues                                            $7,021         $2,940      $ 1,246     $  (420)         $10,787
Income (loss) from operations                        1,027            813          (74)       (899)             867
Total assets                                         5,674          3,340        2,794      12,296           24,104
Depreciation and amortization expense                  116              4          134         328              582
Interest expense, net                                  152             70          172         353              747
Capital expenditures                                    16              4           64           -               84

1998
Revenues                                             3,197          1,832        1,402        (742)           5,689
Income (loss) from operations                          218            511         (273)       (398)              58
Total assets                                         2,977          2,402        2,928       4,000           12,307
Depreciation and amortization expense                   96              3          240         119              458
Interest expense, net                                   76             74          131         165              446
Capital expenditures                                    18              -          117           -              135
</TABLE>


Financial information relating to the Company's operations by geographic area as
of and for the three months ended March 31, 1999 and 1998 was as follows
(amounts expressed in thousands):

<TABLE>
<CAPTION>


                                                       1999              1998
Revenues:
<S>                                                  <C>               <C>    
     United States                                   $ 7,822           $ 3,857
     Mexico                                            2,940             1,832
     Canada                                               25                --
                                                     -------           -------

              Total                                  $10,787           $ 5,689
                                                     =======           =======
Long-lived assets (excluding investments):
     United States                                   $15,178           $17,423
     Mexico                                            1,704                --
                                                     -------           -------

             Total                                   $16,882           $17,423
                                                     =======           =======
</TABLE>





                                       10
<PAGE>   11



8. SUBSEQUENT EVENTS

In April of 1999, the Company received proceeds of $1,625,000 from the issuance
of promissory notes to related parties. The notes bear interest at 18% and the
accrued interest and principal are due on November 30, 1999.

The Company also received proceeds of $500,000 of financing from a financial
institution. The note bears interest at 10.5% and the accrued interest and
principal are due on demand, or if no demand is made, on March 30, 2000.

In April, 1999, the Company entered into a loan commitment letter with a major
lending institution for a senior secured credit facility of up to $25 million.
If this facility is completed, the Company plans to use these funds for
repayment of certain debt, future investment opportunities and general
operational needs. Because there are significant conditions remaining to be
satisfied with respect to the proposed facility, including the negotiation of
definitive loan documents, there can be no assurance that the Company will
complete this credit facility, or, if completed, that the terms of the credit
facility will be as presently contemplated.





                                       11

<PAGE>   12



ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

The following is a discussion of the Company's financial condition, results of
operations and capital resources. The discussion and analysis should be read in
conjunction with the Company's unaudited consolidated financial statements and
notes thereto included elsewhere within. 

RESULTS OF OPERATIONS - The information for the three months ended March 31,
1998 in the following analysis includes the statement of operations data of
Incomex after the consummation of the Incomex acquisition effective February,
1998

Comparison of Three Months Ended March 31, 1999 and 1998
--------------------------------------------------------

REVENUES - Consolidated revenues increased $5.1 million, or 90%, to $10.8
million for the three months ended March 31, 1999 from $5.7 million for the
three months ended March 31, 1998. Revenues from PIC/ATN increased $4.2 million
to $7.0 million for the three months ended March 31, 1999 due to an increase in
the number of telephone numbers processed by the Operator Service Center.
Revenues from Incomex increased $1.1 million to $2.9 million for the three
months ended March 31, 1999. The increase was primarily due to an increase in
the number and quality of rooms under contract with Mexican resort hotels and
the fact that Incomex results for the prior year period only reflect two months
following its acquisition effective February, 1998. Revenues from MTS declined
$155,000 to $1.2 million for the three months ended March 31, 1999. Call
processing revenues generated by MTS through its Lodging Partnership Program
decreased from $0.7 million for the three months ended March 31, 1998 to none
for the three months ended March 31, 1999 as the Company ended the Lodging
Partnership Agreement in October 1998. For the twelve months ended December 31,
1998, the Company recognized revenues of $2.0 million and marginal net profits
from the AT&T agreement. These revenues and net profits will not be present in
the future. MTS has replaced a substantial portion of this revenue stream in the
three months ended March 31, 1999 with revenues from its TeleManager services
and other income.

