UNITED MEDICORP INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

[ ] 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: (806) 669-9223

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
--- ---

As of August 10, 2002, there were outstanding 29,210,217 shares of Common Stock,
$0.01 par value.

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UNITED MEDICORP, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

TABLE OF CONTENTS

UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these
consolidated financial statements

1

UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

The accompanying notes are an integral part of these
consolidated financial statements

2

UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

The accompanying notes are an integral part of these
consolidated financial statements

3

UNITED MEDICORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of United
Medicorp, Inc. ("UMC" or the "Company") include its wholly owned subsidiary,
United Moneycorp. Inc. ("UMY"). All material intercompany transactions and
balances have been eliminated. Certain prior year balances have been
reclassified to conform with current year presentation. The financial
information presented should be read in conjunction with the audited
financial statements of the Company for the year ended December 31, 2001
included in the Company's Form 10-K.

The unaudited consolidated financial information has been prepared in
accordance with the Company's customary accounting policies and practices.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments necessary for a fair presentation of results for the
interim period, have been included.

The preparation of financial statements in conformity with Accounting
Principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. The results for
interim periods are not necessarily indicative of results to be expected
for the year.

FACTOR RESERVE

The Factor Reserve account includes 20% of outstanding invoices purchased
by the factoring company (required reserve) and the excess above this 20% which
is available to be drawn by UMC as cash upon demand (available reserve). The
balances of the required and available reserves included in the Factor Reserve
as of June 30, 2002 and December 31, 2001 were as follows:

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

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-Q and are

4

UNITED MEDICORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS

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 their customers under
service contracts that typically are cancelable with a 30 to 60 day notice.

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

For Ongoing claims, there is typically a time lag of approximately 5 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 payers and collection of those claims from payers.

5

UNITED MEDICORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS (CONTINUED)

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

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.

6

UNITED MEDICORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS

The following table sets forth certain items from the Company's
Consolidated Statements of Operations expressed as a percentage of revenues:

COMPARISON OF THE QUARTER ENDED JUNE 30, 2002 TO THE QUARTER ENDED JUNE 30, 2001

REVENUES increased $109,000, or 15% primarily due to the following:

o Ongoing Accounts Receivable Management Services revenue of $404,000 in the
current quarter increased by $114,000 compared to the same quarter in 2001
as a result of multiple changes to the Company's claims inventory mix. The
increase was due primarily to the addition of secondary claims during the
fourth quarter of 2001 to an ongoing accounts receivable management services
contract that was signed March 22, 2000. Revenues from secondary claims
processed under this contract were $194,000 during second quarter of 2002.
This increase in revenue was offset by reduced revenues from the primary
claims processed under this contract. Revenues from such primary claims
totaled $113,000 and $176,000 during the second quarter of 2002 and 2001
respectively. During November of 2001, Inova Health Services officially
notified the Company, of the termination of their Ongoing Accounts
Receivable Management contract. Inova did not place any new business with
the Company after August, 2001. Total revenues from Inova were $0 and
$57,000 for the second quarter of 2002 and 2001 respectively. The loss of
revenue from Inova was partially offset by increased revenues from an
ongoing accounts receivable management contract that was signed October 31,
2000. This contract provided revenues of $85,000 and $57,000 during the
second quarter of 2002 and 2001 respectively. .

o Backlog Accounts Receivable Management Services revenue of $0 in the current
quarter decreased by $35,000 compared to the same quarter in 2001 as a
result of the winding down of a backlog accounts receivable management
contract signed March 22, 2000.

o Collection Agency Services revenue of $373,000 in the current quarter was
$6,000 less than the amount of collection agency services revenue recognized
in the same quarter of 2001. Revenues from early out collections were
$186,000 and $369,000 while revenues from bad debt collections were $187,000
and $10,000 for the second quarter of 2002 and 2001 respectively.

