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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, 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: (972) 926-4950
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
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___.
As of June 30, 2002 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $377,980 based on the last sales price of
$0.02 per share of such stock on June 28, 2002. As of March 15, 2003 there were
29,210,217 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
UNITED MEDICORP, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
PAGE
----
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.................................. 24
ITEM 8. Financial Statements and Supplementary Data................................................. 24
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................................... 24
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......................................... 25
ITEM 11. Executive Compensation...................................................................... 27
ITEM 12. Securities Ownership of Certain Beneficial Owners and Management............................ 30
ITEM 13. Certain Relationships and Related Transactions.............................................. 31
ITEM 14. Controls and Procedures..................................................................... 31
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 32
Signatures ............................................................................................ 36
Certification of Chief Executive Officer................................................................. 37
Certification of Chief Financial Officer................................................................. 38
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 coding and processing and
accounts receivable management services to healthcare providers. The Company
employs proprietary and purchased software to provide claims coding and
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").
3
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 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
Accountability Act of 1996, which includes significant new requirements
governing the confidentiality of patient health information, 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 certain offenses and contains
provisions for instituting greater coordination of federal, state and local
enforcement agency resources and actions.
4
EXISTING GOVERNMENT REGULATION
UMC's billing and collection 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.
5
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 weekly, semi-monthly 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 52%, 41% and 57% of
total revenue in 2002, 2001 and 2000, 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. The Company
does not currently have any backlog accounts receivable management service
contracts in progress.
CLAIMS CODING SERVICES: In April of 2002, The Company began offering
claims coding services to its customers. These services include performing
coding reviews to assure compliance and reimbursement optimization, as well as
complete on-site and off-site UB92 and HCFA claims coding. To support the
off-site claims coding service, the Company developed proprietary software which
allows medical records to be scanned at a customer hospital's location,
encrypted, and transmitted to UMC's secure website. Medical records are then
queued to one of UMC's coders, who completes coding within two business days and
transmits a coding summary back to the hospital. The hospital then enters these
codes into its coding system, and bills the claim.
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, age 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 44%, 49% and 25% of total revenue in 2002, 2001 and 2000,
respectively.
6
UMCLAIMPROS: The Company began providing interim staffing services under
the UMClaimPros label in December, 1994. UMClaimPros were experienced billing
and collection personnel who were employed by UMC and placed on temporary
assignments in hospital and physician business offices. Fees for this service
accounted for approximately 0%, 0%, and 3% of revenue in 2002, 2001, and 2000
respectively. Management has not yet offered the UMClaimPros service in the
Pampa area.
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 3.5
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 8 to 10 percent of the amounts collected, while
Collection Agency services are priced at 8 to 35 percent of amounts collected.
UMClaimPros services were priced at a per hour rate based on the fully burdened
salary of the assigned personnel. Coding service fees are billed on a per chart
basis, a per hour basis, or a per day basis, and may also add charges for travel
time to and from the customer's location. 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 2002, 2001 and 2000, the Company accepted for
processing approximately 307,000, 220,000 and 246,000 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 a claims clearinghouse used by
the Company. The clearinghouse then formats and electronically transmits 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 2003 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,
7
telephone calls, collection letters and reports. Custom programming for this
application is handled primarily through contract programmers. The Company owns
the source code for this application and can modify the application whenever
necessary. This software will continue to be modified and enhanced to improve
performance and customer satisfaction.
COMPETITION
The business of medical insurance claims processing, accounts receivable
management and collection 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 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, claims coding services 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.
8
EMPLOYEES
At March 15, 2003, the Company had 82 full time, and 10 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 union organizing attempts.
ITEM 2. PROPERTIES
On August 21, 2000, United Medicorp, Inc. completed the purchase of a 20,000
square foot building that serves as its operations center in Pampa, Texas. The
purchase price of the building was $100,000. In addition, the first mortgage
included 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 4.75 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 investment in the building and improvements at December
31, 2002 was $184,000. 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, 2002 and through March 15, 2003,
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 2002.