COST OF SALES - Consolidated cost of sales increased $3.9 million, or 108%, to
$7.5 million for the three months ended March 31, 1999 from $3.6 million for the
three months ended March 31, 1998. Consolidated cost of sales, as a percentage
of revenues, was 69.9% for the three months ended March 31, 1999 compared to
62.6% for the three months ended March 31, 1998. The increase was primarily
attributable to the PIC/ATN segment which experienced higher cost of sales as a
percentage of revenues due to a $256,000 reclassification of certain operator
center costs in the current period from selling, general and administrative
expense to cost of sales, higher commission expenses and additional revenues
from international traffic beginning in the




                                       12
<PAGE>   13


second half of 1998 that generate approximately the same dollar volume of gross
profit per call as domestic traffic but significantly higher cost of sales as a
percentage of revenues.

The Company recorded a nonstandard charge of $141,000 for the three months ended
March 31, 1999 in addition to the $390,000 recorded for the three months ended
December 31, 1998. This charge is a result of a dispute in collection procedures
and policies with a billing and collection processor of Incomex. Incomex has
changed vendors and does not expect a recurrence of this issue.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE - Consolidated selling, general and
administrative expenses increased $186,000 to $1.8 million for the three months
ended March 31, 1999 from $1.6 million for the three months ended March 31,
1998. Excluding the impact of the $256,000 reclassification of certain operator
center costs in the current period from selling, general and administrative
expense to cost of sales, consolidated selling, general and administrative
expenses increased $442,000, or 28%. Selling, general and administrative
expense, as a percentage of revenues, was 16.7% for the three months ended March
31, 1999 compared to 28.3%, adjusted for the operator center costs
reclassification, for the three months ended March 31, 1998.

DEPRECIATION AND AMORTIZATION - Consolidated depreciation and amortization
increased $124,000, or 27%, to $582,000 for the three months ended March 31,
1999 from $458,000 for the three months ended March 31, 1998. The increase is
primarily the result of the PIC Earn-Out settlement and the Incomex Earn-Out
settlement recorded in the fourth quarter of 1998 in which the Company recorded
additional goodwill of $4.4 million which is being amortized over the remaining
life of the original goodwill. This will continue to result in higher
amortization expenses in future periods.


INTEREST EXPENSE - Consolidated interest expense, including amortization of debt
discount, increased $301,000, or 67.5%, to $748,000 for the three months ended
March 31, 1999 from $446,000 for the three months ended March 31, 1998. The
increase was primarily due to additional debt incurred related to the
investments in ACTEL and AcNet, the costs associated with the acquisition of
PIC/ATN and Incomex and general working capital purposes. As a result, higher
interest expense will continue in future periods.


LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1999, the Company's current liabilities of $14.1 million exceeded
current assets of $4.2 million resulting in a working capital deficit of $9.9
million. During the three months ended March 31,1999, the Company used $833,000
in cash for operating activities, and used $1.6 million in investing activities.
The Company received proceeds from new debt financing of $1.5 million and repaid
borrowings on notes payable and made payments on capital lease obligations of
$809,000. These activities resulted in a decrease in available cash of $1.5
million for the three months ended March 31, 1999.





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<PAGE>   14


The Company's long-term debt and capital lease obligations as of March 31, 1999,
including the current portion thereof, totaled $16.3 million compared to $15.3
million at December 31, 1998. The Company's current debt and capital lease
obligations as of March 31, 1999 totaled $10.5 million compared to $9.3 million
at December 31, 1998.

The Company's principal sources of capital to date have been public and private
offerings of debt and equity securities and lease and debt financing
arrangements with Berthel to purchase telecommunications equipment.  The Company
currently makes monthly lease and debt payments of approximately $163,000 in the
aggregate, pursuant to these financing arrangements. As of March 31, 1999, the
Company had not made the February and March 1999 payments. Berthel only has the
right to demand that the Company cure this violation, but has not made such a
demand as of the date of this report.

