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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2000
[ ] 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 1-10418
UNITED MEDICORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2217002
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 N. CUYLER STREET
PAMPA, TEXAS 79065
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 926-4950
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
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COMMON STOCK, $0.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K .
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As of March 16, 2001, the aggregate market value of the voting stock
held by non-affiliates of the registrant was $359,180 based on the last sales
price of $0.02 per share of such stock on March 16, 2001. As of March 31, 2001
there were 28,710,217 shares of Common Stock, $0.01 par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part I, Item 7 of this Form 10-K incorporates by reference information in the
Private Securities Litigation Reform Act of 1995 Safe Harbor Compliance
Statement for Forward Looking Statements.
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UNITED MEDICORP, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. Business.................................................................................... 3
ITEM 2. Properties.................................................................................. 9
ITEM 3. Legal Proceedings........................................................................... 9
ITEM 4. Submission of Matters to a Vote of Securities Holders....................................... 9
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters....................... 10
ITEM 6. Selected Consolidated Financial Data........................................................ 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 12
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 23
ITEM 8. Financial Statements and Supplementary Data................................................. 23
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 23
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......................................... 23
ITEM 11. Executive Compensation...................................................................... 24
ITEM 12. Securities Ownership of Certain Beneficial Owners and Management............................ 26
ITEM 13. Certain Relationship and Related Transactions............................................... 27
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 28
Signatures ............................................................................................ 32
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PART I
ITEM 1. BUSINESS
GENERAL
United Medicorp Texas, Inc., was incorporated in the State of Texas on
March 13, 1989 ("UMC-Texas"). On July 10, 1989, in an exchange of stock,
UMC-Texas was acquired by Gamma Resources, Inc., a publicly-owned Delaware shell
corporation, which simultaneously changed its name to United Medicorp, Inc. (the
"Company", "UMC" or the "Registrant"). On November 18, 1996, the Company filed
"Articles of Amendment to the Articles of Incorporation of Sterling Hospital
Systems, Inc." whereby this wholly owned subsidiary of UMC was renamed United
MoneyCorp, Inc. ("UMY"). UMY has been designated as the legal entity under which
UMC operates a collection agency. On August 7, 1998, UMC acquired 100% of the
common stock of Allied Health Options, Inc. ("AHO"), an Alabama corporation.
Effective June 30, 1999, the Company discontinued the operations of AHO. On
October 14, 1999, AHO filed a voluntary petition in the United States Bankruptcy
Court for the Northern District of Texas to liquidate pursuant to Chapter 7 of
Title 11 of the United States Bankruptcy code. On November 16, 1999, the Chapter
7 bankruptcy 341 creditors' meeting was held. Unless the context indicates
otherwise, references herein to the Company include UMC and its operating
subsidiary UMY, and exclude AHO.
The Company provides medical insurance claims processing and accounts
receivable management services to healthcare providers. The Company employs
proprietary and purchased software to provide claims processing, billing and
collection services to its customers, which are primarily hospitals, medical
clinics, and physician practices. The Company's medical claims processing
service is designed to provide an electronic claims processing, billing and
collection service that expedites payment of claims from private insurance
carriers or government payors such as Medicare and Medicaid. The Company also
offers to its customers processing and collection services for uncollected
"backlog" (aged) claims that were not originally submitted through the Company's
electronic claims processing system. UMY provides customer service and
collection services to health care providers.
The Company also has in the past provided interim staffing services
under the name style "UMClaimPros." This service line was introduced by the
Company in December 1994. UMClaimPros were experienced claims processors
available for customers' interim staffing needs.
AHO was engaged in: outpatient services; twenty four hour a day
emergency care services; partial hospitalization services, or psychosocial
rehabilitation services; screening of patients being considered for admission to
State mental health facilities to determine the appropriateness of such
admission; and consultation and education services. AHO operated three Community
Mental Health Centers ("CMHC's") under the names: Behavioral Health of Mobile
("BHM"), Calhoun County Behavioral Health ("CCBH"), and Pensacola Center for
Behavioral Health ("PCBH").
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MEDICAL BILLING INDUSTRY OVERVIEW
The U.S. healthcare industry continues to experience tremendous change
as both federal and state governments as well as private industry work to bring
more efficiency and effectiveness to the healthcare system. UMC's business is
impacted by trends in the U.S. healthcare industry. As healthcare expenditures
have grown as a percentage of U.S. gross national product, public and private
healthcare cost containment measures have applied pressure to the margins of
healthcare providers. Historically, some payors have willingly paid the prices
established by providers while other payors, notably the government and managed
care companies, have paid far less than established prices (in many cases less
than the average cost of providing the services). As a consequence, prices
charged payors willing to pay established prices increased in order to recover
the cost of services purchased by the government and others but not paid by them
(i.e., cost shifting). Increasing complexity in the reimbursement system and
assumption of greater payment responsibility by individuals have caused
healthcare providers to experience increased receivables, bad debt levels and
higher business office costs. Providers overcome these pressures on
profitability by increasing their prices, by relying on demographic changes to
support increases in the volume and intensity of medical procedures, and by cost
shifting. As providers experience limitations in their continued ability to
shift cost in these ways, the amount of reimbursement received by UMC's clients
may be reduced and UMC's rate of growth in revenues, assuming present fee
levels, may decline. However, management believes UMC may benefit from
providers' attempts to offset declines in profitability through seeking more
effective and efficient business management services such as those provided by
UMC. UMC continues to evaluate governmental and industry reform initiatives in
an effort to position itself to take advantage of the opportunities created
thereby.
GOVERNMENTAL INVESTIGATIVE RESOURCES AND HEALTHCARE REFORM
The federal government in recent years has placed increased scrutiny on
the billing and collection practices of healthcare providers and related
entities, and particularly on possible fraudulent billing practices. This
heightened scrutiny has resulted in a number of high profile civil and criminal
investigations, lawsuits and settlements.
In November 1998, the Office of Inspector General ("OIG") released
compliance plan guidance for third party billing companies, in which it
identified certain areas which it viewed as particularly problematic, including,
but not limited to, billing for undocumented services, unbundling, upcoding,
inappropriate balance billing, inadequate resolution of overpayments, lack of
integrity in computer systems, failure to maintain the confidentiality of
information records, misuse of provider identification numbers, duplicate
billing and illegal billing company incentives. While not mandatory, OIG
encourages billing companies and healthcare providers to adopt compliance plans.
The existence of an effective compliance plan may reduce the severity of
criminal sanctions for certain healthcare related offenses and may be considered
in the settlement of civil investigations. Management believes that the
operations of the Company are in compliance with the OIG release.
In 1996, Congress enacted the Health Insurance Portability and
Accounting Act of 1996, which includes an expansion of provisions relating to
fraud and abuse, creates additional criminal offenses relating to healthcare
benefit programs, provides for forfeitures and asset-freezing orders in
connection with such healthcare offenses and contains provisions for instituting
greater coordination of federal, state and local enforcement agency resources
and actions.
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EXISTING GOVERNMENT REGULATION
UMC's billing and collections activities are governed by numerous
federal and state civil and criminal laws. In general, these laws provide for
various fines, penalties, multiple damages, assessments and sanctions for
violations, including possible exclusion from Medicare, Medicaid and certain
other federal and state healthcare programs.
Submission of claims for services that were not provided as claimed, or
which violate the regulations, may lead to civil monetary penalties, criminal
fines, imprisonment and/or exclusion from participation in Medicare, Medicaid
and other federally funded healthcare programs. Specifically, the Federal False
Claims Act allows a private person to bring suit alleging false or fraudulent
Medicare or Medicaid claims or other violations of the statute. Such actions
have increased significantly in recent years and have increased the risk that a
company engaged in the healthcare industry, such as UMC and its customers, may
become the subject of a federal or state investigation, may ultimately be
required to defend a false claim action, may be subjected to government
investigation and possible criminal fines, may be sued by private payors and may
be excluded from Medicare, Medicaid and/or other federally funded healthcare
programs as a result of such an action.
Credit collection practices and activities are regulated by both
federal and state law. The Federal Fair Debt Collection Practices Act sets forth
various provisions designed to eliminate abusive, deceptive and unfair debt
collection practices by collection agencies. Various states have also
promulgated laws and regulations that govern credit collection practices.
Under Medicare law, physicians and hospitals are only permitted to
assign Medicare claims to a billing and collection services vendor in certain
limited circumstances. Medicare regulations provide that a billing company that
prepares and sends bills for the provider or physician and does not receive and
negotiate the checks made payable to the provider or physician does not violate
the restrictions on assignment of Medicare claims. Management believes that its
practices meet the restrictions on assignment of Medicare claims because, among
other things, it bills only in the name of the provider, checks and payments for
Medicare services are made payable to the provider and the Company lacks any
power, authority or ability to negotiate checks made payable to the provider.
As a participant in the healthcare industry, the Company's operations
are also subject to extensive and increasing regulation by a number of
governmental entities at the federal and state levels. The Company is also
subject to laws and regulations relating to business corporations in general.
Management believes its operations are in compliance with applicable laws.
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CUSTOMER SERVICES AND FEE STRUCTURE
ONGOING ACCOUNTS RECEIVABLE MANAGEMENT SERVICES: Under the Company's
Ongoing service, the Company edits, submits, performs follow-up, submits
required additional information, and collects claims on behalf of its customers.
In cases where an insurance carrier or governmental payor cannot receive or
efficiently handle the Company's electronically transmitted claims, the Company
will print the claim on a standard industry form and mail it to the insurance
carrier. After the claims are processed, the Company's claims operations
personnel utilize computer-assisted follow-up methods to ensure timely
collection. In most cases the Company charges a percentage of actual claim
payment amounts collected as its fee. In certain cases, the Company may charge a
flat fee per claim for this service. Complete claim settlement reports are sent
to customers on a semi-weekly, weekly or monthly interval. Management believes
that the Company's claims collection experience to date and increasing awareness
throughout the healthcare industry of the need to cut costs and improve cash
flow could increase demand for this type of service. Ongoing accounts receivable
management services revenue accounted for approximately 57%, 86% and 68% of
total revenue in 2000, 1999 and 1998, respectively.
BACKLOG ACCOUNTS RECEIVABLE MANAGEMENT SERVICES: Customers using the
"Backlog" service engage the Company to collect aged claims which usually have
been previously filed with an insurance carrier or governmental payor, but which
remain uncollected. When a customer enters into a backlog collection agreement,
the customer submits completed insurance claim forms to the Company. The claims
are then entered into the Company's claims management and collection system, and
the Company's standard claims processing and collection procedures are applied
to collect these backlog claims. The Company believes that this program is
attractive to potential backlog collection customers because the Company
collects outstanding claims at competitive rates. Backlog collection contracts
generally involve a one-time placement of claims for collection.
PATIENT BILLING SERVICES: The Company offers its customers the option
of having UMC bill the guarantor of each account the appropriate balance
remaining due after all insurance payments due on an account have been collected
and contractual allowances have been posted. Fees for this service vary
depending upon the average balance and collectibility of the accounts being
worked.
COLLECTION AGENCY SERVICES: These services involve collections of
either (a) "early out" accounts due from individual guarantors which are active
receivables placed for collection within one hundred twenty days of either the
date of service or the date payment was received from a third party payor such
as commercial insurance or Medicare, or (b) guarantor accounts which have been
written off as bad debt. Collection agency services revenue accounted for
approximately 25%, 11% and 22% of total revenue in 2000, 1999 and 1998,
respectively.
UMCLAIMPROS: The Company began providing interim staffing services
under the UMClaimPros label in December, 1994. UMClaimPros are experienced
billing and collection personnel who are employed by UMC and placed on temporary
assignments in hospital and physician business offices. Currently, the
UMClaimPros service is only offered in the Pampa area.
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FEE STRUCTURE: The Company has established both contingency and
non-contingency based fee structures which are intended to allow prospects for
the Company's services a wide range of pricing options. Under the Company's
contingency based fee structure, fees are charged as a percentage of amounts
collected. For the Company's Ongoing Accounts Receivable Management service, the
Company generally charges healthcare providers contingency fees ranging from 4
to 20 percent of the amount the Company collects on behalf of the providers,
depending upon the average claim amount collected. Backlog Accounts Receivable
Management services are usually priced from 8 to 25 percent of the amount the
Company collects on behalf of the providers, depending upon the age of the
claims. Collection ratios generally range from 0 to about 40 percent for Backlog
projects and about 27 to 50 percent for Ongoing projects. Fees for Patient
Billing services range from 5.5 to 10 percent of the amounts collected, while
Collection Agency services are priced at 8 to 35 percent of amounts collected.
UMClaimPros services are priced at a per hour rate based on the fully burdened
salary of the assigned personnel. Management believes that the Company's fee
structure for its package of services is competitive.
SOFTWARE AND DATA PROCESSING
The Company's ability to provide its services on a large scale depends
on the successful operation of computer hardware and software capable of
handling the processing and transmission of insurance claims from the customer
to the insurance carrier, and through the intermediate steps that such claims
must take during the process. During 2000, 1999 and 1998, the Company accepted
for processing approximately 246,000, 222,000 and 352,000 claims and accounts.
The Company continuously develops and enhances its systems using programmers
employed by the Company and outside contractors and consultants.
The claims processing software packages currently used by the Company
are specifically designed to expedite claims preparation and processing and,
simultaneously, to reduce errors associated with manual claims processing.
Claims are edited for certain errors, such as invalid or missing information,
using the claims processing software. Claims are then transmitted directly by
the Company to the third party payor or through any one of several insurance
claim clearinghouses used by the Company. The clearinghouses then format and
electronically transmit the claim data according to the specifications of the
individual third party payors, which avoids delays resulting from paper routing
and the errors resulting from third party payor data re-entry. If, however, the
third party payor cannot receive or efficiently handle the Company's
electronically transmitted claims, the Company will print the claim on a
standard industry form and mail it to the third party payor. The Company intends
to continue to enhance and refine its claims processing, customer reporting,
claims tracking and collection functions during 2001 and thereafter in order to
satisfy unique customer requirements.
UMY uses a purchased software application for its collection agency
services. This application runs on the Company's AS/400 hardware platform, and
handles all of the necessary processing of accounts, telephone calls, collection
letters and reports. Custom programming for this application is handled
primarily through the vendor. The Company has the source code for the
application and can modify the application whenever necessary. This software
will continue to be modified and enhanced to improve performance and customer
satisfaction.
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COMPETITION
The business of medical insurance claims processing, accounts
receivable management and collections agency services is highly competitive and
fragmented. UMC competes with certain national and regional electronic claims
processing companies, claims collection companies, claims management companies,
factoring and financing firms, software vendors and traditional in-house claims
processing and collections departments of hospitals and other healthcare
providers. Many competitors of UMC are several times larger than the Company and
could, if they chose to enter the market for the Company's line of services,
devote resources and capital to the market that are much greater than those
which the Company currently has available or may have available in the future.
There can be no assurance that competition from current or future competitors
will not have a material adverse effect upon the Company.
TRANSITION FROM PROFESSIONAL EMPLOYER ORGANIZATION
Effective, December 26, 2000, UMC discontinued its agreement with
Administaff, Inc., a professional employer organization ("PEO") whereby
Administaff was the employer of record for all UMC employees. UMC has resumed
all payroll and human resource functions internally as of the cancellation date.
The cost savings to UMC as a result of the discontinuation of the agreement are
approximately 7% of gross payroll cost.
INDUSTRY SEGMENTS
Management organizes consolidated UMC around differences in services
offered. UMC provides medical insurance claims processing, medical accounts
receivable management and other healthcare related ancillary business office
services. UMY provides customer service functions, payment monitoring, early out
and bad debt account collection agency services to the health care industry. UMC
and UMY are aggregated into one reportable health care Business Office Services
segment based on the similar nature of the medical claim and patient account
collection services, nature of the information technology and human resource
production processes and service delivery methodologies, and the health care
industry customer base of both UMC and UMY.