9
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 07, 2003, there were
approximately 1,030 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, 2002 HIGH LOW
----------- -----------
Fourth quarter $ 0.035 $ 0.006
Third quarter 0.020 0.006
Second quarter 0.030 0.020
First quarter 0.025 0.012
----------- -----------
2002 annual average 0.028 0.011
YEAR ENDED DECEMBER 31, 2001
Fourth quarter $ 0.050 $ 0.015
Third quarter 0.030 0.020
Second quarter 0.030 0.015
First quarter 0.011 0.010
----------- -----------
2001 annual average 0.030 0.015
YEAR ENDED DECEMBER 31, 2000
Fourth quarter $ 0.030 $ 0.010
Third quarter 0.038 0.020
Second quarter 0.063 0.020
First quarter 0.060 0.010
----------- -----------
2000 annual average 0.048 0.015
The last reported sales price of the Common Stock as reported on the
OTCBB, on March 6, 2003 was $0.025 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.
10
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, 2002. The financial data
presented for each of the five fiscal years has been derived from audited
financial statements.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------- -------------- ------------- ------------- -------------
STATEMENTS OF OPERATIONS DATA
Revenues $ 3,437,984 $ 2,785,697 $ 2,297,797 $ 3,158,341 $ 4,178,009
Wages and benefits 2,315,105 1,769,134 1,654,666 2,070,936 2,664,694
Selling, general and administrative 673,329 536,276 520,507 614,688 815,431
Depreciation and amortization 81,438 100,654 115,295 117,568 87,265
Professional fees 61,844 60,003 42,835 68,788 44,784
Other 46,437 53,789 163,426 247,845 166,922
------------- -------------- ------------- ------------- -------------
Net income (loss) from
continuing operations 259,831 265,841 (198,932) 38,516 398,913
Loss from discontinued
operations-AHO -- -- -- (994,113) (230,967)
Gain on disposal of discontinued
operations-AHO -- -- -- 178,426 --
------------- -------------- ------------- ------------- ---------------
Net income (loss) $ 259,831 $ 265,841 $ (198 932) $ (777,171) $ 167,946
Basic earnings (loss) per common
share (1):
Continuing operations $ 0.0089 $ 0.0091 $ (0.0069) $ 0.0013 $ 0.0142
Discontinued operations-AHO -- -- -- (0.0283) (0.0082)
------------- -------------- ------------- -------------- --------------
Net income (loss) $ 0.0089 $ 0.0091 $ (0.0069) $ 0.0060 $ 0.0060
Weighted average shares
outstanding 29,210,217 29,110,000 28,710,217 28,739,332 27,910,217
11
AS OF DECEMBER 31,
-----------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------ -------------- -------------- ------------ --------------
BALANCE SHEET DATA
Working capital (deficit) $ 145,706 $ (23,902) $ (225,830) $ (198,749) $ (747,984)
Net assets of
discontinued operations-AHO -- -- -- -- 1,251,119
Total assets 893,995 602,357 512,154 598,941 2,004,373
Long term debt including capital
leases and deferred revenue 271,527 280,004 357,484 110,070 44,973
Total debt including capital leases
and deferred revenue 294,526 330,625 489,838 238,205 312,587
Net liabilities of
discontinued operations-AHO -- -- -- -- 733,403
Total liabilities 631,624 599,817 775,455 663,310 1,321,571
Total stockholders' equity (deficit) 262,371 2,540 (263,301) (64,369) 682,802
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 their customers under
service contracts that typically are cancelable with a 30 to 60 day notice. For
the year ended December 31, 2002, 2001 and 2000, approximately 96%, 91% and 82%
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.
12
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 claims management services.