From the start of 1999 through the date of this report, the Company raised $3.7
million from debt financings. The Company does not believe that its existing
capital and anticipated funds from operations will be sufficient to meet its
anticipated cash needs for working capital, capital expenditures, debt
obligations and investments in acquisitions in 1999. The Company currently
estimates that it will need at least $6.3 million in debt or equity financings
in 1999 in addition to the $3.7 million debt financing discussed above, and in
addition to cash flows from operations, to fund its cash requirements, including
its initial investment in ACTEL and AcNet.

In April 1999, the Company entered into a commitment letter with a major lending
institution for a senior secured credit facility of up to $25 million. If this
facility is completed, the Company believes the proceeds to be sufficient to
meet the Company's anticipated cash needs for 1999, although future investments,
acquisitions or other transactions may require additional debt or equity
financing. Because there are significant conditions remaining to be satisfied
with respect to the proposed facility, including the negotiation of definitive
loan documents, there can be no assurance that the Company will complete this
credit facility or, if completed, that the terms of the credit facility will be
as presently contemplated. If the Company is unable to complete the credit
facility, the Company would expect to seek necessary financing through debt or
equity sources. However, adequate funds may not be available when needed, or in
an amount or on terms acceptable to the Company. Insufficient funds may require
the Company to delay, scale back or eliminate some or all of its product or
market development plans and could have an adverse effect on the Company.

As of March 31, 1999 the Company was past due on a $400,000 note payable to a
financial institution and $2.0 million of notes payable to individuals. The
financial institution has not made a demand for the repayment of this note as of
the date of this report. The Company has subsequent to March 31, 1999 paid the
interest owed on the note. Effective April 1, 1999, as provided for in the terms
of the notes, the interest rate on the $2.0 million of past due notes payable to
individuals increased from 14% to 18%. While not required by the terms of the
note, the Company solicited from the noteholders signed agreements to extend the
notes to June 30,






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<PAGE>   15


1999. The Company currently anticipates paying all past due debt with the
proceeds from the proposed credit facility upon closing.


YEAR 2000 PREPARATIONS

The Year 2000 issue relates to computer hardware and software and other systems
designed to use two digits rather than four digits to define the applicable
year. As a result, the Year 2000 would be translated as two zeroes. Because the
Year 1900 could also be translated as two zeroes, systems which use two digits
could read the date incorrectly for a number of date-sensitive applications,
resulting in potential calculation errors or the shutdown of major systems. The
Company has undertaken various initiatives intended to ensure that its computer
hardware and software and other systems will function properly with respect to
dates in the Year 2000 and thereafter. The systems subject to potential Year
2000 issues include not only information technology ("IT") systems, such as
accounting and data processing, communications systems and the Company's
telecommunications switches, but also non-IT systems, such as alarm systems, fax
machines or other miscellaneous systems.


THE COMPANY'S STATE OF READINESS

The Company's main internal systems, including IT systems such as financial
systems, the Telemanager and the Company's telecommunications switches, and
non-IT systems have been tested and are either currently believed to be Year
2000 compliant or are expected to be Year 2000 compliant by the end of the third
quarter of 1999. The Company anticipates completing surveys to its key customers
and vendors during the second quarter of 1999.


COSTS TO ADDRESS THE COMPANY'S YEAR 2000 COMPLIANCE

The majority of the Company's internal Year 2000 issues have been or will be
corrected through systems upgrades, including an upgrade of the Company's
telecommunication switches, some of which are being made for other business
purposes. The Company has estimated that the costs of all such upgrades will not
exceed $200,000, of which approximately $100,000 had been incurred through March
31, 1999.