PATENTS AND TRADE SECRETS
As has been typical in software-intensive industries, the Company does
not hold any patents. The Company believes that patent protection is of less
importance in an industry characterized by rapid technological change than the
expertise, experience and creativity of the Company's product development
personnel. Employees of the Company are required to sign non-disclosure
agreements. The Company relies on these agreements, its service contracts with
customers, and consulting agreements to protect its proprietary software, and to
date, has had no indication of any material breach of these agreements.
EMPLOYEES
At March 15, 2001, the Company had 68 full time, and 4 part time
employees. The Company believes that its relations with its employees are good.
UMC employees are not currently, nor have they ever been, represented by a union
and there have not been any stoppages, strikes or organizational attempts.
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ITEM 2. PROPERTIES
On August 21, 2000, United Medicorp, Inc. completed the purchase of a 20,000
square foot building that serves as its new operations center in Pampa, Texas.
The purchase price of the building was $100,000. In addition, the first mortgage
includes an additional $37,000 allowance for transaction costs and building
improvements. The term of the first mortgage is 20 years, with monthly payments
of principal and interest at a floating rate of prime plus one half percent
(currently 9.0 percent per annum). Consistent with the terms of the previously
disclosed Economic Development and Incentive Agreement with the Pampa Economic
Development Corporation ("PEDC"), the full amount of the $137,000 mortgage is
guaranteed by the PEDC. The Company has made numerous repairs and improvements
to the building including the construction of two executive offices, a computer
room, and a lavatory, and has refurbished the two previously existing
lavatories. The total cost of the building and improvements at December 31, 2000
was $159,000. The company began moving its operations to Pampa in September of
2000 and completed the relocation of all operations functions in February 2001.
UMC moved out of the previous corporate office and operations center
located in Dallas, on November 15, 2000. The company completed the transition of
the operations center to Pampa, and moved its corporate offices to a 937 square
foot office space in Garland, Texas at that time. The company signed a 36-month
lease on the office space in Garland, with a lease term from December 1, 2000
through November 30, 2003. Lease payments are scheduled for $703 per month
during the first year, $776 per month during the second year, and $885 per month
during the third year of the lease term. The company has the option of
terminating the lease after the first year, with 90 days written notice. This
move resulted in a reduction of monthly lease expense of approximately $6,800.
Management believes that its facilities are well located and are in good
condition.
ITEM 3. LEGAL PROCEEDINGS
At and for the year ended December 31, 2000 and through March 15, 2001,
the Company has not been a party to any legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for a vote during the
fourth quarter of 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's $0.01 par value common stock (the "Common Stock"), is the
only class of common equity of the Company and represents the only issued and
outstanding voting securities of the Company. As of March 15, 2001, there were
approximately 1,070 stockholders of record of the Common Stock. The Common Stock
trades on the NASDAQ over-the-counter bulletin board ("OTCBB") market.
The following table sets forth the range of high and low bid prices for
the Common Stock as reported on the OTCBB. Such prices do not include retail
mark-up, markdown or commission and may not necessarily represent actual
transactions.
YEAR ENDED DECEMBER 31, 2000 HIGH LOW
---------------------------- ---------- -----------
Fourth quarter $ 0.030 $ 0.010
Third quarter 0.038 0.020
Second quarter 0.063 0.020
First quarter 0.060 0.010
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2000 annual average 0.048 0.015
YEAR ENDED DECEMBER 31, 1999
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Fourth quarter $ 0.030 $ 0.015
Third quarter 0.050 0.011
Second quarter 0.100 0.050
First quarter 0.090 0.050
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1999 annual average 0.067 0.031
YEAR ENDED DECEMBER 31, 1998
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Fourth quarter $ 0.090 $ 0.052
Third quarter 0.094 0.040
Second quarter 0.130 0.050
First quarter 0.125 0.030
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1998 annual average 0.110 0.043
The last reported sales price of the Common Stock as reported on the
OTCBB, on March 16, 2001 was $0.02 per share.
The Company has never declared or paid cash dividends on its Common
Stock. The payment of cash dividends in the future will depend on the Company's
earnings, financial condition and capital requirements. It is the present policy
of the Company's Board of Directors to retain earnings, if any, to finance the
operations and growth of the Company's business.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for
and as of each of the five years ended December 31, 2000. The financial data
presented for each of the five fiscal years has been derived from audited
financial statements.
YEAR ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
STATEMENTS OF OPERATIONS DATA
Revenues $ 2,297,797 $ 3,158,341 $ 4,178,009 $ 2,803,001 $ 2,025,338
Wages and benefits 1,654,666 2,070,936 2,664,694 1,900,182 1,171,721
Selling, general and administrative 520,507 614,688 815,431 492,607 422,119
Depreciation and amortization 115,295 117,568 87,265 106,783 105,638
Professional fees 42,835 68,788 44,784 54,188 78,813
Other 163,426 247,845 166,922 88,492 127,833
------------ ------------ ------------ ------------ ------------
Net income (loss) from
continuing operations (198,932) 38,516 398,913 160,749 119.214
Loss from discontinued
operations-AHO -- (994,113) (230,967) -- --
Gain on disposal of discontinued
operations-AHO -- 178,426 -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (198,932) $ (777,171) $ 167,946 $ 160,749 $ 119,214
Basic earnings (loss) per common
share (1):
Continuing operations $ (0.0069) $ 0.0013 $ 0.0142 $ 0.0059 $ 0.0045
Discontinued operations-AHO -- (0.0283) (0.0082) -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (0.0069) $ (0.0270) $ 0.0060 $ 0.0059 $ 0.0045
Weighted average shares
outstanding 28,710,217 28,739,332 27,910,217 27,178,504 26,310,217
- ----------
(1) In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share," and has retroactively restated
all periods presented.
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AS OF DECEMBER 31,
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2000 1999 1998 1997 1996
---------- ------------ ------------ ---------- ----------
BALANCE SHEET DATA
Working capital (deficit) $ (225,830) $ (198,749) $ (747,984) $ 331,552 $ 104,903
Net intangible assets -- -- -- -- 1,209
Net assets of
discontinued operations-AHO -- -- 1,251,119 -- --
Total assets 512,154 598,941 2,004,373 1,005,600 523,647
Long term debt including
capital leases 357,484 110,070 44,973 84,368 100,344
Total debt including capital leases 489,838 238,205 312,587 137,539 137,206
Net liabilities of
discontinued operations-AHO -- -- 733,403 -- --
Total liabilities 775,455 663,310 1,321,571 558,169 396,452
Total stockholders' equity (deficit) (263,301) (64,369) 682,802 447,431 127,195
See Notes to the Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition.
ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL CONSIDERATIONS
Except for the historical information contained herein, the matters
discussed may include forward-looking statements relating to such matters as
anticipated financial performance, legal issues, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that forward-looking statements
include the intent, belief, or current expectations of the Company and members
of its senior management team, as well as the assumptions on which such
statements are based. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements. Important factors
currently known to management that could cause actual results to differ
materially from those in forward-looking statements are set forth in the safe
harbor compliance statement for forward-looking statements included as Exhibit
99.1 to this Form 10-K and are hereby incorporated herein by reference. The
Company undertakes no obligation to update or revise forward-looking statements
to reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
UMC and UMY derive their primary revenues from medical claims
processing and accounts receivable management services. A substantial portion of
UMC and UMY revenues are derived from recurring monthly charges to its customers
under service contracts that typically are cancelable with a 30 to 60 day
notice. For the year ended December 31, 2000, 1999 and 1998, approximately 82%,
91% and 89% of UMC and UMY revenues were recurring. Recurring revenues are
defined as revenues derived from services that are used by the UMC and UMY
customers in connection with ongoing business, and accordingly exclude revenues
from backlog accounts receivable management, advance funding, UMClaimPros, and
consulting services.
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The following table sets forth for each period indicated the volume and
gross dollar amount of insurance claims received and fees recognized for each of
the Company's two principal accounts receivable management services.
CLAIMS MANAGEMENT SERVICES - PROCESSING VOLUMES
2000 1999 1998
-------------------------------- --------------------------------- --------------------------------
QUARTER QUARTER QUARTER
-------------------------------- --------------------------------- --------------------------------
Fourth Third Second First Fourth Third Second First Fourth Third Second First
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
UMC
- ----------------
Number of Claims
Accepted for
Processing:
Ongoing 12,637 12,774 38,702 44,311 40,118 53,655 47,525 45,265 48,722 48,162 49,742 89,317
Backlog 3,252 9,135 10,928 2,219 -- -- -- -- -- 1 72 8,518
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 15,889 21,909 49,630 46,530 40,118 53,655 47,525 45,265 48,722 48,163 49,814 97,835
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 10,571 10,186 28,801 35,581 28,919 33,947 29,360 28,817 33,401 30,116 30,087 40,333
Backlog 1,777 6,216 2,987 4,789 -- -- -- -- -- -- 17 2,744
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 12,348 16,402 31,788 40,370 28,919 33,947 29,360 28,817 33,401 30,116 30,104 43,077
Collection $
(000's)
Ongoing 3,730 7,092 12,343 12,568 14,349 13,503 12,436 12,531 11,613 11,738 11,215 14,556
Backlog 1,636 1,561 1,112 -- -- -- -- -- -- 9 156 128
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 5,366 8,653 13,455 12,568 14,349 13,503 12,436 12,531 11,613 1,747 11,371 14,684
Fees Earned
(000's)
Ongoing 132 239 370 412 637 721 675 771 631 681 729 922
Backlog 123 155 137 -- -- -- -- -- -- 1 11 9
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 255 394 507 412 637 721 675 771 631 682 740 931
Average Fee %
Ongoing 3.5% 3.3% 3.0% 3.3% 4.4% 5.3% 5.4% 6.2% 5.4% 5.8% 6.4% 6.3%
Backlog 7.5% 9.9% 12.3% -- -- -- -- -- -- 11.0% 7.1% 7.0%
For Ongoing claims, there is typically a time lag of approximately 30
to 90 days from contract execution to complete development of system interfaces
and definition of procedural responsibilities with customer personnel. During
this period, Company personnel survey the customer's existing operations and
prepare for installation. Once the customer begins transmitting claims to the
Company, there is usually a time lag of 30 to 90 days between transmission of
claims to third party payors and collection of those claims from payors.
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The following table sets forth for each period indicated the volume and
gross dollar amount of customer service and collection accounts received and
fees recognized for UMY.
COLLECTION AGENCY SERVICES - PROCESSING VOLUME
2000 1999 1998
--------------------------------- --------------------------------- ---------------------------------
QUARTER QUARTER QUARTER
--------------------------------- --------------------------------- ---------------------------------
Fourth Third Second First Fourth Third Second First Fourth Third Second First
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------ ------
UMY
---
Number of
Accounts Accepted
for Collection: 39,046 44,968 12,194 15,642 6,937 3,315 10,987 14,626 26,024 31,861 22,130 27,399
Gross $ Amount
of Accounts
Accepted for
Collection
(000's) 25,767 26,289 9,826 9,090 2,598 1,465 4,513 7,281 12,282 11,664 12,370 14,294
Collection $
(000's) 2,675 780 682 401 186 264 917 930 1,321 2,282 2,653 2,305
Fees Earned
(000's) 276 109 106 72 39 45 110 137 150 232 263 270
Average Fee % 10.3% 14.0% 15.5% 18.0% 21.0% 17.0% 12.0% 14.7% 11.4% 10.2% 9.9% 11.8%
For placements of collection accounts, there is typically a time lag of
approximately 15 to 45 days from contract execution to electronic transfer of
accounts from the customer. In many cases, collection accounts are transferred
to UMY via hard copy media, which requires UMY employees to manually enter
collection account data into the UMY system. Collection fee percentages charged
to the customer vary depending on the service provided the age and average
balance of accounts.
SIGNIFICANT CUSTOMERS
During 2000, 76% of revenue was earned from three customers: the
Washington Hospital Center ("WHC"), Presbyterian Healthcare Services ("PHS") of
New Mexico, and Inova Health Systems ("Inova"). WHC provided revenue totaling
$657,426 or 28% of total revenue. Of this, 96% was from the Ongoing Accounts
Receivable Management service contract, as amended, entered into in 1992, and 4%
related to a physician billing contract, as amended, entered into in May, 1997.
PHS provided revenue totaling $710,893 or 31% of total revenue. Of this, 52% was
from Backlog Accounts Receivable Management Services, 32% was from Collection
Agency Services, and 16% was from Ongoing Accounts Receivable Management
Services. Inova provided revenue totaling $373,724 or 16% of total revenue. All
of the Inova revenue was from Ongoing Accounts Receivable Management Services.
During 1999, $2,486,000 or 79% of revenue was earned from WHC. Of this
WHC revenue, 63% was provided as a result of the Ongoing Accounts Receivable
Management services contract, as amended, entered into in 1992, and 16% related
to a physician billing contract amendment entered into in May, 1997.
During 1998, 89% of revenue was earned from two customers: the WHC and
Presbyterian Healthcare System of Dallas("PHSD"). WHC provided revenue totaling
$2,740,000, or 66% of total revenue. Of this WHC revenue, 65% was provided as a
result of the Ongoing Accounts Receivable Management services contract, as
amended, entered into in 1992, and 35% related to a physician billing contract
amendment
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entered into in May, 1997. PHSD provided revenues, primarily under various early
out and bad debt collection contacts entered into in 1997, totaling $985,000, or
23% of total revenue. Of this PHSD revenue, 87% was provided from Collection
Agency services, and 13% was provided from UMClaimPros services.
LOSS OF SIGNIFICANT CUSTOMERS
On May 8, 2000, the Company was officially notified by WHC that claim
transmissions from the Hospital Billing contract would terminate effective June
30, 2000. Revenue from this contract was generated through July 31, 2000
consistent with revenues generated on a monthly basis through June 30, 2000, and
thereafter, ramped down through and terminated December 31, 2000. Revenue from
this contract accounted for approximately 28%, 52%, and 36% of total
consolidated revenues during 2000, 1999, and 1998, respectively.
In September, 1999, the Company was informally notified by WHC that
claim transmissions from the Department of Emergency Medicine ("WHCDEM") would
terminate effective November 1, 1999. Formal notification was subsequently
received on November 4, 1999. Revenue from this contract was generated through
November 30, 1999 consistent with revenues generated on a monthly basis through
September 30, 1999, and thereafter ramped down through and will terminate on or
about April 30, 2000. Revenue from this contract accounted for approximately 1%,
7% and 6% of total revenue during 2000, 1999 and 1998, respectively. It is
management's understanding that this decision was related to changes in the
outsourcing strategy of WHCDEM that included combining the outsourced claims
management services with coding services not offered by UMC, and other factors.
On July 28, 1999, the Company was formally notified by WHC that claim
transmissions from the Department of Women's Services ("WHCDWS") would terminate
effective October 1, 1999. Revenue from this contract was generated through
November 1, 1999 consistent with revenues generated on a monthly basis through
September 30, 1999, and thereafter ramped down through and terminated on or
about December 31, 1999. Revenue from this contract accounted for approximately
9% and 1% of total revenue during 1999 and 1998, respectively. It is
management's understanding that this decision was related to cost reduction
measures in response to declining reimbursement attributable to the Balanced
Budget Act of 1997, and other factors.
On March 15, 1999, the Company was formally notified by PHSD that it had
not been selected to provide continuing collection agency services. The Company
was informed that this decision was the result of the merger of PHS with another
health care system and was in no way related to the quality of the services
provided by the Company to PHS. The Company received weekly account placements
through May 4, 1999, and generated its last revenue from PHS in August 1999.
Revenue from this contract accounted for approximately 4% and 23% of total
revenue during 1999 and 1998, respectively. See subsequent section herein
entitled "Management's Plan With Regard to Lost Revenues".
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INCENTIVE FINANCING RELATIVE TO RELOCATION OF OPERATIONS CENTER
During 1999 and the first seven months of 2000, UMC had experienced
increasing difficulty in recruiting and retaining medical billing and collection
staff in the Dallas area. This situation was the result of low unemployment and
strong competition from nearby major hospitals and physician groups for
experienced staff. Low unemployment and escalating competition for qualified
staff had resulted in an overall increase in hourly wage rates and turnover.