CLAIMS MANAGEMENT SERVICES - PROCESSING VOLUMES
2002 2001 2000
-------------------------------- --------------------------------- --------------------------------
QUARTER QUARTER QUARTER
-------------------------------- --------------------------------- --------------------------------
Fourth Third Second First Fourth Third Second First Fourth Third Second First
-------------------------------- --------------------------------- --------------------------------
UMC
Number of Claims
Accepted for
Processing:
Ongoing 32,602 43,522 43,761 34,012 21,818 11,905 13,161 18,473 12,637 12,774 38,702 44,311
Backlog -- -- -- -- -- -- -- -- 3,252 9,135 10,928 2,219
------ ------- ------- ------- ------ ------- ------- -------- ------ ------- ------- --------
Total 32,602 43,522 43,761 34,012 21,818 11,905 13,161 18,473 15,889 21,909 49,630 46,530
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 26,717 30,772 22,085 23,336 14,221 8,864 8,382 9,365 10,571 10,186 28,801 35,581
Backlog -- -- -- -- -- -- -- -- 1,777 6,216 2,987 4,789
------ ------- ------- ------- ------ ------- ------- -------- ------ ------- ------- --------
Total 26,717 30,772 22,085 23,336 14,221 8,864 8,382 9,365 12,348 16,402 31,788 40,370
Collection $
(000's)
Ongoing 6,126 6,091 4,840 4,710 4,470 4,147 4,307 3,736 3,730 7,092 12,343 12,568
Backlog -- -- -- 6 11 80 387 910 1,636 1,561 1,112 --
------ ------- ------- ------- ------ ------- ------- -------- ------ ------- ------- --------
Total 6,126 6,091 4,840 4,716 4,481 4,227 4,694 4,646 5,366 8,653 13,455
12,568
Fees Earned
(000's)
Ongoing 460 471 405 403 301 298 290 257 132 239 370 412
Backlog -- -- -- 1 2 13 35 87 123 155 137 --
------ ------- ------- ------- ------ ------- ------- -------- ------ ------- ------- --------
Total 460 471 405 404 303 311 325 344 255 394 507 412
Average Fee %
Ongoing 7.5% 7.7% 8.4% 8.5% 6.7% 7.2% 6.7% 6.9% 3.5% 3.3% 3.0% 3.3%
Backlog --% --% --% 16.7% 18.2% 16.3% 9.0% 9.5% 7.5% 9.9% 12.3% --%
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.
During the fourth quarter of 2001, the Company began processing secondary
claims under an ongoing accounts receivable management services contract signed
March 22, 2000. The Number of Claims Accepted for Processing and the Gross $
Amount of Claims Accepted for Processing shown in the preceding table include
secondary claims that are subject to automatic crossover payments from certain
payors. The Company does not take credit for, nor report as collections, such
crossover payments that are received by the customer within 35 days of the date
that the claim is transmitted to UMC. UMC management estimates that about 30% to
50% of the secondary claims accepted for processing are due from crossover
payors, of these, approximately 60% pay with no effort required (and no credit
for collections received is taken) by UMC. As a result, the ratio of Collections
to the Gross $ Amount of Claims Accepted for Processing shown in the preceding
table will be lower for periods beginning with the fourth quarter of 2001 than
for the preceding quarters shown.
13
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
2002 2001 2000
--------------------------------- --------------------------------- ---------------------------------
QUARTER QUARTER QUARTER
--------------------------------- --------------------------------- ---------------------------------
Fourth Third Second First Fourth Third Second First Fourth Third Second First
--------------------------------- --------------------------------- ---------------------------------
UMY
Number of
Accounts Accepted
for Collection:
(000's)
Early out 13,859 17,818 17,250 26,977 27,413 28,537 42,351 27,132 38,126 43,328 11,377 13,330
Bad debt 26,281 16,430 14,815 20,028 25,811 932 587 1,413 920 1,640 817 2,312
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 40,140 34,248 32,065 47,005 53,224 29,469 42,938 28,545 39,046 44,968 12,194 15,642
Gross $ Amount
of Accounts
Accepted for
Collection
(000's)
Early out 12,021 13,424 14,002 22,611 20,724 20,972 30,834 19,487 24,963 25,213 9,122 7,459
Bad debt 15,934 9,714 10,476 12,959 17,035 762 576 1,143 804 1,076 704 1,631
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 27,955 23,138 24,478 35,570 37,759 21,734 31,410 20,630 25,767 26,289 9,826 9,090
Collection $
(000's)
Early out 1,220 1,563 2,004 2,444 2,433 3,810 3,904 3,276 2,618 697 610 349
Bad debt 909 939 895 745 422 57 64 53 57 83 72 52
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 2,129 2,502 2,899 3,189 2,855 3,867 3,968 3,329 2,675 780 682 401
Fees Earned
(000's)
Early out 131 157 187 227 215 356 370 314 261 87 89 60
Bad debt 203 208 186 152 94 9 10 8 15 22 17 12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 334 365 373 379 309 365 380 322 276 109 106 72
Average Fee %
Early out 10.7% 10.0% 9.3% 9.3% 8.8% 9.3% 9.5% 9.6% 10.0% 21.9% 14.6% 17.2%
Bad debt 22.3% 22.1% 20.8% 20.4% 22.2% 15.8% 15.6% 15.1% 26.3% 26.5% 23.6% 23.1%
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 2002, 84% of revenue was earned from three customers: Presbyterian
Healthcare Services of New Mexico ("PHS"), Valley Baptist Medical Center
("VBMC"), and Brownsville Surgical Hospital ("BSH"). PHS provided revenue
totaling $2,246,000 or 65% of total revenue. Of this, 46% was from Collection
Agency Services, and 54% was from Ongoing Accounts Receivable Management
Services. VBMC provided revenue of $245,000 or 7% of total revenue. All of the
VBMC revenue was from Collection Agency Services. BSH provided revenue of
$428,000 or 12% of total revenue. Of this, 93% was from Ongoing Accounts
Receivable Management Services, and 7% was from Collection Agency Services.