RISKS TO THE COMPANY RELATING TO THE YEAR 2000 ISSUE

The Company believes that its reasonably likely worse case scenario would
involve malfunctions of the Company's telecommunications switches or the
internal systems of the Company's customers and key vendors. Any such
malfunctions could result in serious disruption of the Company's ability to
process calls and could have a material adverse effect on the Company's results
of operations and financial condition. The Company plans to monitor the Year
2000 compliance of its significant customers and vendors. However, a number of
risks relating to the Year 2000 issue may be out the Company's control,
including the compliance status of the Company's customers and vendors and the
Company's reliance on outside links for essential services such as electrical
systems. There can be no assurance that a failure of systems of third parties on
which the Company's systems and operations will rely on to be Year 2000
compliant will not have a material adverse effect on the Company's business,
financial condition or operating results.






                                       15
<PAGE>   16


THE COMPANY'S YEAR 2000 CONTINGENCY PLANS

By the end of the third quarter of 1999, the Company expects to be substantially
Year 2000 compliant. To the extent that any of the Company systems are not Year
2000 compliant by the end of the third quarter of 1999, the Company believes
that it will have time to implement alternative systems. The Company's ability
to respond to non-compliance by its customers and vendors will be limited, and
therefore could have a material adverse effect on the Company's business,
financial condition or operating results.

FORWARD-LOOKING STATEMENTS

         This report contains statements, including statements of management's
belief or expectation, which may be forward-looking within the meaning of
applicable securities laws. Such statements are subject to known and unknown
risks and uncertainties that could cause actual future results and developments
to differ materially from those currently projected. Such risks and
uncertainties include, among others, the following:

     -    the Company's access to adequate debt or equity capital to meet the
          Company's operating and financial needs;

     -    the Company's ability to integrate and assimilate the businesses of
          PIC/ATN and Incomex;

     -    the Company's ability to respond to competition in its markets;

     -    the Company's ability to expand into new markets and to effectively
          manage its growth;

     -    customer acceptance and effectiveness of the Telemanager and the
          Company's ability to develop new technology and to adapt to
          technological change in the telecommunications industry;

     -    the risk that the Company's assessment of the Year 2000 issue,
          including its identification, assessment, remediation and testing
          efforts, the dates on which the Company believes it will complete such
          efforts and the costs associated with such efforts, may be incorrect
          because it is based upon management's estimates, which were derived
          from numerous assumptions regarding future events, available
          resources, third-party remediation plans, the accuracy of testing of
          the affected systems and other factors;

     -    changes in, or failure to comply with, governmental regulation,
          including telecommunications regulations;

     -    the Company's reliance on its key personnel and the availability of
          qualified personnel;

     -    general economic conditions in the Company's markets;





                                       16
<PAGE>   17


     -    the risk that the Company's analyses of these risks could be incorrect
          and/or the strategies developed to address them could be unsuccessful;
          and

     -    various other factors discussed in this report and in the Company's
          annual report on Form 10-KSB for the year ended December 31, 1998.

         The Company will not update the forward-looking information to reflect
actual results or changes in the factors affecting the forward-looking
information.

         The forward-looking information referred to above includes any matters
preceded by the words "anticipates," "believes," "intends," "plans," "expects"
and similar expressions as they relate to the Company and include, but are not
limited to:

     -    expectations regarding the Company's financial condition and liquidity
          and the proposed credit facility, as well as future cash flows;

     -    expectations regarding sales growth, sales mix, gross margins and
          related matters with respect to operating results;

     -    expectations regarding the expansion of the Company's business;

     -    the estimated costs to bring the Company's IT and non-IT systems into
          compliance with respect to the Year 2000 issue and the consequences to
          the Company of noncompliance by the Company or third parties; and

     -    expectations regarding capital expenditures and investments in new
          acquisition opportunities.



                                       17



<PAGE>   18


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

        On July 20, 1998, Oncor Communications, Inc. ("Oncor") filed a lawsuit
in the District Court of Dallas County, Texas against the Company, Incomex and
an unrelated third party. Oncor alleged that the defendants improperly teminated
a long distance service agreement with Oncor and claimed damages based on
amounts which Oncor alleged to have advanced to Incomex, lost profits for the
period in which the Company was alleged to have breached the contract,
attorneys' fees and for interference with contractual relations in an
unspecified amount. The Company asserted a counterclaim for accounting, breach
of contract, misrepresentation and payment of attorneys' fees. On April 21, 1999
an agreement was reached with Oncor to settle this claim. Under the settlement,
the Company paid $150,000 to Oncor in return for a release by Oncor of its
claims. Such liability was accrued as of March 31, 1999.