Effective July 28, 2000, UMC executed an Economic Development and
Incentive Agreement (the "Agreement"), with the Pampa Economic Development
Corporation ("PEDC"), included as Exhibit 10.39 to this Form 10-K and
incorporated herein by reference. Management entered into this Agreement in
order to: (a) create a new expense paradigm which includes reduced hourly wages
expense, (b) access a pool of applicants who are believed to be capable of
rapidly assimilating training in the job skills related to UMC's business, and
(c) put into place a facility with 20,000 square feet of space at a cost far
below that which would be incurred in the Dallas area.
In exchange for providing jobs within the city limits of Pampa, Texas,
at a lower hourly rate than is possible in the Dallas area, the Agreement calls
for the PEDC to provide the following incentives to UMC:
(a) an incentive payment of $192,000 which was made upon the closing of
the purchase of the new operations center facility in Pampa. The Agreement
includes a claw back provision whereby if UMC does not maintain a minimum of 30
full time equivalent employees ("FTEE") employed in its Pampa operations center
during any given year of the eight years of the Agreement beginning with the
year ended December 31, 2001, UMC will be required to remit $24,000 back to PEDC
for each such year.
(b) an incentive payment of $40,000 per calendar year (for a maximum of
$320,000) so long as UMC provides a minimum average of 40 FTEE employed in its
Pampa operations center during each of the eight calendar years of the Agreement
commencing with the year ending December 31, 2001, and
(c) an incentive payment of $1,000 per job per calendar year (for a
maximum of $80,000) for each FTEE from the 41st up to and including the 50th
FTEE employed in its Pampa operations center during each of the eight calendar
years of the Agreement commencing with the year ending December 31, 2001, and
(d) an incentive payment of $500 per calendar year (with no cap or
limit) for each FTEE from the 51st and over employed in its Pampa operations
center during each of the eight calendar years of the Agreement commencing with
the year ending December 31, 2001, and
(e) an incentive payment of $10,000 which has been paid to UMC based on
the condition that UMC had 40 persons employed in its Pampa operations center at
December 31, 2000, and
(f) PEDC will guarantee up to $137,000 for the benefit of UMC's lender
(the "Lender"), relative to the purchase of an operations center facility in
Pampa. In addition, PEDC will pay to UMC $27,400 per year during each of the
first five years of the Agreement (for a maximum of $137,000) commencing with
the year ending December 31, 2001. After offsetting the total monthly payments
made to Lender during the preceding 12 months from this annual payment, UMC will
remit the balance to the Lender. PEDC
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will be released from paying any and all unpaid annual payments if UMC defaults
on its obligations to its Lender or if UMC discontinues its operations in Pampa
within five years of July 28, 2000.
On August 21, 2000 UMC purchased a building in Pampa, located at 200 N.
Cuyler Street that serves as its Pampa operations center, and simultaneously
received payment of the relocation incentive totaling $192,000 (as specified in
paragraph (a) above). On December 31, 2000 UMC had 45 full time and 2 part time
employees at its Pampa operations center, and qualified for the initial
incentive payment as specified in paragraph (e) above. This payment was applied
to the forgivable loan from the PEDC that is detailed below. As of March 15,
2001 UMC had 66 full time, and 3 part time employees at its Pampa operations
center.
There can be no assurance that UMC will be successful in: (a)
continuing to meet the aforementioned initial minimum employment requirements to
trigger incentive payments, (b) maintaining the minimum employment requirements
to prevent triggering the aforementioned claw back provision, (c) averting a
default to its Lender or discontinuing its operations in Pampa within five years
to prevent PEDC from being released from paying any and all unpaid annual
payments to UMC relative to the aforementioned terms of the PEDC Agreement.
FORGIVABLE LOAN AGREEMENT
During the first 60 days of operation in Pampa, UMC experienced
difficulties with its data communications from Pampa to Dallas. This resulted in
reduced productivity in Pampa, delays in revenue generation, and unexpected
costs in diagnosing and managing data communication. In addition UMC expended
$11,964 for moving expenses and $92,110 in capital expenditures to prepare the
Pampa building for operations. Due to the effect of these issues, UMC developed
a need for additional working capital. As a result, UMC executed a Forgivable
Loan Agreement with the PEDC on October 31, 2000 (included as Exhibit 10.40 to
this Form 10-K, and incorporated herein by reference). Pursuant to the
Forgivable Loan Agreement, the PEDC loaned UMC $50,000, as an advance against
scheduled incentive payments for 2000 and 2001. The principal amount of the loan
will be due and payable or forgivable based on the terms and conditions of the
Economic Development and Incentive Agreement executed with the PEDC on July 28,
2000. The loan bears interest of 9.5% per annum, which is not forgivable.
Interest on the unpaid principal amount of the loan is due and payable at the
end of each calendar quarter.
MANAGEMENT'S PLAN WITH RESPECT TO LOST REVENUES
As a result of the aforementioned changes within its customer base,
management has taken certain actions (in addition to executing the Economic
Development Incentive agreement with the PEDC), in an attempt to better position
the Company. These actions include, but are not limited to
o The Company restructured its sales organization to improve focus on the
Texas market and increase the emphasis on services provided by UMY.
o A medical claims management contract for ongoing claims was executed on
October 31, 2000 with a hospital located in South Texas. This contract
is fully implemented and began generating revenue in February 2001.
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18
o A medical claims management contract for ongoing claims was executed on
March 1, 2001 with a hospital located in Dallas, Texas. This contract
is expected to begin generating revenue in May 2001.
o On November 15, 2000 UMC moved it corporate office from its previous
6,836 square foot office space in Dallas, to a 937 square foot office
space in Garland, Texas, resulting in a monthly expense reduction of
approximately $6,800.
o Effective December 26, 2000, UMC discontinued its agreement with
Administaff, Inc., a professional employer organization ("PEO") whereby
Administaff was the employer of record for all UMC employees. UMC has
resumed all payroll and human resource functions internally as of the
cancellation date. The cost savings to UMC as a result of the
discontinuation of the agreement is approximately 7% of gross payroll
cost.
o Management is evaluating new service lines to complement its
traditional medical claims processing and accounts receivable
management services. Possible new service lines include a focus on
healthcare consumerism and healthcare e-business leveraging the
Company's industry experience and technological infrastructure.
Management continues to vigorously pursue new business while rigorously
managing expenses without negatively impacting service levels. However, there
can be no assurance that UMC will be successful in obtaining new business and
producing incremental profits and cash flow.
If management is unable to successfully develop and implement new
profitable customer contracts and new service lines or align expenses with
future cash requirements, it will be required to adopt alternative strategies,
which may include but are not limited to actions such as reducing management and
line employee headcount and compensation, restructuring existing financial
obligations, seeking a strategic merger or acquisition, seeking the sale of the
Company or the Company's public shell, and/or seeking additional debt or equity
capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms.
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RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statements of Operations expressed as a percentage of revenues:
Percentage of Revenues
-------------------------------
Year ended December 31, 2000 1999 1998
----------------------------------- ----- ----- -----
Revenue ............................................. 100.0% 100.0% 100.0%
----- ----- -----
Wages and benefits .................................. 72.0 65.6 63.8
Selling, general and administrative ................. 22.7 19.5 19.5
Office and equipment rental ......................... 4.2 4.5 3.1
Depreciation and amortization ....................... 5.0 3.7 2.1
Interest, net, and other income ..................... 1.7 2.3 0.2
Professional fees ................................... 1.9 2.2 1.1
Provision for doubtful accounts ..................... 1.2 1.0 0.7
----- ----- -----
Total expenses ...................................... 108.7 98.8 90.5
----- ----- -----
Income (loss) from continuing operations ............ (8.7) 1.2 9.5
Loss from discontinued operations-AHO ............... -- (31.4) (5.5)
Gain on disposal of discontinued operations-AHO ..... -- 5.6 --
----- ----- -----
Net income (loss) ................................... (8.7)% (24.6)% 4.0%
===== ===== =====
2000 COMPARED TO 1999
REVENUES decreased $860,544 or 27% primarily due to the following:
o Ongoing Accounts Receivable Management Services revenue of $1,153,000
in 2000 decreased by $1,567,000 compared to 1999 primarily due to
effect of the aforementioned loss of the WHC contract. On October 31,
2000 UMC executed a medical claims management contract with a hospital
located in South Texas. This contract is fully implemented and began
generating revenue in February 2001. On March 1, 2001, UMC executed a
medical claims management contract for ongoing claims coding, billing
and collection services with a hospital in Dallas, Texas. This contract
is expected to begin generating revenue in May 2001. Assuming that
there are no other significant changes in the existing volume and mix
of claims placed by the Company's customers as of December 31, 2000,
Ongoing Accounts Receivable Management Services will generate revenues
from such customers of approximately $1.5 million in 2001.
o Backlog Accounts Receivable Management Services revenue of $415,000 in
2000 increased by $415,000 compared to 1999 of which $370,000 was due
to a medical claims management contract executed on March 22, 2000 with
a major hospital system located in New Mexico. Assuming that there are
no significant changes in the existing volume and mix of claims placed
by the Company's customers as of December 31, 2000, Backlog Accounts
Receivable Management Services will generate revenues from such
customers of approximately $150,000 in 2001.
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o Collection Agency Services revenue of $563,000 in 2000 increased by
$231,000 compared to 1999 of which $227,000 is due to a collection
agency services contract executed October 13, 2000. Assuming that there
are no significant changes in the existing volume and mix of accounts
placed by the Company's customers as of December 31, 2000, Collection
Agency Services will generate revenues from such customers of
approximately $1.3 million in 2001.
o Other revenue of $63,000 in 2000 increased by $50,000 compared to 1999
which was primarily due to contract programming services provided to a
customer in 2000.
o UMClaimPros revenue of $58,000 in 2000 decreased by $35,000 compared to
1999 primarily due to the discontinuation of UMClaimPro service
utilization by two customers in 1999.
WAGES AND BENEFITS expense decreased $416,000 or 20% primarily due to
headcount reductions through attrition during the first months of 2000, and the
gradual transition of jobs from Dallas to the new operations center in Pampa. As
of March 15, 2001, UMC had a total of 66 full time and 3 part time employees in
Pampa, and 2 remaining in Dallas. Due to discontinuing the outsourcing of
payroll and human resource functions, the lower cost of human resources in Pampa
as compared to Dallas, and assuming no significant change in the Company's core
services, management expects that wages and benefits should be approximately 60%
of revenues in 2001 compared to 72% of revenues in 2000.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense decreased $94,000
or 15% primarily due to expense reductions in conjunction with the
aforementioned revenue reductions. Assuming no significant change in the
Company's core services, management expects that SG&A should remain at
approximately 20% of revenues.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense decreased $45,000 or 32%
primarily due to the August 2, 1999 office space reduction option exercised by
the Company whereby 3,300 square feet of office space was vacated on September
2, 1999 resulting in a monthly expense reduction of approximately $3,500. In
November of 2000, the Company negotiated the early termination of its lease
agreement for 6,836 square feet of office space in Dallas, and moved it
corporate offices to a 937 square foot space in Garland, Texas, resulting in a
monthly expense reduction of approximately $6,800. The company has two leased
automobiles, which will reach the end of their lease terms in March and April of
2001, at which time management intends to exercise the Company's purchase
options for the vehicles. Based on these changes, management expects lease and
rental expense to be less than 1% of revenues in 2001.
DEPRECIATION AND AMORTIZATION expense decreased $2,000 or 1.7% in 2000.
Management expects depreciation and amortization expense to remain at
approximately 5% of revenues in 2001.
PROFESSIONAL FEES expense decreased $26,000 or 38% primarily due to
decreased audit fees allocated to UMC in 2000 as compared to 1999 and $10,000 in
expense related to capital raising efforts throughout 1999.
INTEREST, NET decreased $7,000 or 15% primarily due to the balance of
net cash employed under the Company's factoring agreement being less than funds
borrowed under the Company's previous credit facility, partially offset by
increased interest rates.
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OTHER EXPENSE decreased $26,000 primarily due to accruals related to
AHO and a loss on the rollover financing of the Company's IBM AS/400 during
1999. These expenses were non-recurring.
LIQUIDITY AND CAPITAL SOURCES
At December 31, 2000, the Company's liquid assets, consisting of cash,
totaled $8,000 compared to $122,000 at December 31, 1999. The working capital
deficit was ($226,000) and ($199,000) at December 31, 2000 and December 31,
1999, respectively. Working capital decreased primarily due the net operating
loss for the year ended December 31, 2000, which was partially offset by
incentives received pursuant to the Economic Development and Incentive
Agreement.
Cash flow from operations in 2000 used cash of $162,000, compared to
$271,000 cash provided in operating activities from continuing operations in
1999. This decrease is primarily due to reduction of the following accrued
liabilities: accrued office relocation expenses (75,000); reversal of prior year
accrued dealer commissions (36,000); accrued audit fees (13,000); accrued
expense related to AHO (12,000); accrued payroll and benefit expenses (19,000);
property taxes and other miscellaneous accruals (14,000) and a net operating
loss of $199,000 for the year 2000. In 2000, cash flow from continuing
operations was supplemented by incentives received from the Pampa Economic
Development Commission to cover working capital and liquidity requirements for
continuing operations.
Investing activities in 2000 consisted of the purchases of furniture,
fixtures and equipment, and a building which serves as the Company's new
operations center in Pampa. Total cash used for investments was $213,000, of
which $54,000 was used for the purchase of furniture, fixtures and equipment,
and $159,000 was for the purchase of the building, and subsequent improvements
thereto. Total cash used in investing activities during 1999 was $15,000. The
Company's fixed assets are in good working order and sufficient to support
continuing operations.
Financing activities in 2000 consisted of borrowings under a real
estate lien note for the purchase of the Pampa operations center, and
transaction and improvement costs in the amount of $137,000; borrowings under a
bank note payable totaling $12,500; Deferred incentive income totaling $192,000
received pursuant to the Economic Development and Incentive Agreement; a
forgivable loan from the Pampa Economic Development Corporation in the amount of
$50,000; and principal payments on capital lease obligations and notes payable
which used cash of $130,000.
On December 28, 1999, the Company executed a $500,000 recourse
factoring agreement which may be terminated by either party with ten days
notice. The agreement is secured by all of the Company's non-factored accounts
receivable and is personally guaranteed by Peter Seaman, Chairman and CEO. Other
significant terms of the factoring agreement include recourse for invoices
remaining unpaid at 90 days, interest at prime plus 2.5%, and a factoring fee of
1% of the face value of each invoice.
Management believes that current cash and cash equivalents and
projected cash flows from operations together with the Company's factoring
agreement, incentives under the Economic Development and Incentive Agreement,
capital lease and other potential financing should be sufficient to support
projected growth in revenues through fiscal 2001.
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1999 COMPARED TO 1998
REVENUES decreased $1,020,000 or 24% primarily due to the following:
o Ongoing Accounts Receivable Management Services revenue of $2,720,000
in 1999 decreased by $137,000 compared to 1998 primarily due to effect
of the aforementioned loss and restructuring of significant WHC
contracts.
o Collection Agency Services revenue of $332,000 in 1999 decreased by
$583,000 compared to 1998 primarily due to the aforementioned loss of
the PHSD contact. Revenue in 1999 from PHSD was $112,000 compared to
$854,000 in 1998.
o Other revenue of $14,000 in 1999 decreased by $99,000 compared to 1998
primarily due to decreased funding fees related to Advance Funding
Services and decreased Consulting Services. Approximately $51,000 of
1998's other revenue related to services provided to AHO. Upon the
acquisition of AHO, billing for services performed by UMC was
terminated.
o UMClaimPros revenue of $93,000 in 1999 decreased by $102,000 compared
to 1998 primarily due to decreased utilization at PHSD.