14
During 2001, 91% of revenue was earned from four customers: Presbyterian
Healthcare Services of New Mexico ("PHS"), Valley Baptist Medical Center
("VBMC"), Inova Health Services ("Inova"), and Brownsville Surgical Hospital
("BSH"). PHS provided revenue totaling $1,744,000 or 63% of total revenue. Of
this, 55% was from Collection Agency Services, 37% was from Ongoing Accounts
Receivable Management Services, and 8% was from Backlog Accounts Receivable
Management Services. VBMC provided revenue of $272,000 or 10% of total revenue.
All of the VBMC revenue was from Collection Agency Services. Inova provided
revenue of $247,000 or 9% of total revenue. All of the Inova revenue was from
Ongoing Accounts Receivable Management Services. BSH provided revenue of
$254,000 or 9% of total revenue. Of this, 97% was from Ongoing Accounts
Receivable Management Services, and 3% was from Collection Agency Services.
During 2000, 76% of revenue was earned from three customers: The
Washington Hospital Center ("WHC"), PHS, and Inova. WHC provided revenue
totaling $657,426 or 28% of total revenue. Of this, 96% was from the Ongoing
Accounts Receivable Management Services, and 4% was from Physician Billing
Services. 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.
LOSS OF SIGNIFICANT CUSTOMERS
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 $245,000, $272,000 and $35,000 which represented
7%, 10% and 1.5% of total revenue for the years 2002, 2001 and 2000
respectively.
During November of 2001, Inova Health Services 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 of 2001. All
billing and collection efforts made on behalf of Inova were discontinued on
January 11, 2002. Revenues from this contract accounted for approximately 9% and
16% of total consolidated revenues during 2001 and 2000 respectively. It is UMC
management's understanding that Inova's decision to terminate was due to poor
collection performance during the third and fourth quarters of 2000 during the
period when the Company's operation center was being moved from Dallas to Pampa.
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.
15
Effective July 28, 2000, UMC executed an Economic Development and
Incentive Agreement (the "Agreement"), with the Pampa Economic Development
Corporation ("PEDC"), (previously disclosed). 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, 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. UMC met the FTEE requirement for this incentive in 2001 and
2002 and recognized $24,000 of the incentive as income at December 31st of each
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. UMC recognized $40,000 in
revenue from this incentive for each of the years 2001 and 2002.
(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. UMC
recognized $10,000 in revenue from this incentive for each of the years 2001 and
2002.
(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. UMC recognized $5,875 in revenue from this
incentive for 2001 and $13,250 for 2002.
(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 guaranteed up to $137,000 for the benefit of UMC's lender (the
"Lender"), relative to the purchase of the 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. On July 28, 2002 and July 28, 2001 UMC received
$27,400 from the PEDC in payment of this incentive. Of this, $11,536 and $14,178
was remitted to National Bank of Commerce (the lien holder on the building) as
principal payment on the building on the loan in accordance with The Agreement,
for 2002 and 2001 respectively. PEDC 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.
16
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,
2003 UMC had 76 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 minimum employment requirements to trigger incentive
payments, (b) maintaining the minimum employment requirements to prevent
triggering the aforementioned claw back provision, or (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 communications. In addition UMC expended
$11,964 for moving expenses and $92,110 in capital expenditures for equipment
and improvements 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 (previously disclosed). 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 was 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 had an interest rate
of 9.5% per annum, which was not forgivable. The entire loan amount was
satisfied by incentives earned by UMC under paragraphs (b), (c), (d) and (e)
through the third quarter of 2001. The total interest paid by UMC on this loan
during 2001 was $2,659.
MAINTENANCE AGREEMENT COMMITMENT
During 2002, the Company entered a maintenance agreement on leased mail
processing equipment, that requires quarterly payments through 2007. The total
commitments under the agreement are $6,420 for each of the years 2003 through
2006 and $4,815 in 2007. The Company paid $1,605 during 2002 under this
agreement.