Item 2. Changes in Securities and Use of Proceeds.

        (c)  During the first quarter ended March 31, 1999, the Company issued
promissory notes in the aggregate principal amount of $1,500,000 in a private
placement exempt from the registration requirements of the Securities Act of
1933, as amended (the "Act"), pursuant to Section 4(2) of the Act. The notes
bear interest at 14% and the principal and accrued interest are due on November
30, 1999.

Item 5.  Other Information

         On March 31, 1999, the Company announced that it had completed a
calculation of the adjusted exercise price of its Common Stock Purchase
Warrants. The adjusted exercise price of $3.143 reflects the cumulative effect
of adjustments to the original exercise price of $6.50 per share due to
issuances of common stock (and warrants, options and other securities
convertible into or exercisable for common stock) by the Company between date of
issuance of the Warrants and March 31, 1999.  The adjustments also resulted in 
an increase in the number of shares of the Company's common stock for which each
Common Stock Purchase Warrant may be exercised. Each of the 880,000 outstanding
warrants may now be exercised for approximately 2.068 shares of common stock, or
1,819,918 shares of common stock in the aggregate.

Item 6.  Exhibits and Reports on Form 8-K.

         (a)      Exhibits:

                  3.1      Restated Articles of Incorporation of the Company (1)

                  3.2      First Amendment to Restated Articles of Incorporation
                           of the Company (2)

                  3.3      Second Amendment to Restated Articles of 
                           Incorporation of the Company (2)

                  3.4      Amended and Restated By-Laws of the Company (3)





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<PAGE>   19



                  10.1     Second Amended and Restated Stock Option Agreement, 
                           effective as of June 30, 1998, between the Company
                           and Thomas E. Chaplin.

                  10.2     Investment Agreement, dated as of March 10, 1999
                           between ACTEL Integrated Communications, Inc. and 
                           Murdock Communications Corporation.

                  10.3     Option Agreement, effective as of January 1, 1999,
                           among Ashton Communications Corporation, 
                           Intercarrier Transport, Inc., AcNet S.A. de C.V.,
                           Julian Pascoe, Murdock Communications Corporation
                           and Incomex, Inc.

                  27       Financial Data Schedule

(1)  Filed as an exhibit to the Company's Registration Statement on Form SB-2
     (File No. 333-05422C) and incorporated herein by reference.

(2)  Filed as an exhibit to the Company's report on Form 10-QSB for the quarter
     ended September 30, 1997 (File No. 000-21463) and incorporated herein by
     reference.

(3)  Filed as an exhibit to the Company's report on Form 10-QSB for the quarter
     ended March 31, 1997 (File No. 000-21463) and incorporated herein by
     reference.


     b) Reports on Form 8-K: The Company filed a Form 8-K on March 31, 1999, 
reporting the following:

        Item 5.      That the Company had completed a calculation of the
                     adjusted exercise price of its Common Stock Purchase
                     Warrants. The adjusted exercise price of $3.143 reflects
                     the cumulative effect of adjustments to the original
                     exercise price of $6.50 per share due to issuances of 
                     common stock (and warrants, options and other securities
                     convertible into or exercisable for common stock) by the
                     Company between date of issuance of the Warrants and March
                     31, 1999.





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<PAGE>   20


                                   SIGNATURES

                  In accordance with 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.



                                            MURDOCK COMMUNICATIONS CORPORATION

         Date:  May 17, 1999                By  /s/ Thomas E. Chaplin          
                                                --------------------------------
                                                     Thomas E. Chaplin
                                                     Chief Executive Officer


         Date:  May 17, 1999                By  /s/ Paul C. Tunink              
                                                --------------------------------
                                                    Paul C. Tunink
                                                    Vice President and Chief 
                                                    Financial Officer




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