WAGES AND BENEFITS expense decreased $594,000 or 22% primarily due to
headcount reductions through attrition in conjunction with the aforementioned
revenue reductions. During 1999, monthly employee headcount averaged 53 compared
to 80 during 1998.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense decreased $201,000
or 25% primarily due to expense reductions in conjunction with the
aforementioned revenue reductions.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense increased $14,000 or 11%
primarily due to the $14,000 payment required in conjunction with the August 2,
1999 office space reduction option whereby 3,300 square feet of office space was
vacated on September 2, 1999 resulting in a monthly expense reduction of
approximately $3,500. Under the arrangement, monthly office rent through January
31, 2000 and 2001 were reduced to $7,200 and 7,400, respectively. Monthly
vehicle and other rental expenses were reduced to approximately $1,000 and $500,
respectively.
DEPRECIATION AND AMORTIZATION expense increased $30,000 or 35%
primarily due to amortization expense related to assets under capital leases
recorded in 1999 and the full year effect of assets under capital leases and
fixed assets acquired throughout 1998.
PROFESSIONAL FEES expense increased $24,000 or 54% primarily due to
increased audit fees allocated to UMC in 1999 as compared to 1998 and $10,000 in
expense related to capital raising efforts throughout 1999.
INTEREST, NET increased $38,000 or 452% primarily due to increased
credit facility borrowings and promissory note borrowings required to support
AHO.
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OTHER EXPENSE increased $26,000 primarily due to accruals related to
AHO and a loss on the rollover financing of the Company's IBM AS/400. These
expenses were non-recurring.
LOSS FROM DISCONTINUED OPERATIONS - AHO is comprised primarily of
salaries paid, bad debt expense, professional fees and other SG&A.
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS - AHO represents the
excess of AHO's liabilities liquidated via the aforementioned Chapter 7
bankruptcy over the working capital provided from UMC to AHO during the period
from August 7, 1998 to October 14, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company qualifies as a small business issuer as defined in Rule
12b-2 of the Securities Exchange Act of 1934. As such, the Company is not
required to provide information related to the quantitative and qualitative
disclosures about market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements appear beginning at
page 35.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On January 25, 1999, the Company appointed Hein + Associates LLP as its
independent accountant. Hein + Associates LLP accepted such appointment. The
Company has had no relationship with Hein + Associates LLP required to be
reported pursuant to Regulation S-K Item 304(a)(2).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
PETER W. SEAMAN (50) was elected President and Chief Executive Officer
on February 10, 1994, and Chairman of the Board of Directors on November 12,
1996. Mr. Seaman joined the Company on July 17, 1991 as Vice President and Chief
Financial Officer and was elected to the Board of Directors on August 12, 1991.
Mr. Seaman's prior employment includes serving as Director of Business
Development for TRW Receivables Management Services from March, 1989 to June,
1991, and Vice President of Planning and Systems Development for the Accounts
Receivable Management Division of the Chilton Corporation from March, 1986 to
March, 1989. Prior to joining the Chilton Corporation, Mr. Seaman was Vice
President and Chief Financial Officer for Corliss, Inc., a collection systems
and services company. Before that, Mr. Seaman held a number of finance,
marketing, and auditing positions with the Datapoint Corporation, Rockwell
International, and Coopers and Lybrand. Mr. Seaman holds a B.A. in Accounting
from Duke University, and is a Certified Public Accountant.
MICHAEL P. BUMGARNER (56) was elected to the Board of Directors on
November 12, 1996. Mr. Bumgarner is the Chairman of the Audit Committee of the
Board of Directors. Mr. Bumgarner is President/CEO of msi21, Inc., a Dallas,
Texas based start-up medical management consulting firm positioned to deliver
accreditation preparation, ongoing compliance and other management services to
all
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types of medical facilities through its interactive multi-layered web site and
its strategically located Professional Affiliates, nationally. Mr. Bumgarner's
prior experience includes Chairman/CEO of Beacon Enterprises, Inc., a holding
company which he co-founded in May, 1994 with interests in a number of
healthcare concerns including GSS "Gold Seal Services", one of the largest home
healthcare providers in the San Antonio area. GSS was sold to a Dallas based
public company in December 1996. Prior to starting Beacon Enterprises, Mr.
Bumgarner worked as a consultant for a number of national distributors of
cardiovascular equipment in the southwest United States. From 1977 to 1986, Mr.
Bumgarner was founder and president of a national healthcare company providing
arrhythmia monitoring by telephone to patients in their homes. During this
period, he developed the "continuous loop memory" arrhythmia transmitter and
received a patent registered in the U.S. Patent Office. After graduating from
Auburn University, he was honorably discharged from the USAF as a Captain and
carried his electronics background to the medical industry where he has spent
over 25 years gaining extensive senior business and management experience.
JOHN F. LEWIS (52) was elected to the Board of Directors on November
12, 1996. Mr. Lewis is a consultant specializing in Medicare reimbursement and
regulatory compliance for a number of healthcare industry concerns in Puerto
Rico and the Caribbean market area. From 1992 to 1995, Mr. Lewis served as
Health Advisor to the Governor of the U.S. Virgin Islands. From 1988 to 1992,
Mr. Lewis was employed as Assistant Vice President for Medicare Operations at
Seguros de Servicios de Salud, the Medicare Part B Carrier for Puerto Rico and
the Caribbean. Mr. Lewis holds a B.A. in Business Administration from the
American College of Switzerland and a License in Economic and Social Sciences
from the University of Geneva.
On February 26, 2001, Dr. Thomas H. McConnell resigned from UMC's board
of directors. Dr. McConnell did not indicate any issues or disagreements with
UMC's board of directors or management in his letter of resignation.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Pursuant to Section 16(a) of the Securities Act of 1934 and the rules
issued thereunder, the Company's executive officers and directors are required
to file with the Securities and Exchange Commission reports of ownership and
changes in ownership of the Common Stock. Copies of such reports are required to
be furnished to the Company. All required forms have been timely filed.
ITEM 11. EXECUTIVE COMPENSATION
Set forth below are tables showing in summary form, the compensation
paid for the years shown in the table to Mr. Seaman and exercise and year end
valuation information pertaining to stock options and warrants granted to Mr.
Seaman. No other executive officer of the Company received total annual salary
and bonus in excess of $100,000 in the fiscal years 2000, 1999 or 1998:
24
25
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
---------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------ ---------------------------------- -------
OTHER RESTRICTED SECURITIES
NAME ANNUAL STOCK UNDERLYING LTIP ALL OTHER
AND PRINCIPAL COMPENS- AWARD(S) OPTIONS/ PAYOUTS COMPEN-
POSITION YEAR SALARY ($) BONUS ($) SATION ($) ($) WARRANTS (#) ($) SATION ($)
- ------------- ---- ---------- --------- ---------- --------- ------------ ------- ----------
Peter W. Seaman 2000 131,669 -- -- -- -- -- --
Chairman and 1999 138,945 -- -- -- 2,000,000 -- --
CEO 1998 142,518 22,500(1) -- -- -- -- --
(1) Represents 1997 bonus paid in 1998.
AGGREGATED OPTION/WARRANT EXERCISES
AND FISCAL YEAR-END OPTION/WARRANT VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/WARRANTS AT FISCAL OPTIONS/WARRANTS AT
ON VALUE YEAR-END (#) FISCAL YEAR-END (3) ($)
EXERCISE REALIZED ------------------------------ -------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- -------- -------- ----------- ------------- ----------- -------------
Peter W. Seaman -- -- 1,500,000 1,500,000 5,000 15,000
(3) The last reported sale of the Company's Common Stock as reported on the
NASD OTC Bulletin Board as of December 31, 2000 was $0.01 per share.
Value is calculated on the basis of the difference between the option
exercise price and $0.01 multiplied by the number of shares of Common
Stock underlying the option or warrant.
COMPENSATION OF DIRECTORS
An officer of the Company who also serves as a Director of the Company
receives no additional compensation for serving as a Director or as a member or
chair of a committee. Members receive no cash compensation for serving on the
Board of Directors. Board members are reimbursed for expenses of meeting
attendance.
Pursuant to the 1995 Stock Option Plan, each non-employee director
shall receive nonqualified stock options for the purchase of 25,000 shares of
Common Stock. These options shall be granted on the first and each subsequent
anniversary of the approval of the 1995 Stock Option Plan by stockholders, as
long as the director serves on the Board. The exercise price shall be the fair
market value of the Common Stock on the date the nonqualified stock options are
granted. One half of the option shall be exercisable immediately and the
remainder of the option shall become exercisable on the first anniversary date
of the grant. All options shall expire on the tenth anniversary of the date
granted.
25
26
Subsequent to stockholder approval of the 1995 Stock Option Plan, the
Board of Directors determined that in light of the condition of the Company
immediately prior to November 12, 1996 when the current members of the Board of
Directors were elected, the provisions of the 1995 Stock Option Plan regarding
director compensation were inadequate to attract and retain qualified board
members. As such, on April 1, 1997, warrants to purchase a total of 1,200,000
shares of the Company's common stock at $0.08 per share were issued to the three
non-employee board members with each member receiving a warrant for 400,000
shares. These warrants were issued in lieu of the options that would have been
issued to the board members under the 1995 Stock Option Plan. One of the board
members resigned on February 26, 2001; the warrants issued to him will expire if
not exercised prior to May 26, 2001. These warrants are exercisable 33 1/3%
immediately, 66 2/3% after twelve months from the effective date of the grant,
and 100% after twenty four months from the effective date of the grant. These
warrants expire on the earlier of (a) March 31, 2007, (b) the date on which the
Director's services are terminated for cause, (c) three months after the
expiration of the Director's term, resignation from the Board of Directors, or
termination of the Director due to the sale of the Company or (d) twelve months
after the services as a Director are terminated by reason of the Director's
death of disability. None of these warrants had been exercised as of December
31, 2000.
On March 19, 1997, each non-employee member of the Board of Directors
entered into a Director's Incentive Compensation Agreement ("DICA"). This
agreement has a term of three years under which the director shall be paid a
commission based on fees billed and collected from new customers sold by or with
the assistance from such director. The commission will be 10 percent during the
first year of a contract with a given customer, 6 percent during the second
contract year, and 4 percent thereafter. The Director's compensation may be paid
in either cash, common stock, or stock purchase warrants upon approval of the
Compensation and Stock Option Committee. For the year ended December 31, 2000,
the Company paid $2,600 in commissions to a non-employee Director in conjunction
with commissions earned under the DICA.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Lewis and
Bumgarner. None of the members of the Company's Compensation Committee served as
a member of the compensation committee or other board committees performing
similar functions of any other registered entity in 2000.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth certain information
regarding the beneficial ownership of shares of the Company's Common Stock as of
March 15, 2001 by (i) each current director; (ii) all current directors and
officers of the Company as a group; and (iii) each person known to the Company
to own beneficially more than five percent (5%) of the currently outstanding
Common Stock. Unless there is a footnote to the contrary, sole voting and
investment power in the shares owned are held either by the named individual
alone or by the named individual and his or her spouse:
26
27
NUMBER OF SHARES OF UNITED MEDICORP, INC. COMMON STOCK (1)
----------------------------------------------------------
SHARES EXERCISABLE
BENEFICIALLY WARRANTS/ PERCENT OF
NAME OWNED OPTIONS (3) CLASS (1)
- --------------------------------- --------------- --------------- -----------------
Mercury Asset Management plc. (2) 8,067,200 -- 28.1%
33 King William Street
London EC4R 9AS Great Britain
Tambura Limited 1,484,000 -- 5.2%
Rue du Moulin
Sark, Channel Islands
Thomas H. McConnell, III 1,000,000 509,347 5.2%
Peter W. Seaman (4) 100,000 1,500,000 5.3%
Michael P. Bumgarner 100,000 400,000 1.7%
John F. Lewis -- 400,000 1.4%
All officers and directors as
a group (4 persons) (5) 1,200,000 2,809,647 14.0%
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable. Beneficial ownership as reported in the above table
has been determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The percentages
are based upon 28,710,217 shares outstanding except with respect to
certain persons who hold presently exercisable options or warrants to
purchase shares. The percentage for each person who holds presently
exercisable options or warrants is based upon the sum of 28,710,217
shares outstanding plus the number of shares subject to presently
exercisable options or warrants held by such person.
(2) According to a Schedule 13D filed with the Company, Mercury Asset
Management plc. ("MAM") manages investments for its clients and the
securities indicated are held solely for the accounts of such clients.
With respect to 3,267,200 of the shares held on behalf of a unit trust,
a wholly-owned subsidiary of MAM, as manager of the trust, has power to
vote the shares. MAM has the power to sell the shares for the benefit
of the trust. With respect to the remainder of the shares, MAM has
dispositive power, but not voting power, subject to its clients'
guidelines. MAM does not admit that it is the beneficial owner of any
of the indicated shares.
(3) As required by the Securities and Exchange Commission, this column
includes shares available under exercisable options/warrants as well
as shares that may be acquired within 60 days of March 31, 2001, upon
exercise of options/warrants.
(4) Excludes 1,500,000 unexercisable shares held under warrant.
(5) Excludes 1,500,000 unexercisable shares held under warrant.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The Company had consulting agreements for services provided primarily
by a non-employee director of the Company. These agreements were completed
simultaneously with consulting agreements between the Company and certain
customers. The director was paid approximately 78% of the consulting fees paid
to the Company. For the year ended December 31, 1998 the Company paid the
director $210,000.
27
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Reference is made to the Consolidated Financial Statements and
Financial Statement Schedules included at page 33.
2. Financial Statement Schedules
Reference is made to the Consolidated Financial Statements and
Financial Statement Schedules included at page 33.
3. Exhibits:
3.1 Certificate of Incorporation of the Company, filed
with Secretary of State of Delaware on February 26,
1988, is incorporated herein by reference to Exhibit
3 (a) of the Company's Registration Statement on Form
S-1, Commission File No. 33-20989, filed with the
Commission on March 30, 1988 and declared effective
June 7, 1988 (previously filed).
3.2 By-Laws of the Company are incorporated herein by
reference to Exhibit 3 (b) of the Company's
Registration Statement on Form S-1, Commission File
No. 33-20989, filed with the Commission on March 30,
1988 and declared effective June 7, 1988 (previously
filed).
3.3 Certificate of Amendment to Certificate of
Incorporation of the Company, filed with Secretary of
State of Delaware on July 12, 1989, is incorporated
herein by reference to Exhibit 3 of the Company's
Current Report on Form 8-K, filed with the Commission
on July 25, 1989 (previously filed).
3.4 Certificate of Amendment to Certificate of
Incorporation of the Company, filed with Secretary of
State of Delaware on August 9, 1989, is incorporated
herein by reference to Exhibit 3.2 of the Company's
Form 10-Q filed for the fiscal quarter ended
September 30, 1989 (previously filed).
4.3 Specimen Form of Certificate of Common Stock of the
Company is incorporated herein by reference to
Exhibit 4.3 of the Company's Registration Statement
on Form S-1, Commission File No. 33-35177, originally
filed with the Commission on June 1, 1990 and
declared effective July 27, 1990 (previously filed).
4.4 Article Fourth of the Company's Certificate of
Incorporation is incorporated herein by reference to
Exhibit 3 of the Company's Current Report on Form
8-K, filed with the Commission on July 25, 1989
(previously filed).
4.5 Certificate of Amendment to Certificate of
Incorporation, filed with the Secretary of State of
Delaware on June 21, 1990 is incorporated herein by
reference to Exhibit 4.5 of the Company's
Registration Statement on Form S-1, Commission File
No. 33-35177,
28
29
originally filed with the Commission on June 1, 1990
and declared effective on July 27, 1990 (previously
filed).
4.6 Form of Common Stock Purchase Warrant for 400,000
shares issued to Thomas H. McConnell, III (previously
filed).
4.7 Form of Common Stock Purchase Warrant for 400,000
shares issued to Michael P. Bumgarner (previously
filed).
4.8 Form of Common Stock Purchase Warrant for 400,000
shares issued to John F. Lewis (previously filed).
4.9 Form of Common Stock Purchase Warrant issued to Peter
W. Seaman for 500,000 shares (previously filed).
4.10 Form of Common Stock Purchase Warrant issued to Peter
W. Seaman for 1,500,000 shares (previously filed).
4.11 Form of Common Stock Purchase Warrant issued to R.
Kenyon Culver for 500,000 shares (previously filed).