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
17
accounting pronouncements. More detailed information about UMC's accounting
policies is contained in Note B, Summary of Significant Accounting Policies, to
the Consolidated Financial Statements. 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 understanding UMC's financial statements.
The Company reports 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. UMC owns all of the capital stock of its
subsidiaries, and does not have any subsidiaries that are not consolidated. None
of UMC's subsidiaries are "off balance sheet", UMC has not entered into any "off
balance sheet" transactions, and UMC has no "special purpose entities".
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.
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. Coding
service revenue is recognized when the services are performed.
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 December 31, 2002
there were no factored invoices that had ages more than 90 days.
18
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, 2002 2001 2000
- ------------------------------------ --------- ----------- ---------
Revenue.................................... 100.0% 100.0% 100.0%
--------- ----------- ---------
Wages and benefits......................... 67.3 63.5 72.0
Selling, general and administrative........ 19.6 19.3 22.7
Office and equipment rental................ 0.6 0.7 4.2
Depreciation and amortization.............. 2.4 3.6 5.0
Interest, net, and other income............ 0.7 1.3 1.7
Professional fees.......................... 1.8 2.1 1.9
Provision for doubtful accounts............ -- -- 1.2
--------- ----------- ---------
Total expenses............................. 92.4 90.5 108.7
--------- ----------- ---------
Net income (loss).......................... 7.6% 9.5% (8.7)%
========= =========== =========
2002 COMPARED TO 2001
REVENUES increased $652,000 or 23% primarily due to the following:
- - Ongoing Accounts Receivable Management Services revenue of $1,737,000 in
2002 increased by $590,000 compared to 2001 as a result of multiple
changes to the Company's claims processing and 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 $796,000 and $54,000 for 2002 and 2001
respectively. This increase in revenue was offset by reduced revenues from
the primary claims processed under this contract. Revenues from such
primary claims totaled $409,000 and $586,000 for the years 2002 and 2001
respectively. During November of 2001, Inova Health Services 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 $2,800 and $247,000 for 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 $400,000 and $247,000 for 2002 and 2001 respectively. The Company also
received $92,000 in revenue during 2002 from an ongoing accounts
receivable management contract dated July 26, 2002. This contract was
cancelled effective December 26, 2002 due the discontinuation of
outsourcing by this customer. 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, 2002, Ongoing Accounts Receivable Management
Services will generate revenues from such customers of approximately $1.5
million in 2003.
- - Backlog Accounts Receivable Management Services revenue of $3,000 in 2002
decreased by
19
$136,000 compared to 2001 as a result of the winding down of a Backlog
medical claims management contract executed on March 22, 2000 with a major
hospital system located in New Mexico. This contract generated revenues of
$3,000 and $139,000 in 2002 and 2001 respectively. 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, 2002, management does not
anticipate any significant revenue from Backlog Accounts Receivable
Management Services in 2003.
- - Collection Agency Services revenue of $1,450,000 in 2002 increased by
$74,000 compared to 2001 due primarily to the addition of bad debt accounts
to a collection agency services contract executed October 13, 2000. This
contract generated revenues of $1,040,000 and $965,000 in 2002 and 2001
respectively. This increase was offset by decreased revenue from a
collection agency services contract executed in March of 2000 that was
canceled in May 30, 2002. This contract provided revenues of $245,000 and
$272,000 in 2002 and 2001 respectively. 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, 2002, Collection Agency Services
will generate revenues from such customers of approximately $1.25 million
in 2003.
- - 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
$117,000 during 2002. Assuming that there is no significant change in the
existing volume of claims coded for existing customers at December 31,
2002, Coding Services will generate revenues from such customers of
approximately $150,000 in 2003.
- - Other revenue of $132,000 in 2002 increased by $10,000 compared to 2001
which was primarily due to incentives received in accordance with the
agreement with the PEDC. Assuming that the Company continues to meet the
incentive requirements, this agreement will generate approximately $118,000
in incentive revenues in 2003.
- - UMClaimPros revenue of $0 in 2002 decreased by $2,500 compared to 2001 due
to the discontinuation of UMClaimPro services in February of 2001.