7

UNITED MEDICORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS (CONTINUED)

o Coding Services revenue - In April of 2002, Janice K. Neal joined UMC as
Vice President of Coding Services, and the Company began providing such
services to various hospitals. Total revenues from coding services were
$37,000 during the second quarter of 2002.

o Other revenue decreased by $1,000 compared to the same quarter of 2001.

WAGES AND BENEFITS expense increased $104,000 or 21% primarily due to
increased headcount as a result of increased business requirements, and the
addition of two corporate officers during March and April of 2002. During the
current quarter, total monthly employee headcount averaged 81 compared to 69
during the same quarter of 2001.

SELLING, GENERAL AND ADMINISTRATIVE expense increased $25,000 or 17%
primarily due to increases in postage, printing, travel, and software
maintenance costs. These increases were the result of an increased number of
self pay accounts requiring letters (postage and printing), additional travel
requirements of the new Vice President of Sales and the new Vice President of
Coding Services, and a large credit from a company that provided system
maintenance services, that was received during the second quarter of 2001
(software maintenance).

DEPRECIATION AND AMORTIZATION expense decreased $2,000 or 9% primarily due
to certain assets becoming fully depreciated.

OFFICE, VEHICLE AND EQUIPMENT RENTAL expense increased $3,600 or 140%
primarily due to the assumption by UMC of the lease on a 2000 Toyota Avalon,
which had previously been leased by Janice Neal (UMC's new Vice President of
Coding Services).

PROFESSIONAL FEES increased $170 or 1% as compared to the second quarter
of 2002.

INTEREST expense decreased $10,000 or 90% due primarily to the maturity of
a capital lease, the payoff of interest bearing debt, and the reduced balance
and interest rate on the Company's variable rate loan on the Pampa Operations
Center building.

PROVISION FOR DOUBTFUL ACCOUNTS expense increased $13,700 primarily due to
the collection of previously reserved receivables in the amount of $11,000
during the second quarter of 2001.

NET INCOME -- In addition to the items listed above, net income for the
three-month period ended June 30, 2002 declined, as compared to the second
quarter of 2001, due to a very poor performance during the month of May 2002.
This poor performance was due in large part to a loss of focus caused by the
terminal illness of UMC's Director of Operations, Dennis Bazhaw (see
"Management Changes" below). The Company reported a net loss for May which was
approximately $63,000 below planned net income for that month. Operational
performance returned to previous norms during the months of June and July.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 TO THE SIX MONTHS ENDED JUNE
30, 2001

REVENUES increased $215,000 or 15% primarily due to the following:

o Ongoing Accounts Receivable Management Services revenue of $807,000 in the
current six month period increased by $260,000 compared to the same quarter
in 2001 as a result of multiple changes to the Company's claims inventory
mix. The increase was due primarily to the addition of secondary claims
during the fourth quarter of 2001 to an ongoing accounts receivable
management services contract that was signed March 22, 2000. Revenues from
secondary claims processed under this contract were $364,000 during the
current six-month period. This increase in revenue was offset by reduced
revenues from the primary claims processed under this contract. Revenues
from such primary claims totaled $231,000 and $349,000 during the second
quarter of 2002 and 2001 respectively. During November of 2001, Inova Health
Services officially notified the Company, of the termination of their
Ongoing Accounts Receivable Management contract. Inova did not place any new
business with the Company after August, 2001. Total revenues from Inova were
$3,000 and $129,000 for the six-month period ending June 30, 2002 and 2001
respectively. The loss of revenue from Inova was offset

8

UNITED MEDICORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS (CONTINUED)

by increased revenues from an ongoing accounts receivable management
contract that was signed October 31, 2000. This contract provided revenues
of $182,000 and $69,000 during the second quarter of 2002 and 2001
respectively.

o Backlog Accounts Receivable Management Services revenue of $1,000 in the
current six-month period decreased $123,000 compared to the same six-month
period of 2001 as a result of the winding down of a backlog accounts
receivable management contract signed March 22, 2000.