4.12 Form of Common Stock Purchase Warrant issued to R.
Kenyon Culver for 1,500,000 shares (previously
filed).
9. Not Applicable.
10.7 1992 Stock Option Plan of the Company is incorporated
herein by reference to Exhibit 10.24 of the Company's
Registration Statement on Form S-1, Commission File
No. 33-35178 (previously filed).
10.11 Customer Service Agreement dated December 15, 1992 by
and between the Company and the Washington Hospital
Center is incorporated herein by reference to Exhibit
10.27 of the Company's Registration Statement on Form
S-1, Commission File No. 33-35178 (previously filed).
10.14 Standard Office Building Lease Agreement dated June
1, 1989, between the Registrant and Aetna Life
Insurance Company (previously filed).
10.15 Third Amendment to Lease, dated May 1, 1992, between
the Registrant and Aetna Life Insurance Company
(previously filed).
10.19 Certificate of Amendment to Certificate of
Incorporation of the Company, filed with Secretary of
State of Delaware on August 3, 1993 (previously
filed).
10.22 1995 Stock Option Plan (previously filed).
10.23 Modification and Ratification of Lease, dated July
19, 1995 (previously filed).
10.25 Severance Agreement by and between Registrant and
Mary E. Rogers (previously filed).
10.26 Severance Agreement by and between Registrant and
Peter W. Seaman (previously filed).
29
30
10.28 Director's Incentive Compensation Agreement by and
between Registrant and Thomas H. McConnell, III
(previously filed).
10.29 Director's Incentive Compensation Agreement by and
between Registrant and John F. Lewis. (previously
filed).
10.30 Director's Incentive Compensation Agreement by and
between Registrant and Michael P. Bumgarner.
(previously filed).
10.31 Amendment No. 1 to Customer Service Agreement dated
December 15, 1992 by and between the Company and the
Washington Hospital Center relating to collection of
Department of Emergency Medicine claims is
incorporated herein by reference to Exhibit 10.27 of
the Company's Registration Statement on Form S-1,
Commission File No. 33-35178 (previously filed).
10.32 Amendment No. 2 to Customer Service Agreement dated
December 15, 1992 by and between the Company and the
Washington Hospital Center relating to collection of
physician claims is incorporated herein by reference
to Exhibit 10.27 of the Company's Registration
Statement on Form S-1, Commission File No. 33-35178
(previously filed).
10.33 Collection Services Agreement dated January 17, 1997
by and between the Registrant and Presbyterian
Healthcare System (previously filed).
10.34 Early Out Collection Agreement dated May 1, 1997 by
and between the Registrant and Presbyterian
Healthcare System (previously filed).
10.35 Secondary Collection Agreement dated October 31, 1997
by and between the Registrant and Presbyterian
Healthcare System (previously filed).
10.36 Loan Agreement dated December 11, 1998 by and between
the Registrant and Texas Central bank (previously
filed).
10.37 Promissory Note dated December 11, 1998 by and
between the Registrant and Texas Central bank
(previously filed).
10.38 Factoring Agreement and Security Agreement dated
December 28, 1999 by and between the Registrant and
Metro Factors, Inc. (previously filed).
10.39 Economic Development and Incentive Agreement by and
between the Registrant and the Pampa Economic
Development Corporation. (previously filed)
10.40 Forgivable Loan Agreement by and between the
Registrant and the Pampa Economic Development
Corporation. (previously filed)
22.1 Subsidiaries of the Company (previously filed).
99.1 Safe Harbor Compliance Statement for Forward-Looking
Statements
99.2 Voluntary Petition United States Bankruptcy Court
Northern District of Texas - Chapter 7 (previously
filed)
30
31
(b) Reports on Form 8-K
No reports of Form 8-K were filed during the fourth quarter of 2000.
31
32
SIGNATURES
PURSUANT TO THE REQUIREMENT OF SECTION 13 OR 15(d) 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.
United Medicorp, Inc.
Date: March 31, 2001 By: /s/ Peter W. Seaman
-------------------------------------------
PETER W. SEAMAN,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
- ------------------------------ -------------------------------------- --------------
/s/ Peter W. Seaman Chairman of the Board and Chief March 31, 2001
- ------------------------------ Executive Officer (Principal Executive
PETER W. SEAMAN Officer)
/s/ Nathan E. Bailey Corporate Controller (Principal March 31, 2001
- ------------------------------ Financial Officer and Principal
NATHAN E. BAILEY Accounting Officer)
/s/ Michael P. Bumgarner Director March 31, 2001
- ------------------------------
MICHAEL P. BUMGARNER
/s/ John F. Lewis Director March 31, 2001
- ------------------------------
JOHN F. LEWIS
32
33
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2000
ITEMS 8 AND 14(a)
33
34
UNITED MEDICORP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
[ITEM 8 AND 14(a)]
CONSOLIDATED FINANCIAL STATEMENTS: PAGE
----
Consolidated Balance Sheets as of December 31, 2000 and 1999 .................................... 35
Consolidated Statements of Operations for each of the three years ended December 31, 2000 ....... 36
Consolidated Statements of Changes in Stockholders' Equity for each of the three years ended
December 31, 2000 ........................................................................ 37
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2000 ....... 38
Notes to the Consolidated Financial Statements .................................................. 39
Report of Independent Auditor's - Hein + Associates LLP ......................................... 57
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
Report of Independent Accountants on Consolidated Financial Statement Schedules .................
Schedule II - Valuation and Qualifying Accounts ................................................. 58
Other financial statement schedules have been omitted because they are not
applicable or the required information is shown in the Consolidated Financial
Statements or Notes thereto.
34
35
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------------
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 7,791 $ 121,702
Restricted cash ................................................... 2,207 --
Accounts receivable, net of allowance for doubtful accounts
of $22,073 and $8,219, respectively ............................ 115,221 141,201
Factor reserve .................................................... 56,466 39,744
Prepaid expenses and other current assets ......................... 10,456 51,844
------------ ------------
Total current assets ........................................... 192,141 354,491
Other non-current assets ................................................ 5,581 4,817
Property and equipment, net of accumulated depreciation of
$832,189 and $845,005, respectively ............................... 245,137 108,211
Assets under capital leases, net of accumulated amortization of
$138,366 and $74,961, respectively ................................ 69,295 131,422
------------ ------------
Total assets ................................................... 512,154 598,941
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable ............................................ 110,774 82,942
Payable to clients ................................................ 1,495 --
Accrued professional fees ......................................... 48,740 108,123
Accrued payroll and benefits ...................................... 64,977 83,691
Accrued office relocation ......................................... -- 75,000
Accrued expenses - AHO ............................................ 55,644 67,963
Accrued expenses other ............................................ 3,987 7,386
Current portion of capital lease obligations ...................... 78,480 78,588
Current portion of notes payable .................................. 53,874 49,547
------------ ------------
Total current liabilities ......................................... 417,971 553,240
Long term liabilities:
Long term capital lease obligations, excluding current portion .... 31,590 110,070
Long term notes payable, excluding current portion ................ 133,894 --
Deferred revenue - PEDC ........................................... 192,000 --
------------ ------------
Total liabilities .............................................. 775,455 663,310
------------ ------------
Stockholders' equity (deficit):
Common stock; $0.01 par value; 50,000,000 shares authorized;
29,015,764 shares outstanding .................................. 290,157 290,157
10% Cumulative convertible preferred stock; $0.01 par value;
5,000,000 shares authorized; none issued ....................... -- --
Less treasury stock at cost, 305,547 shares ....................... (221,881) (221,881)
Additional paid-in capital ........................................ 18,783,254 18,783,254
Accumulated deficit ............................................... (19,114,831) (18,915,899)
------------ ------------
Total stockholders' equity (deficit) ........................... (263,301) (64,369)
------------ ------------
Total liabilities and stockholders' equity (deficit) ........... $ 512,154 $ 598,941
============ ============
The accompanying notes are an integral part
of these consolidated financial statements
35
36
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
----------- ----------- -----------
REVENUES:
Billing and collection services ......... $ 2,189,152 $ 3,144,552 $ 4,065,118
Other revenues (net of $210,000 paid to a
Director of the Company in 1998) ..... 108,645 13,789 112,891
----------- ----------- -----------
Total revenues ....................... 2,297,797 3,158,341 4,178,009
EXPENSES:
Wages and benefits ...................... 1,654,666 2,070,936 2,664,694
Selling, general and administrative ..... 520,507 614,688 815,431
Office, vehicle and equipment rental .... 97,460 142,899 129,095
Depreciation and amortization ........... 115,295 117,568 87,265
Professional fees ....................... 42,835 68,788 44,784
Interest, net ........................... 39,463 46,433 8,407
Provision for doubtful accounts and notes 26,503 32,176 29,420
Other (income) expense, net ............. -- 26,337 --
----------- ----------- -----------
Total expenses ....................... 2,496,729 3,119,825 3,779,096
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS ...... (198,932) 38,516 398,913
LOSS FROM DISCONTINUED OPERATIONS-AHO
NET OF INCOME TAXES ..................... -- (994,113) (230,967)
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS-AHO
NET OF INCOME TAXES ..................... -- 178,426 --
----------- ----------- -----------
NET INCOME (LOSS) ............................. $ (198,932) $ (777,171) $ 167,946
=========== =========== ===========
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations ................... $ (.0069) $ .0013 $ .0142
Discontinued operations-AHO ............. -- (.0283) (.0082)
----------- ----------- -----------
Net income (loss) ....................... $ (.0069) $ (.0270) $ .0060
=========== =========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations ................... $ (.0069) $ .0013 $ .0139
Discontinued operations-AHO ............. -- (.0283) (.0081)
----------- ----------- -----------
Net income (loss) ....................... $ (.0069) $ (.0270) $ 0058
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements
36
37
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM DECEMBER 31, 1997 TO DECEMBER 31, 2000
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------- PAID-IN -------------------------- ACCUMULATED
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT OTHER TOTAL
---------- ------------ ------------ ------------ ------------ ------------ ------------ ---------
Balance at
December 31,
1997 28,015,764 $ 280,157 $ 18,695,829 105,547 $ (221,881) $(18,306,674) -- $ 447,431
Common stock
subscribed at
$0.06 per share -- -- -- -- -- -- $ 60,000 60,000
Compensation
expense related
to warrants -- -- 7,425 -- -- -- -- 7,425
Net income -- -- -- -- -- 167,946 -- 167,946
---------- ------------ ------------ ------------ ------------ ------------ ------------ ---------
Balance at
December 31,
1998 28,015,764 280,157 18,703,254 105,547 (221,881) (18,138,728) $ 60,000 682,802
Shares issued
at $0.06 per
share 1,000,000 10,000 50,000 -- -- -- $ (60,000) --
Compensation
expense related
to warrants -- -- 30,000 -- -- -- -- 30,000
Donated treasury
stock -- -- -- 200,000 -- -- -- --
Net loss -- -- -- -- -- (777,171) -- (777,171)
---------- ------------ ------------ ------------ ------------ ------------ ------------ ---------
Balance at
December 31,
1999 29,015,764 290,157 18,783,254 305,547 (221,881) (18,915,899) -- (64,369)
Net loss -- -- -- -- -- (198,932) -- (198,932)
---------- ------------ ------------ ------------ ------------ ------------ ------------ ---------
Balance at
December 31,
2000 29,015,764 $ 290,157 $ 18,783,254 305,547 $ (221,881) $(19,114,831) -- $(263,301)
========== ============ ============ ============ ============ ============ ============ =========
The accompanying notes are an integral part of these
consolidated financial statements
37
38
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS DECEMBER 31,
------------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $(198,932) $(777,171) $ 167,946
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Loss from discontinued operations-AHO .............. -- 994,113 230,967
Gain on disposal of discontinued operations-AHO .... -- (178,426) --
Depreciation of fixed assets ....................... 52,031 67,909 62,818
Amortization of assets under capital leases ........ 63,264 49,659 24,447
Provision for doubtful accounts and notes .......... 26,503 32,176 29,420
(Gain) Loss on disposition of assets ............... 23,234 (1,290) --
Other .............................................. -- 37,883 (1,377)
PEDC Incentives .................................... (10,000) -- --
Changes in assets and liabilities:
Restricted cash .................................... (2,207) 1,064 74,071
Accounts receivable ................................ (523) 235,081 (7,809)
Factor reserve ..................................... (16,722) (39,744) --
Notes receivable ................................... -- -- 2,000
Prepaid expenses and other assets .................. 40,624 (1,168) (11,341)
Accounts payable ................................... 27,832 1,754 12,918
Payable to clients ................................. 1,495 (1,064) (74,071)
Accrued liabilities ................................ (168,815) 148,834 (75,094)
--------- --------- ---------
Net cash provided by continuing operations .............. (162,216) 569,610 434,895
Net cash used in discontinued operations-AHO ............ -- (297,971) (686,683)
--------- --------- ---------
Net cash provided by (used in) operating activities .............. (162,216) 271,639 (251,788)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of building and improvements thereto .............. (159,184) -- --
Purchase of furniture and equipment ........................ (54,143) (14,819) (77,857)
Sale of furniture and equipment ............................ -- 1,290 --
--------- --------- ---------
Net cash used in investing activities ............................ (213,327) (13,529) (77,857)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage loan ................................ 137,000 -- --
Short term borrowings from credit facility ................. 12,502 (200,000) 200,000
Proceeds from issuance of long term debt ................... -- 100,000 --
Proceeds from PEDC loans and deferred incentives ........... 242,000 -- --
Principal payments on notes payable ........................ (51,282) (50,453) --
Principal payments on capital lease obligations ............ (78,588) (74,648) (57,610)
--------- --------- ---------
Net cash provided by (used in) financing activities .............. 261,632 (225,101) 142,390
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. (113,911) 33,009 (187,255)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................... 121,702 88,693 275,948
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................... $ 7,791 $ 121,702 $ 88,693
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest ........................................... $ 39,770 $ 45,319 $ 9,698
Non-cash investing and financing activities:
Additions to Capital Lease Obligations ........................ $ -- $ 150,720 $ 32,658
The accompanying notes are an integral part of these
consolidated financial statements
38
39
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A. THE COMPANY
United Medicorp Texas, Inc., was incorporated in the State of Texas on
March 13, 1989 ("UMC-Texas"). On July 10, 1989, in an exchange of stock,
UMC-Texas was acquired by Gamma Resources, Inc., a publicly-owned Delaware shell
corporation, which simultaneously changed its name to United Medicorp, Inc. (the
"Company", "UMC" or the "Registrant"). On November 18, 1996, the Company filed
"Articles of Amendment to the Articles of Incorporation of Sterling Hospital
Systems, Inc." whereby this wholly owned subsidiary of UMC was renamed United
MoneyCorp, Inc. ("UMY"). UMY has been designated as the legal entity under which
UMC operates a collection agency. On August 7, 1998, UMC acquired 100% of the
common stock of Allied Health Options, Inc. ("AHO"), an Alabama corporation.
Effective June 30, 1999, the Company discontinued the operations of AHO. On
October 14, 1999, AHO filed a voluntary petition in the United States Bankruptcy
Court for the Northern District of Texas to liquidate pursuant to Chapter 7 of
Title 11 of the United States Bankruptcy code. On November 16, 1999, the Chapter
7 bankruptcy 341 creditors meeting was held. Unless the context indicates
otherwise, references herein to the Company include UMC and its operating
subsidiary UMY, and exclude AHO.
The Company provides medical insurance claims processing and accounts
receivable management services to healthcare providers. The Company employs
proprietary and purchased software to provide claims processing, billing and
collection services to its customers, which are primarily hospitals, medical
clinics, and physician practices. The Company's medical claims processing
service is designed to provide an electronic claims processing, billing and
collection service that expedites payment of claims from private insurance
carriers or government payors such as Medicare and Medicaid. The Company also
offers to its customers processing and collection services for uncollected
"backlog" (aged) claims that were not originally submitted through the Company's
electronic claims processing system. UMY provides customer service and
collection services to health care providers.
The Company also has in the past provided interim staffing services
under the name style "UMClaimPros." This service line was introduced by the
Company in December 1994. UMClaimPros were experienced claims processors
available for customers' interim staffing needs.
AHO was engaged in: outpatient services; twenty four hour a day
emergency care services; partial hospitalization services, or psychosocial
rehabilitation services; screening of patients being considered for admission to
State mental health facilities to determine the appropriateness of such
admission; and consultation and education services. AHO operated three Community
Mental Health Centers ("CMHC's") under the names: Behavioral Health of Mobile
("BHM"), Calhoun County Behavioral Health ("CCBH"), and Pensacola Center for
Behavioral Health ("PCBH"). BHM and CCBH obtained Health Care Financing
Administration ("HCFA") certification to provide partial hospitalization
services as a CMHC under Medicare Part A effective February 1, 1996. PCBH
obtained HCFA certification to provide partial hospitalization services as a
CMHC under Medicare Part A effective October 2, 1996.
39
40
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of UMC and its wholly owned subsidiaries UMY and AHO. All material intercompany
transactions and balances have been eliminated in consolidation. Certain prior
year balances have been reclassified to conform with current year presentation.
Effective June 30, 1999, the Company discontinued the operations of AHO as
discussed in Note C. As such, AHO's results are classified as discontinued
operations for all periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand.
FACTORED ACCOUNTS RECEIVABLE WITH RECOURSE
Factored accounts receivable are accounted for pursuant to SFAS No. 77,
"Reporting by Transferors for Transfers of Receivables with Recourse" ("SFAS No.
77"). Pursuant to SFAS No. 77, the Company treats its factored accounts
receivable as a sales transaction, and as such, no liability is recognized for
the amount of the proceeds received from the transfer of the accounts
receivable.
PROVISION FOR DOUBTFUL ACCOUNTS
UMC accounts receivable are reserved on an account by account basis. In
general, accounts aged greater than 120 days are fully reserved.
PROPERTY AND EQUIPMENT, AND ASSETS HELD UNDER CAPITAL LEASES
Property and equipment are recorded at cost. Leased property meeting
certain criteria is capitalized and the present value of the related lease
payments is recorded as a capital lease obligation. Expenditures for repairs and
maintenance are charged to expense as incurred, and expenditures for major
renewals and betterments are capitalized. Depreciation and amortization are
computed using the straight-line method over the estimated useful life of the
asset, ranging from three to seven years. Upon disposition of assets, the cost
and related accumulated depreciation or amortization is removed from the
accounts and the resulting gain or loss is recorded.
Property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset or group of
assets may not be recoverable. The impairment review would include a comparison
of future cash flows expected to be generated by the asset or group of assets
with their associated carrying value. If the carrying value of the asset or
group of assets exceeds expected cash flows (undiscounted and without interest
charges), an impairment loss is recognized for
40
41
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the excess of carrying amounts over fair value. On November 15, 2000 UMC moved
out of its executive offices and operations center in Dallas, Texas, to which it
had previously made several leasehold improvements. At December 31, 2000 these
improvements had a net depreciable value of approximately $23,000, which was
written off as a part of relocation cost.
BILLING AND COLLECTION SERVICES REVENUE RECOGNITION
The Company's billing and collection services revenue is recognized
upon receipt by the customer of payment from a third party payor or guarantor of
a patient's account and upon notification by the customer to the Company that
such payment has been received, or upon receipt of such payment by UMC.
OTHER REVENUE RECOGNITION
For 2000, 1999 and 1998, other revenues consist primarily of advance
funding fees and consulting revenues recognized as services were performed.
Consulting revenues related to services performed by a non-employee member of
the Company's board of directors have been netted against the associated cost of
services performed by the non-employee board member. Consulting revenues were
netted with the associated cost of services, which totaled approximately
$210,000 in 1998.
EARNINGS PER SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share" ("SFAS No.
128") which requires companies to present on the face of the statement of
operations, basic earnings per share ("EPS") and diluted EPS. Companies with
complex capital structures are required to reconcile the numerator and
denominator used in the basic EPS computation to the numerator and denominator
used in the diluted EPS computation. For each of the three years ended December
31, 2000, basic EPS calculations are based on the weighted-average number of
common shares outstanding during the period, while diluted EPS calculations are
based on the weighted-average number of common shares and dilutive common share
equivalents outstanding during each period. Due to the loss from continuing
operations and the net loss in 2000, common share equivalents were
anti-dilutive.
INCOME TAXES
Income taxes are accounted for pursuant to SFAS No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires that deferred income
taxes reflect the tax consequences on future years of differences between the
tax basis of assets and liabilities and their basis for financial reporting
purposes and that future tax benefits, such as Net Operating Loss Carryforwards
(NOLs), are required to be recognized to the extent that realization of such
benefits is more likely than not.
41
42
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
STOCK-BASED COMPENSATION
The Company has adopted SFAS No. 123, "Accounting for Stock-based
Compensation" ("SFAS No. 123") which requires Companies to include the fair
value of stock options and other stock-based compensation issued to employees
and non-employees as compensation expense in the income statement or to disclose
the pro-forma effect on net income and earnings per share of such compensation
expense in the footnotes to the Company's financial statements. The Company has
elected to continue to account for its employee stock options issued under
approved Stock Option Plans and warrants issued to the members of the Company's
Board of Directors on April 1, 1997 and November 12, 1996, pursuant to APB25
"Accounting for Stock Issued to Employees." This decision results in recognition
of no compensation expense for employee or director stock options that are
granted with an exercise price at or greater than the market price on the date
of grant. However, in accordance with the disclosure provisions of SFAS No. 123,
the Company has provided proforma basis information to reflect results of
operations and earnings per share had compensation expense been recognized for
these items. All other equity instruments issued by the Company to employees and
non-employees will be recognized pursuant to SFAS No. 123, which will impact the
Company's consolidated balance sheet and statement of operations.
C. LIQUIDITY ISSUES
LOSS OF SIGNIFICANT CUSTOMERS
On May 8, 2000, the Company was officially notified by the Washington
Hospital Center ("WHC") that claim transmissions from the Hospital Billing
contract would terminate effective June 30, 2000. Revenue from this contract was
generated through July 31, 2000 consistent with revenues generated on a monthly
basis previously, and thereafter, ramped down through and terminated December
31, 2000. Revenue from this contract accounted for approximately 28%, 52%, and
36% of total consolidated revenues during 2000, 1999, and 1998, respectively.
In September, 1999, the Company was informally notified by WHC that
claim transmissions from the Department of Emergency Medicine ("WHCDEM") would
terminate effective November 1, 1999. Formal notification was subsequently
received on November 4, 1999. Revenue from this contract was generated through
November 30, 1999 consistent with revenues generated on a monthly basis through
September 30, 1999, and thereafter ramped down through and terminated on or
about April 30, 2000. Revenue from this contract accounted for approximately 1%,
7%, and 6% of total revenue during 2000, 1999, and 1998 respectively.
On July 28, 1999, the Company was formally notified by WHC that claim
transmissions from the Department of Women's Services ("WHCDWS") would terminate
effective October 1, 1999. Revenue from this contract was generated through
November 1, 1999 consistent with revenues generated on a monthly basis through
September 30, 1999, and thereafter ramped down through and terminated on or
about December 31, 1999. Revenue from this contract accounted for approximately
9% and 1% of total revenue during 1999 and 1998, respectively.
On March 15, 1999, the Company was formally notified by PHSD that it had
not been selected to provide continuing collection agency services. The Company
received weekly account placements
42
43
through May 4, 1999, and generated its last revenue from PHSD in August, 1999.
Revenue from this contract accounted for approximately 4% and 23% of total
revenue during 1999 and 1998, respectively.
INCENTIVE FINANCING RELATIVE TO RELOCATION OF OPERATIONS CENTER
During 1999 and the first seven months of 2000, UMC had experienced
increasing difficulty in recruiting and retaining experienced medical billing
and collection staff in the Dallas area. This situation was the result of low
unemployment and strong competition from nearby major hospitals and physician
groups for experienced staff. Low unemployment and escalating competition for
qualified staff had resulted in an overall increase in hourly wage rates and
turnover.
Effective July 28, 2000, UMC executed an Economic Development and
Incentive Agreement (the "Agreement"), with the Pampa Economic Development
Corporation ("PEDC").
In exchange for providing jobs within the city limits of Pampa, Texas,
at a lower hourly rate than is possible in the Dallas area, the Agreement calls
for the PEDC to provide the following incentives to UMC:
(a) an incentive payment of $192,000 which was made upon the closing of
the purchase of the new operations center facility in Pampa. The Agreement
includes a claw back provision whereby if UMC does not maintain a minimum of 30
full time equivalent employees ("FTEE") employed in its Pampa operations center
during any given year of the eight years of the Agreement beginning with the
year ended December 31, 2001, UMC will be required to remit $24,000 back to PEDC
for each such year.
(b) an incentive payment of $40,000 per calendar year (for a maximum of
$320,000) so long as UMC provides a minimum average of 40 FTEE employed in its
Pampa operations center during each of the eight calendar years of the Agreement
commencing with the year ending December 31, 2001, and
(c) an incentive payment of $1,000 per job per calendar year (for a
maximum of $80,000) for each FTEE from the 41st up to and including the 50th
FTEE employed in its Pampa operations center during each of the eight calendar
years of the Agreement commencing with the year ending December 31, 2001, and
(d) an incentive payment of $500 per calendar year (with no cap or
limit) for each FTEE from the 51st and over employed in its Pampa operations
center during each of the eight calendar years of the Agreement commencing with
the year ending December 31, 2001, and
(e) an incentive payment of $10,000 which has been paid to UMC based on
the condition that UMC had 40 persons employed in its Pampa operations center at
December 31, 2000, and
(f) PEDC will guarantee up to $137,000 for the benefit of UMC's lender
(the "Lender"), relative to the purchase of an operations center facility in
Pampa. In addition, PEDC will pay to UMC $27,400 per year during each of the
first five years of the Agreement (for a maximum of $137,000) commencing with
the year ending December 31, 2001. After offsetting the total monthly payments
made to Lender during the preceding 12 months from this annual payment, UMC will
remit the balance to the Lender. PEDC
43
44
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
will be released from paying any and all unpaid annual payments if UMC defaults
on its obligations to its Lender or if UMC discontinues its operations in Pampa
within five years of July 28, 2000.
On August 21, 2000 UMC purchased a building in Pampa that serves as its
Pampa operations center, and simultaneously received payment of the relocation
incentive totaling $192,000 (as specified in paragraph (a) above. On December
31, 2000 UMC had 45 full time and 2 part time employees at its Pampa operations
center, and qualified for the initial incentive payment as specified in
paragraph (e) above. This payment was applied to the forgivable loan from the
PEDC that is detailed below. As of March 15, 2001 UMC had 66 full time, and 3
part time employees at its Pampa operations center.
There can be no assurance that UMC will be successful in: (a)
continuing to meet the aforementioned initial minimum employment requirements to
trigger incentive payments, (b) maintaining the minimum employment requirements
to prevent triggering the aforementioned claw back provision, (c) averting a
default to its Lender or discontinuing its operations in Pampa within five years
to prevent PEDC from being released from paying any and all unpaid annual
payments to UMC relative to the aforementioned terms of the PEDC agreement.
FORGIVABLE LOAN AGREEMENT
During the first 60 days of operation in Pampa, UMC experienced
difficulties with its data communications from Pampa to Dallas. This resulted in
reduced productivity in Pampa, delays in revenue generation, and unexpected
costs in diagnosing and managing data communication. In addition UMC expended
$11,964 for moving expenses and $92,110 in capital expenditures to prepare the
Pampa building for operations. Due to the effect of these issues, UMC developed
a need for additional working capital. As a result, UMC executed a Forgivable
Loan Agreement with the PEDC on October 31, 2000. Pursuant to the Forgivable
Loan Agreement, the PEDC loaned UMC $50,000, as an advance against scheduled
incentive payments for 2000, and 2001. The principal amount of the loan will be
due and payable or forgivable based on the terms and conditions of the Economic
Development and Incentive Agreement executed with the PEDC on July 28, 2000. The
loan bears interest of 9.5% per annum, which is not forgivable. Interest on the
unpaid principal amount of the loan is due and payable at the end of each
calendar quarter.
MANAGEMENT'S PLAN WITH RESPECT TO LOST REVENUES
As a result of the aforementioned changes within its customer base,
management has taken certain actions (in addition to the execution of the
Economic Development and Incentive Agreement) in an attempt to better position
the Company. These actions include, but are not limited to:
o The Company restructured its sales organization to improve focus on the
Texas market and increase the emphasis on services provided by UMY.
o A medical claims management contract for ongoing claims billing and
collection services was executed on October 31, 2000 with a hospital
located in South Texas. This contract is fully implemented and began
generating revenue in February 2001.
44
45
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
o A medical claims management contract for ongoing claims coding, billing
and collection services was executed on March 1, 2001 with a hospital
located in Dallas, Texas. This contract is expected to begin generating
revenue in May 2001.
o On November 15, 2000 UMC moved it corporate office from its previous
6,836 square foot office space in Dallas, to a 937 square foot office
space in Garland, Texas, resulting in a monthly expense reduction of
approximately $6,800.
o Effective December 26, 2000, UMC discontinued its agreement with
Administaff, Inc., a professional employer organization ("PEO") whereby
Administaff was the employer of record for all UMC employees. UMC has
resumed all payroll and human resource functions internally as of the
cancellation date. The cost savings to UMC as a result of the
discontinuation of the agreement is approximately 7% of gross payroll
cost.
o Management is evaluating new service lines to complement its
traditional medical claims processing and accounts receivable
management services. Possible new service lines include a focus on
healthcare consumerism and healthcare e-business leveraging the
Company's industry experience and technological infrastructure.
Management continues to vigorously pursue new business while rigorously
managing expenses without negatively impacting service levels. However, there
can be no assurance that UMC will be successful in obtaining new business and
producing incremental profits and cash flow.
If management is unable to successfully develop and implement new
profitable customer contracts and new service lines or align expenses with
future cash requirements, it will be required to adopt alternative strategies,
which may include but are not limited to, actions such as reducing management
and line employee headcount and compensation, restructuring existing financial
obligations, seeking a strategic merger or acquisition, seeking the sale of the
Company or the Company's public shell, and/or seeking additional debt or equity
capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms.
D. ALLIED HEALTH OPTIONS, INC. - BANKRUPTCY PETITION, DISCONTINUED
OPERATIONS AND GOODWILL WRITE-OFF
Effective June 30, 1999 (the "Measurement Date" pursuant to APB Opinion
No. 30 Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions), the Company discontinued the operations of
AHO for those reasons explained below. The Disposal Date was October 14, 1999,
at which time, AHO filed a voluntary petition in the United States Bankruptcy
Court for the Northern District of Texas to liquidate pursuant to Chapter 7 of
Title 11 of the United States Bankruptcy Code. The filing was made primarily due
to the insolvency of AHO. At October 14, 1999, the net liabilities of AHO
totaled approximately $2.7 million of which approximately $1,059,000 represented
unsecured intercompany loans and other forms of working capital provided by UMC.
Simultaneous with the filing of the Chapter 7 petition, and pursuant to SFAS No.
94, "Consolidation of All Majority-Owned Subsidiaries" the accounts of AHO were
deconsolidated.
45
46
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Pursuant to APB Opinion No. 30, the Company's consolidated financial
statements are presented to reflect AHO's discontinued operations for all
periods presented. The net operating results of AHO and the loss on disposal of
AHO are reported in the Consolidated Statements of Operations as "Loss from
discontinued operations" and "Loss on disposal of discontinued operations" and
the net cash flows are reported in the Consolidated Statements of Cash Flows as
"Net cash used in discontinued operations."