o Collection Agency Services revenue of $752,000 in the current six month
period increased by $38,000 compared to the same period of 2001, due to
various changes in the Company's self pay account inventory mix. The Company
received a significant increase in placements from a collection agency
services contract executed in March of 2000. This contract provided revenues
of $183,000 and $80,000 during the first six months of 2002 and 2001
respectively. The Company saw a significant decrease in early out placements
from a collection agency services contract executed September 25, 2000. This
contract provided revenues of $173,000 and $558,000 during the first six
months of 2002 and 2001 respectively. Effective November 1, 2001, bad debt
accounts were also added to this contract. The bad debt portion of this
contract provided $318,000 in revenue during the first six months of 2002.

o Coding Services revenue - In April of 2002, Janice K. Neal joined UMC as
Vice President of Coding Services, and the Company began providing such
services to various hospitals. Total revenues from coding services were
$37,000 during the first six months of 2002.

o Other revenue of $37,000 during the current six-month period increased by
$1,000 compared to the same six-month period of 2001.

WAGES AND BENEFITS expense increased $200,000 or 23% primarily due to
increased headcount as a result of increased business requirements, and the
addition of two corporate officers during March and April of 2002. During the
current six-month period, total monthly employee headcount averaged 80 compared
to 61 during the same period of 2001.

SELLING, GENERAL AND ADMINISTRATIVE expense increased $56,000 or 21%
primarily due to increases in postage and printing costs, as a result of an
increased number of self pay accounts requiring letters, and the reversal of
previously accrued expense during the first six months of 2001.

DEPRECIATION AND AMORTIZATION expense decreased $4,000 or 8% primarily due
to certain assets becoming fully depreciated

OFFICE, VEHICLE AND EQUIPMENT RENTAL expense increased $750 or 8% during
the first six months of 2002, as compared to the first six months of 2001.

PROFESSIONAL FEES decreased $1,370 or 5% during the first six months of
2002, as compared to the first six months of 2001.

INTEREST, NET decreased $14,000 or 63% due primarily to the maturity of a
capital lease, the payoff of interest bearing debt, and the reduced balance and
interest rate on the Company's variable rate loan on the Pampa Operations Center
building.

9

UNITED MEDICORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS (CONTINUED)

PROVISION FOR DOUBTFUL ACCOUNTS expense increased $2,000 or 100% primarily
due to a small amount of receivables being reserved during the first six months
of 2002, and no balances being reserved during the first six months of 2001.

NET INCOME -- In addition to the items listed above, net income for the
six-month period ended June 30, 2002 declined, as compared to the first six
months of 2001, due to a very poor performance during the month of May 2002.
This poor performance was due in large part to a loss of focus caused by the
terminal illness of UMC's Director of Operations, Dennis Bazhaw (see
"Management Changes" below). The Company reported a net loss for May which was
approximately $63,000 below planned net income for that month. Operational
performance returned to previous norms during the months of June and July.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2002, the Company's liquid assets, consisting of cash, and
available factoring reserve totaled $71,000 compared to $3,500 at December 31,
2001. Working capital was $119,000 at June 30, 2002 compared to a deficit of
$24,000 at December 31, 2001.

Operating activities during the current six-month period provided cash of
$82,000, compared to cash of $94,000 provided by operating activities during the
same period of 2001. This decrease is primarily due to a $27,000 reduction in
net income during the first six months of 2002, as compared to the same period
in 2001.

Cash of $39,000 was expended on investing activities during the current
six-month period for the purchase of equipment, software, and building
improvements. The Company also received proceeds from the sale of a company
automobile in the amount of $5,800 during this period. The Company expended
$68,000 on investing activities during the same six-month period of 2001 for the
purchase of equipment, software and building improvements.

Financing activities during the current six-month period used cash of
$47,000 consisting of principal payments totaling $16,000 for notes payable, and
$31,000 on capital lease obligations. Financing activities during the same
six-month period of 2001 used cash of $31,000 and consisted of loan proceeds for
the purchase of two automobiles in the amount of $20,000, principal payments
totaling $9,000 for notes payable, and principal payments on capital lease
obligations totaling $42,000.