Summarized financial information for the discontinued operations of AHO is
as follows:
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
--------- ---------
Net patient services revenue ........................... $ 84,553 $ 799,807
========= =========
Loss from discontinued operations before income tax .... (994,113) (230,967)
Gain on disposal of discontinued operations ............ 178,426 --
Income tax effect ...................................... -- --
--------- ---------
Loss from discontinued operations, net of tax .......... (815,687) (230,967)
========= =========
E. FACTORED ACCOUNTS RECEIVABLE WITH RECOURSE
On December 28, 1999, the Company executed a $500,000 recourse
factoring agreement, which may be terminated by either party with ten days
notice. The agreement is secured by all of the Company's non-factored accounts
receivable and is personally guaranteed by the Company's Chief Executive
Officer. The factor has recourse against the Company, its collateral and
guarantor should factored invoices remain unpaid at 90 days. Interest at prime
plus 2.5% is charged against the net cash deployed by the factor which is
computed as total advances to the Company less reserve in excess of 20% of the
face value of the factored invoices, if any. The company receives a maximum
advance of 80% for each invoice sold. Upon payment in full of the invoice by the
customer to the factor, the Company then has access to the remaining 20% net of
interest and fees.
YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
---------- ---------- --------
Proceeds received .................. $1,628,450 $ 179,138 $ --
Uncollected balance at year end .... $ 265,459 $ 218,882 $ --
46
47
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
F. PROPERTY AND EQUIPMENT / ASSETS UNDER CAPITAL LEASES
At December 31, 2000 property and equipment consist of the following:
CAPITAL
PURCHASED LEASE TOTAL
----------- ----------- -----------
Building and Improvements ..................... $ 159,184 $ $ 159,184
Equipment ..................................... 613,359 207,661 821,020
Software systems .............................. 178,493 -- 178,493
Furniture and fixtures ........................ 126,290 -- 126,290
Leasehold improvements ........................ -- -- --
----------- ----------- -----------
Gross property and equipment ............. 1,077,326 207,661 1,284,987
Accumulated depreciation and amortization ..... (832,189) (138,366) (970,555)
----------- ----------- -----------
Net property and equipment ............... $ 245,137 $ 69,295 $ 314,432
=========== =========== ===========
At December 31, 1999 property and equipment consist of the following:
CAPITAL
PURCHASED LEASE TOTAL
----------- ----------- -----------
Equipment ..................................... $ 562,076 $ 206,383 $ 768,459
Software systems .............................. 178,164 -- 178,164
Furniture and fixtures ........................ 125,036 -- 125,036
Leasehold improvements ........................ 87,940 -- 87,940
----------- ----------- -----------
Gross property and equipment ............. 953,216 206,383 1,159,599
Accumulated depreciation and amortization ..... (845,005) (74,961) (919,966)
----------- ----------- -----------
Net property and equipment ............... $ 108,211 $ 131,422 $ 239,633
=========== =========== ===========
Depreciation expense related to property and equipment was $52,031,
$67,909 and $62,818 during 2000, 1999 and 1998, respectively. Amortization
expense relative to assets under capital leases was $63,264, $49,659 and $24,447
during 2000, 1999 and 1998, respectively.
G. CAPITAL LEASE OBLIGATIONS
On June 2, 1999, the Company leased a new IBM A/S 400 Model 620
computer for a term of 36 months. The total amount financed, including the
rollover of the remaining lease payments under the previous A/S 400 lease and
financing of the maintenance contract on the new computer, was $174,278, of
which $98,420 represents the cost of the AS/400 and related equipment, $63,906
represents rollover financing and consolidation of all other IBM capital lease
obligations, and $11,952 represents financed maintenance. This equipment may be
purchased at the end of the lease for the then fair market value.
During 1999, the Company entered into one software lease through a
single lessor for a term of 36 months. This software may be purchased at the end
of the lease at no cost.
During 1998, the Company entered into various equipment leases through
a single lessor. This equipment may be purchased at the end of the lease for $1.
47
48
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At December 31, the remaining capital lease obligations are as follows:
2000 1999
-------- --------
6.9% lease related to IBM AS/400, rollover financing and maintenance,
maturing in 2002 ............................................................ $ 91,613 $147,662
17.5% lease related to software, maturing in 2001 ................................. 12,361 23,074
15.7% lease related to office and telephone equipment maturing in 2001 ............ 6,096 17,922
-------- --------
Total capital lease obligations .......................................... 110,070 188,658
Less current portion of capital lease obligations .............................. 78,480 78,588
-------- --------
Long-term capital lease obligations ............................................ $ 31,590 $110,070
======== ========
As of December 31, 2000, total lease payments due under capital leases are as
follows:
Year ending December 31:
2001 ........................................................................... $ 86,579
2002 ........................................................................... 32,226
2003 ........................................................................... --
--------
118,805
Less interest .................................................................. 8,735
--------
Principal amount of net lease payments ......................................... $110,070
========
Interest expense on capital lease obligations was $13,610, $17,007 and
$11,100 during 2000, 1999 and 1998, respectively.
H. NOTES PAYABLE
Notes payable at December 31, consists of the following: 2000 1999
-------- --------
Promissory note, interest at prime plus 1% per annum, (9.5% at
December 31, 1999), monthly installments of $4,167 plus
simple interest, matures January 4, 2001, secured by fixed
assets of UMC ......................................................... $ -- $ 49,547
Real estate lien note, interest at prime plus 1/2% per annum (10% at
December 31, 2000), monthly installments of $1,322
including interest, matures August 20, 2020, secured
by land and building .................................................. 136,244 --
Promissory note, interest at 12% per annum, monthly installments of 1,112
including interest, matures November 20, 2001, secured
by fixed assets of UMC ................................................ 11,524 --
Forgivable loan, interest at 9.5% per annum, quarterly installments due
and payable or forgivable based on the terms and conditions of the
Economic Development and Incentive Agreement,
matures December 31, 2001, unsecured (Note C) ......................... 40,000 --
-------- --------
Total notes payable ................................................... 187,768 49,547
Less current portion of notes payable ............................... 53,874 49,547
-------- --------
Long term notes payable ............................................. $133,894 $ --
======== ========
48
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UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of December 31, 2000, future maturities of notes payable were as follows:
Year ending December 31:
2001 ............................................................. $ 53,874
2002 ............................................................. 2,595
2003 ............................................................. 2,867
2004 ............................................................. 3,130
2005 ............................................................. 3,495
Thereafter ....................................................... 121,807
--------
Total ............................................................ $187,768
========
I. INCOME TAXES
There is no current or deferred tax expense for the years ended
December 31, 2000, 1999 and 1998. The Company recorded a net operating tax loss
("NOL") in 2000 and 1999 and utilized NOL carryforwards to offset taxable income
in 1998.
SFAS No. 109 requires that deferred income taxes reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their basis for financial reporting purposes. In addition,
future tax benefits, such as NOLs, are required to be recognized to the extent
that realization of such benefits is more likely than not. Realization of the
future tax benefits related to deferred tax assets is dependent on many factors,
including the Company's ability to generate taxable income within the net
operating loss carryforward period. At December 31, 2000, 1999 and 1998, the
Company's deferred tax assets are fully reserved. At December 31, 2000, 1999 and
1998, the Company had no net deferred tax liability. The tax effects of
temporary differences and NOLs that give rise to the deferred tax assets at
December 31, are as follows:
Deferred tax assets: 2000 1999
----------- -----------
Net operating tax loss carryforward .... $ 3,740,569 $ 3,331,563
Accrued liabilities .................... 13,342 15,234
Paid in capital - warrants ............. -- 11,100
Property and equipment ................. (6,157) 6,847
Accounts receivable .................... 8,167 3,041
----------- -----------
Gross deferred tax assets .............. 3,755,921 3,367,785
Valuation allowance .................... (3,755,921) (3,367,785)
----------- -----------
Net deferred tax assets ............. $ -- $ --
=========== ===========
From inception in March 1989 to March 1992, the Company generated NOLs
totaling $13.9 million. In March 1992, the Company experienced an ownership
change as defined by Section 382 of the Internal Revenue Code. As a result of
this event, the Company will be limited in its ability to use pre-change NOL
carryforwards to reduce subsequent taxable income. The amount of taxable income
that can be offset by pre-change NOL carryforwards in any annual period is
limited to approximately $358,000 through 2007. Post-change NOL carryforwards
which are not subject to limitation total $5.3 million and will expire in
varying amounts between 2007 and 2020.
J. STOCKHOLDERS' EQUITY
Effective December 31, 1998, UMC sold 1,000,000 shares of unregistered
Common Stock in exchange for a $261,818 promissory note due from AHO to a third
party note holder. The Common Stock subscribed totaling $60,000 was priced at
$0.06 per share representing the last trading price prior to the execution of
the transaction.
At December 31, 2000, there were 5,000,000 shares of 10% cumulative
preferred stock, par value $0.01 authorized but not issued. The preferred stock
may be issued in series and include rights and preferences as designated by the
Company's board of directors.
The Company has outstanding warrants and options as described in Notes
L and M. There were 5,218,347 shares of Common Stock reserved for issuance of
outstanding warrants and options at December 31, 2000.
49
50
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
K. EARNINGS PER SHARE
The following table shows the amounts used in computing EPS and the effect
on the weighted average number of shares of dilutive common stock equivalents:
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998
------------ ------------ ------------
Net income (loss) available to common stockholders .... $ (198,932) $ (777,171) $ 167,946
Weighted average number of common shares
in basic EPS ...................................... 28,710,217 28,739,332 27,910,217
Effect of dilutive weighted average common
share equivalents ................................. -- 684,563 788,525
------------ ------------ ------------
Weighted average number of common shares and
dilutive potential common shares in diluted EPS .... 28,710,217 29,423,895 28,698,742
============ ============ ============
L. WARRANTS
Effective December 28, 1999, warrants to purchase a total of 1 million
shares of UMC Common Stock at $0.00 per share were issued to the Company's
Chairman and Chief Executive Officer and to the Chief Financial Officer of the
Company (the "Holders') with each individual receiving a warrant to purchase
500,000 shares as consideration for their personal guarantees of the Company's
recourse factoring agreement. These warrants were 100% exercisable on the grant
date and expire on the earlier of (a) December 27, 2009, (b) the date on which
the Holder's services are terminated for cause, (c) three months after the
expiration of the Holder's term as a Director or resignation from the Board of
Directors or as an Officer, or termination of the Holder due to the sale of the
Company or (d) twelve months after the Holder's services as an Officer or
Director are terminated by reason of the individual's death or disability. These
warrants were accounted for pursuant to SFAS No. 123 and as such, for the year
ended December 31, 1999, the Company recorded $30,000 of expense and additional
paid-in capital to reflect the estimated fair value of these warrants. On
November 15, 2000, one half, or warrants to purchase 500,000 shares expired, due
to the resignation of the Company's Chief Financial Officer three months prior.
None of these warrants had been exercised as of December 31, 2000.
Effective December 28, 1999, warrants to purchase a total of 3 million
shares of UMC Common Stock at $0.00 per share were issued to the Company's
Chairman and Chief Executive Officer and to the Chief Financial Officer with
each individual receiving a warrant to purchase 1,500,000 shares as incentive to
reposition the Company such that their personal guarantees would no longer be
required. These warrants will become fully exercisable upon: (i) release of any
and all personal guarantee(s) required to obtain financing from the Company's
factor or any other financing source which may succeed the factor, and (ii) the
Company qualifying for bank credit for which personal guarantees are not
required or, (iii) elimination of the Company's need for financing to meet its
working capital and other operating requirements. These warrants expire on the
earlier of (a) December 27, 2009, (b) the date on which the Holder's services
are terminated for cause, (c) three months after the expiration of the Holder's
term as a Director or resignation from the Board of Directors or as an Officer,
or termination of the Holder due to the sale of the Company, (d) twelve months
after the Holder's services as an Officer or Director are terminated by reason
of the individual's death or disability, or (e) upon revocation by the Holder of
any personal guarantee necessary to secure the Company's factoring agreement, or
any successor to the factor, provided, however, that these warrants shall
continue in force if all of the Company's obligations
50
51
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
that are secured by the Holder's personal guarantee(s) are repaid in full, and
the Holder's personal guarantee(s) are no longer necessary in order for the
Company to meet its needs for working capital and other operating requirements.
These warrants were accounted for pursuant to SFAS No. 123 and as such, for the
year ended December 31, 1999 recognition of expense and additional paid-in
capital of $90,000 has been deferred until such time as the aforementioned
vesting requirements have been achieved. On November 15, 2000, one half, or
warrants to purchase 1,500,000 shares expired due to the resignation of the
Chief Financial Officer three months prior. These warrants were not exercisable
as of December 31, 2000 or as of the date of this report.
The Company has a Director's Incentive Compensation Agreement ("DICA")
with each of its external directors. On March 12, 1998, a warrant to purchase
39,161 shares of the Company's common stock at $0.13 per share was issued to one
director in conjunction with commissions earned under the DICA. On August 28,
1998, a warrant to purchase 70,186 shares of the Company's common stock at $0.07
per share was issued to the same director in conjunction with commissions earned
under the DICA. Both warrants were immediately exercisable. Both warrants expire
on the earlier of (a) March 31, 2007, (b) the date on which the Director's
services are terminated for cause, (c) three months after the expiration of the
Director's term, resignation from the Board of Directors, or termination of the
Director due to the sale of the Company or (d) twelve months after the services
as a Director are terminated by reason of the Director's death or disability.
For the year ended December 31, 1998, the Company recorded $7,425 of expense and
additional paid-in capital to reflect the estimated fair value of these
warrants. None of these warrants had been exercised as of December 31, 2000.
On April 1, 1997, warrants to purchase 1,200,000 shares of UMC Common
Stock at $0.08 per share were issued to three directors of UMC with each
director receiving a warrant for 400,000 shares. These warrants are exercisable
33 1/3 % immediately, 66 2/3% after twelve months from the effective date of the
grant, and 100% after twenty-four months from the effective date of the grant.
These warrants expire on the earlier of (a) March 31, 2007, (b) the date on
which the Director's services are terminated for cause, (c) three months after
the expiration of the Director's term, resignation from the Board of Directors,
or termination of the Director due to the sale of the Company or (d) twelve
months after the services as a Director are terminated by reason of the
Director's death of disability. None of these warrants had been exercised as of
December 31, 2000.
On November 12, 1996, warrants to purchase 130,000 shares of UMC Common
Stock at $0.06 per share were issued to three former directors of UMC. These
warrants were 100% exercisable on the grant date and expire on November 11,
2001. None of these warrants had been exercised as of December 31, 2000.
Neither the warrants or the shares of common stock represented by these
warrants have been registered under the Securities Act of 1933.
M. OPTIONS
At the Annual Meeting of Stockholders on August 28, 1998, the Company's
stockholders approved the adoption of the 1998 Stock Option Plan (the "1998
Plan"), which provides for the issuance of both "incentive" and "nonqualified"
stock options. A total of 1,000,000 shares are issuable under the 1998 Plan. At
December 31, 2000, options for 100,000 shares were outstanding under the 1998
Plan.
51
52
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At the Annual Meeting of Stockholders on August 14, 1995, the Company's
stockholders approved the adoption of the 1995 Stock Option Plan (the "1995
Plan"), which provides for the issuance of both "incentive" and "nonqualified"
stock options. A total of 1,000,000 shares are issuable under the 1995 Plan. At
December 31, 2000, options for 1,190,000 shares were outstanding under the 1995
Plan. During 2000 the Company inadvertently granted more options under this plan
than were available.
At the Annual Meeting of Stockholders on July 13, 1992, the Company's
stockholders approved the adoption of the 1992 Stock Option Plan (the "1992
Plan"), which provides for the issuance of both "incentive" and "nonqualified"
stock options. A total of 1,000,000 shares are issuable under the Plan. In
addition, the Company's Third Amended and Restated 1989 Stock Option Plan (the
1989 Plan) was revised such that no more options may be granted under that plan.
At December 31, 2000, options for 489,000 and 0 shares were outstanding under
the 1992 and 1989 Plans, respectively.
Under the terms of the aforementioned Plans, the exercise price for
both incentive and nonqualified stock options to purchase shares of the
Company's Common Stock may be granted at a price not less than the market price
of the stock at the date of grant. Accordingly, no compensation expense has been
recognized for the Company's stock option plan. Stock options may be granted to
holders of 10 percent or more of the Company's voting power at exercise prices
no less than 110 percent of the market price of the stock at the date of grant.
Both option types are exercisable, in annual increments of one-third or one half
of the total options granted, on the anniversary dates following the award. The
Compensation Committee of the board of directors approves the number of shares
to be granted to employees and the term of the vesting. Options that have
expired or that have been canceled are available for future grants under the
Plans.
None of the option plans or the shares of common stock represented by
the option plans have been registered under the Securities Act of 1933 except
for the 1992 Plan.
52
53
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table summarizes activity for the years ended December
31:
2000 1999 1998
------------------------ ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- -------- --------- --------
Options outstanding at
January 1, 1,786,500 $0.07 1,935,500 $0.07 1,905,000 $0.07
Granted 455,000 0.02 150,000 0.02 485,000 0.10
Exercised -- -- -- -- -- --
Canceled (462,500) 0.07 (299,000) 0.11 (454,500) 0.07
---------- ----- ---------- ----- ---------- -----
Options outstanding at
December 31, 1,779,000 0.05 1,786,500 0.06 1,935,500 0.07
========== ===== ========== ===== ========== =====
Options exercisable at
December 31, 1,294,001 $0.06 1,142,667 $0.07 773,500 $0.06
========== ===== ========== ===== ========== =====
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 2000 LIFE PRICE 2000 PRICE
- --------------- ------------ ----------- --------- ------------ ----------
$0.02 --- $0.03 475,000 9.5 years $ 0.02 23,334 $ 0.02
$0.05 --- $0.07 1,204,000 6.1 years 0.06 1,204,000 0.06
$0.08 --- $0.10 100,000 7.9 years 0.09 66,667 0.09
- ---------------- --------- --------- ------- --------- ----------
$0.02 --- $0.13 1,779,000 7.1 years $ 0.05 1,294,001 $ 0.06
================ ========= ========= ======= ========= ==========
N. SFAS NO. 123 PRO FORMA
Pro forma net income (loss) and earnings per share presented below
reflect the results of the Company as if the fair value based accounting method
described in SFAS No. 123 had been used to account for stock and warrant-based
compensation costs, net of taxes and forfeitures of prior year grants:
53
54
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDED DECEMBER 31,
-------------------------------------------
2000 1999 1998
--------- --------- ---------
Net income (loss) $(198,932) $(771,171) $ 167,946
SFAS No. 123 employee compensation cost 9,425 11,179 12,778
SFAS No. 123 director costs -- 7,423 25,476
--------- --------- ---------
Pro forma net income (loss) $(208,357) $(789,773) $ 129,692
========= ========= =========
Pro forma basic earnings per share $ (0.0073) $ 0.0274 $ 0.0046
========= ========= =========
The fair value for options granted in 2000, 1999 and 1998 was estimated at
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants during the years ended
December 31:
YEAR ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
------- ------- -------
Dividend yield -- -- --
Expected volatility 220.0% 110.9% 110.0%
Risk-free rate of return 4.6% 6.2% 5.5%
Expected life, years 3 3 3
Grant-date fair value per share $ 0.02 $ 0.05 $ 0.07
The fair value for warrants granted in 2000, 1999 and 1998 was estimated
at the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants during the years ended
December 31:
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
------ ------- -------
Dividend yield -- -- --
Expected volatility -- 92.8% 108.7%
Risk-free rate of return -- 5.9% 5.5%
Expected life, years -- 4 4
Grant-date fair value per share -- $ 0.05 $ 0.07
O. FINANCIAL INSTRUMENTS & CONCENTRATIONS OF MARKET AND CREDIT RISK
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses approximate fair value due to the short
term maturities of these instruments. The fair value of cash equivalents is
determined by reference to market data. The fair value of debt and capital lease
obligations approximate carrying value as the related interest rates approximate
current market rates.
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash equivalents and trade
receivables. It is the Company's practice to place its cash equivalents and
investments in high quality money market accounts. Generally, the Company does
not require collateral or other security to support customer receivables. When
possible, the Company will structure contracts such that provider payments are
remitted directly to UMC whereby UMC can collect its fee and remit a net payment
back to the customer. The Company does not expect its customers to fail
54
55
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
to meet their obligations and, as such, considers the credit risk associated
with its trade accounts receivable to be minimal.
The percentage market mix of total revenue from continuing operations
for the years ended December 31, was:
2000 1999 1998
---- ---- ----
Customer A.................................... 29% 79% 66%
Customer B.................................... -- 4 23
Customer C.................................... 31 -- --
Customer D.................................... 16 -- --
Other customers............................... 24 17 11
--- --- ---
100% 100% 100%
=== === ===
The percentage market mix of total net accounts receivable for the
years ended December 31, was:
2000 1999
---- ----
Customer A..................................... --% 54%
Customer B..................................... -- --
Customer C..................................... 73 --
Customer D..................................... 5 17
Other customers................................ 22 29
--- ---
100% 100%
=== ===
P. RELATED PARTY TRANSACTIONS
The Company had consulting agreements for services provided primarily
by a non-employee director of the Company. These agreements were completed
simultaneously with consulting agreements between the Company and certain
customers. The director was paid approximately 78% of the consulting fees paid
to the Company. For the year ended December 31, 1998, the Company paid the
director $210,000.
The Company has a Director's Incentive Compensation Agreements ("DICA")
with each of its non-employee directors as described in Note L.
During 1998, the Company provided services to an entity controlled by a
director of the Company. For the year ended December 31, 1998, the Company
recorded a loss of $15,500 related to these services.
Q. SEGMENT REPORTING
The Company applies SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments.
Management organizes consolidated UMC around differences in services
offered. UMC provides medical insurance claims processing, medical accounts
receivable management and other healthcare related ancillary services. UMY
provides customer services, early out, bad debt and secondary account collection
55
56
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
agency services to the health care industry. UMC and UMY are aggregated into one
reportable health care Business Office Services segment based on the similarity
of the nature of the medical claim or account collection services, nature of the
information technology and human resource production process and service
delivery methodologies, as well as the predominantly health care industry
customer base of both UMC and UMY.
R. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
YEAR ENDED DECEMBER 31, 2000
Total revenues ...................................... $ 516,997 $ 625,938 $ 555,810 $ 599,052
Net income (loss) ................................... (136,617) (24,395) (48,927) 11,007
Net income (loss) per common share:
Basic .............................. $ (0.0048) $ (0.0008) $ (0.0017) 0.0004
Diluted ............................ (0.0048) (0.0008) (0.0017) 0.0004
Weighted average number of common
share outstanding:
Basic .............................. 28,710,217 28,710,217 28,710,217 28,710,217
Diluted ............................ 28,710,217 28,710,217 28,710,217 28,710,217
YEAR ENDED DECEMBER 31, 1999
Total revenues ...................................... $ 881,750 $ 797,338 $ 780,757 $ 698,496
Income (loss) from continuing operations ............ 100,128 (47,691) 69,512 (83,433)
Loss from discontinued operations-AHO ............... (133,626) (1,748,738) (114,821) 1,003,072
Gain on disposal of discontinued operations-AHO ..... -- -- -- 178,426
Net income (loss) ................................... (33,498) (1,796,429) (45,309) 1,098,065
Net income (loss) per common share:
Basic:
Continuing operations .............. $ .0035 $ (.0016) $ 0.0024 (0.0029)
Discontinued operations-AHO ........ (.0047) (.0605) (0.0039) 0.0349
Net income (loss) .................. (.0012) (.0621) (0.0015) 0.0382
Diluted:
Continuing operations .............. $ .0035 $ (.0016) $ 0.0024 (0.0029)
Discontinued operations-AHO ........ (.0047) (.0605) (0.0039) 0.0349
Net income (loss) .................. (.0012) (.0621) (0.0015) 0.0382
Weighted average number of common
shares outstanding:
Basic .............................. 28,243,217 28,910,217 28,910,217 28,710,217
Diluted ............................ 28,243,217 28,910,217 28,910,217 28,710,217
56
57
INDEPENDENT AUDITOR'S REPORT
Board of Directors
United Medicorp, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of United Medicorp,
Inc. as of December 31, 2000 and 1999, and the related consolidated statements
of operations, stockholder's equity (deficit), and cash flows for the years
ended December 31, 2000, 1999 and 1998. Our audits also included the financial
statement schedule referred to in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United Medicorp,
Inc. as of December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for the years ended December 31, 2000, 1999 and
1998 in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Hein + Associates LLP
March 2, 2001
Dallas, Texas
57
58
UNITED MEDICORP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
ADDITIONS
BALANCE ----------------------
AT CHARGED CHARGED BALANCE
BEGINNING TO COSTS TO AT
OF AND OTHER END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
- ----------- --------- --------- ---------- ---------- --------
(1) (2)
YEAR ENDED DECEMBER 31, 2000
Allowance for doubtful accounts ...... $ 8,219 $ 26,503 $ -- $(12,649) $ 22,073
Allowance for doubtful notes ......... $ -- $ -- $ -- $ -- $ --
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts ...... $ 216,388 $ 32,176 $ (198,415) $(41,930) $ 8,219
Allowance for doubtful notes ......... $ 2,000 $ -- $ -- $ (2,000) $ --
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts ...... $ 11,674 $ 62,405 $ 163,430 $(21,121) $216,388
Allowance for doubtful notes ......... $ -- $ 2,000 $ -- $ -- $ 2,000
- ----------
DECEMBER 31, 2000:
(2) Represents write-off of uncollectible trade receivables.
DECEMBER 31, 1999:
(1) Represents the allowance for doubtful accounts balance associated with
the acquisition of Allied Health Options, Inc. included in loss on
discontinued operations of AHO.
(2) Represents write-off of uncollectible trade receivables and the note
receivable.
DECEMBER 31, 1998:
(1) Represents the allowance for doubtful accounts balance associated with
the acquisition of Allied Health Options, Inc. included in goodwill.
(2) Represents write-off of uncollectible trade receivables and the note
receivable.
58
59
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of the Company, filed with
Secretary of State of Delaware on February 26, 1988, is
incorporated herein by reference to Exhibit 3 (a) of the
Company's Registration Statement on Form S-1, Commission File
No. 33-20989, filed with the Commission on March 30, 1988 and
declared effective June 7, 1988 (previously filed).
3.2 By-Laws of the Company are incorporated herein by reference to
Exhibit 3 (b) of the Company's Registration Statement on Form
S-1, Commission File No. 33-20989, filed with the Commission
on March 30, 1988 and declared effective June 7, 1988
(previously filed).
3.3 Certificate of Amendment to Certificate of Incorporation of
the Company, filed with Secretary of State of Delaware on July
12, 1989, is incorporated herein by reference to Exhibit 3 of
the Company's Current Report on Form 8-K, filed with the
Commission on July 25, 1989 (previously filed).
3.4 Certificate of Amendment to Certificate of Incorporation of
the Company, filed with Secretary of State of Delaware on
August 9, 1989, is incorporated herein by reference to Exhibit
3.2 of the Company's Form 10-Q filed for the fiscal quarter
ended September 30, 1989 (previously filed).
4.3 Specimen Form of Certificate of Common Stock of the Company is
incorporated herein by reference to Exhibit 4.3 of the
Company's Registration Statement on Form S-1, Commission File
No. 33-35177, originally filed with the Commission on June 1,
1990 and declared effective July 27, 1990 (previously filed).
4.4 Article Fourth of the Company's Certificate of Incorporation
is incorporated herein by reference to Exhibit 3 of the
Company's Current Report on Form 8-K, filed with the
Commission on July 25, 1989 (previously filed).
4.5 Certificate of Amendment to Certificate of Incorporation,
filed with the Secretary of State of Delaware on June 21, 1990
is incorporated herein by reference to Exhibit 4.5 of the
Company's Registration Statement on Form S-1, Commission File
No. 33-35177,
60
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
originally filed with the Commission on June 1, 1990 and
declared effective on July 27, 1990 (previously filed).
4.6 Form of Common Stock Purchase Warrant for 400,000 shares
issued to Thomas H. McConnell, III (previously filed).
4.7 Form of Common Stock Purchase Warrant for 400,000 shares
issued to Michael P. Bumgarner (previously filed).
4.8 Form of Common Stock Purchase Warrant for 400,000 shares
issued to John F. Lewis (previously filed).
4.9 Form of Common Stock Purchase Warrant issued to Peter W.
Seaman for 500,000 shares (previously filed).
4.10 Form of Common Stock Purchase Warrant issued to Peter W.
Seaman for 1,500,000 shares (previously filed).
4.11 Form of Common Stock Purchase Warrant issued to R. Kenyon
Culver for 500,000 shares (previously filed).
4.12 Form of Common Stock Purchase Warrant issued to R. Kenyon
Culver for 1,500,000 shares (previously filed).
9. Not Applicable.
10.7 1992 Stock Option Plan of the Company is incorporated herein
by reference to Exhibit 10.24 of the Company's Registration
Statement on Form S-1, Commission File No. 33-35178
(previously filed).
10.11 Customer Service Agreement dated December 15, 1992 by and
between the Company and the Washington Hospital Center is
incorporated herein by reference to Exhibit 10.27 of the
Company's Registration Statement on Form S-1, Commission File
No. 33-35178 (previously filed).
10.14 Standard Office Building Lease Agreement dated June 1, 1989,
between the Registrant and Aetna Life Insurance Company
(previously filed).
10.15 Third Amendment to Lease, dated May 1, 1992, between the
Registrant and Aetna Life Insurance Company (previously
filed).
10.19 Certificate of Amendment to Certificate of Incorporation of
the Company, filed with Secretary of State of Delaware on
August 3, 1993 (previously filed).
10.22 1995 Stock Option Plan (previously filed).
10.23 Modification and Ratification of Lease, dated July 19, 1995
(previously filed).
10.25 Severance Agreement by and between Registrant and Mary E.
Rogers (previously filed).
10.26 Severance Agreement by and between Registrant and Peter W.
Seaman (previously filed).
61
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.28 Director's Incentive Compensation Agreement by and between
Registrant and Thomas H. McConnell, III (previously filed).
10.29 Director's Incentive Compensation Agreement by and between
Registrant and John F. Lewis. (previously filed).
10.30 Director's Incentive Compensation Agreement by and between
Registrant and Michael P. Bumgarner. (previously filed).
10.31 Amendment No. 1 to Customer Service Agreement dated December
15, 1992 by and between the Company and the Washington
Hospital Center relating to collection of Department of
Emergency Medicine claims is incorporated herein by reference
to Exhibit 10.27 of the Company's Registration Statement on
Form S-1, Commission File No. 33-35178 (previously filed).
10.32 Amendment No. 2 to Customer Service Agreement dated December
15, 1992 by and between the Company and the Washington
Hospital Center relating to collection of physician claims is
incorporated herein by reference to Exhibit 10.27 of the
Company's Registration Statement on Form S-1, Commission File
No. 33-35178 (previously filed).
10.33 Collection Services Agreement dated January 17, 1997 by and
between the Registrant and Presbyterian Healthcare System
(previously filed).
10.34 Early Out Collection Agreement dated May 1, 1997 by and
between the Registrant and Presbyterian Healthcare System
(previously filed).
10.35 Secondary Collection Agreement dated October 31, 1997 by and
between the Registrant and Presbyterian Healthcare System
(previously filed).
10.36 Loan Agreement dated December 11, 1998 by and between the
Registrant and Texas Central bank (previously filed).
10.37 Promissory Note dated December 11, 1998 by and between the
Registrant and Texas Central bank (previously filed).
10.38 Factoring Agreement and Security Agreement dated December 28,
1999 by and between the Registrant and Metro Factors, Inc.
(previously filed).
10.39 Economic Development and Incentive Agreement by and between
the Registrant and the Pampa Economic Development Corporation.
(previously filed)
10.40 Forgivable Loan Agreement by and between the Registrant and
the Pampa Economic Development Corporation. (previously filed)
22.1 Subsidiaries of the Company (previously filed).
99.1 Safe Harbor Compliance Statement for Forward-Looking
Statements
99.2 Voluntary Petition United States Bankruptcy Court Northern
District of Texas - Chapter 7 (previously filed)