During the current six-month period, cash flow from operations was
adequate to cover all working capital and liquidity requirements. Assuming that
the current contracts with UMC's customers remain in force, UMC management
believes the Company will continue to generate cash flow from operations
sufficient to meet all working capital and liquidity requirements.

If UMC is unable to service its financial obligations as they become due,
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, attempting to restructure existing financial obligations,
seeking a strategic merger or acquisition, seeking the sale of the company,
and/or seeking additional debt or equity capital. There can be no assurance that
any of these strategies could be effected on satisfactory terms.

CHANGES IN CUSTOMER BASE

On May 30, 2002, the Company received notice from Valley Baptist Medical Center
(VBMC) terminating their accounts receivable management contract dated March 13,
2000. The termination of the contract was pursuant to recommendations from
outside consultants to consolidate VBMC's outsourcing projects, and according to
VBMC management had nothing to do with UMC's performance. This contract provided
revenues of $183,000 and $272,000 for the six months ended June 30, 2002 and the
year ended December 31, 2001 respectively. These revenues represent 11% and 10%
of UMC's total revenues for the six months ended June 30, 2002 and the year
ended December 31, 2001 respectively. Revenues from this contract will ramp down
over the four month period following the date of cancellation.

10

UNITED MEDICORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS (CONTINUED)

On July 26, 2002 UMC executed a contract with a hospital in the Texas Panhandle.
Under this contract, UMC will provide day one claims billing and follow up
services for the hospital, as well as early out and bad debt patient balance
account management services. The company will also receive a backlog placement
of the hospital's entire current receivables inventory. Management believes that
this contract will generate revenues of approximately $300,000 per year.

MANAGEMENT CHANGES

On June 3, 2002 Dennis Bazhaw, UMC's Director of Operations, died
following a month long illness. As a result of Mr. Bazhaw's illness, UMC's
operations suffered a loss of focus, which was reflected in poor operating
results for the month of May. In response to Mr. Bazhaw's absence, Peter W.
Seaman, UMC's Chief Executive Officer, has assumed the duties of Director of
Operations, with assistance from the two managers who had previously reported
directly to Mr. Bazhaw. Mr. Seaman has delegated additional responsibilities to
these two managers, who are being evaluated for promotion. Under this management
structure, the operating results for June returned to previous norms.

CRITICAL ACCOUNTING POLICIES

Accounting Principles generally accepted in the United States of America
require the use of management's judgments and estimates in addition to the rules
and requirements imposed by the accounting pronouncements. More detailed
information about the accounting policies we use is contained in Note B, Summary
of Significant Accounting Policies, to our Consolidated Financial Statements
included in our 2001 Form 10-K. Other accounting policies not discussed here are
described there, and readers should review that information carefully. We have
summarized below the accounting policies that we believe are most critical to an
understanding of the preparation of our financial statements.

We report our financial information on a consolidated basis. Therefore,
unless there is an indication to the contrary, financial information is provided
for the parent company, United Medicorp, Inc., and its subsidiaries as a whole.
Transactions between the parent company and any subsidiaries are eliminated for
this purpose. We own all of the capital stock of our subsidiaries, and we do not
have any subsidiaries that are not consolidated. None of our subsidiaries are
"off balance sheet", UMC has not entered into any "off balance sheet"
transactions, and UMC has no "special purpose entities".

Factored accounts receivable are accounted for pursuant to SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS No. 140"). Pursuant to SFAS No. 140, 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. UMC has a contingent liability to
repurchase any invoices that remain unpaid after 90 days. At June 30, 2002, and
December 31, 2001, there were no factored invoices which had ages more than 90
days.

PART 11. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES

11

UNITED MEDICORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS (CONTINUED)

None

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

(B) Reports on Form 8-K:

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

UNITED MEDICORP, INC.
(REGISTRANT)

By: /s/ Nathan E. Bailey Date: August 12, 2002
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Nathan E. Bailey
Vice President and Controller
(Principal Accounting Officer)

12

INDEX TO EXHIBITS