WAGES AND BENEFITS expense increased $546,000 or 31% primarily due
increased headcount as a result of increased business requirements, and the
addition of two corporate officers during March and April of 2002. During 2002
total employee headcount averaged 80 compared to 61 during 2001. As of March 15,
2003, UMC had a total of 82 full time and 9 part time employees. Assuming no
significant change in the Company's core services, management expects that wages
and benefits should remain at approximately 67% of revenues in 2003.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense increased $137,000 or
26% primarily due to increases in postage, travel, office supplies, advertising
and marketing, employee training, and commission costs. These increases were the
result of an increased number of self pay accounts requiring letters (postage
and office supplies), additional travel requirements of the new Vice President
of Sales and Marketing and the new Vice President of Coding Services,
sponsorship costs for various healthcare association conferences (advertising
and marketing), training costs associated with the start up of a new customer
project, commission costs associated with the addition of a Vice President of
Sales and Marketing, and the reversal of previously accrued expenses totaling
$27,000 during the first quarter of 2001. Assuming
20
no significant change in the Company's core services, management expects that
SG&A should remain at approximately 19% of revenues in 2003.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense decreased $270 or 1% in 2002
as compared to 2001. Assuming no significant changes in office space and
equipment leased at 12/31/02, management expects lease and rental expense to be
less than 1% of revenues in 2003.
DEPRECIATION AND AMORTIZATION expense decreased $19,000 or 19% in 2002
primarily as a result of leased computer equipment becoming fully amortized.
Management expects depreciation and amortization expense to remain at
approximately 2.4% of revenues in 2003.
PROFESSIONAL FEES expense increased $1,800 or 3% in 2002.
INTEREST, NET decreased $16,000 or 44% primarily due to lower interest
rates, and the payoff of certain leases and notes payable during 2002.
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES decreased $5,000 due to recovery
of accounts previously reserved, and good collection experience in 2002.
OTHER EXPENSE increased $4,000 as a result of losses realized on the sale
of company assets in 2002.
LIQUIDITY AND CAPITAL SOURCES
At December 31, 2002, the Company's liquid assets, consisting of cash,
totaled $52,000 compared to $4,000 at December 31, 2001. Working capital was
$145,000 at December 31, 2002 compared to a deficit of ($24,000) at December 31,
2001. Working capital increased primarily due the net operating income for the
year ended December 31, 2002 offset by capital investments in equipment and
building improvements.
Cash flow from operations in 2002 provided cash of $227,000, compared to
$181,000 provided from operations in 2001. This increase is primarily due to the
2002 net operating income of $260,000 increased by depreciation ($59,000) and
amortization ($22,000), a decrease in accounts receivable ($33,000) and
increases in payables to customers ($32,000) and accrued liabilities ($40,000)
offset by increases in restricted cash ($31,000) and factor reserve ($161,000).
In 2002, 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 2002 consisted of the purchases of furniture,
fixtures, equipment, building improvements, two company automobiles, and the
sale of two company automobiles. Total cash used for investments was $126,000,
of which $86,000 was used for the purchase of furniture, fixtures and equipment,
$33,000 was used to purchase the two company automobiles, and $17,000 was for
the purchase of building improvements. This use of cash was partially offset by
$10,000 in proceeds from the sale of two company automobiles. Total cash used in
investing activities during 2001 was $90,000. The Company's fixed assets are in
good working order and sufficient to support continuing operations.
21
Financing activities in 2002 consisted of borrowings under a bank loan for
the purchase of a company automobile in the amount of $20,000, and principal
payments on capital lease obligations and notes payable which used cash of
$74,000.
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
leases and other potential financing should be sufficient to support projected
growth in revenues through fiscal 2003.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB approved for issuance Statements of Financial
Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of SFAS 13, and Technical Corrections ("SFAS 145"). SFAS 145 rescinds
previous accounting guidance, which required all gains and losses from
extinguishment of debt be classified as an extraordinary item. Under SFAS 145
classification of debt extinguishment depends on the facts and circumstances of
the transaction. SFAS 145 is effective for fiscal years beginning after May 15,
2002 and adoption is not expected to have a material effect on the Company's
financial position or results of its operations.
In July 2002, the FASB issued Statements of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by SFAS 146
include lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146
is not expected to have a material effect on the Company's financial position or
results of its operations.
In August 2002, the FASB issued Statements of Financial Accounting
Standards No. 147, "Acquisitions of Certain Financial Institutions" (SFAS 147).
SFAS 147 requires financial institutions to follow the guidance in SFAS 141 and
SFAS 142 for business combinations and goodwill and intangible assets, as
opposed to the previously applied accounting literature. This statement also
amends SFAS 144 to include in its scope long-term customer relationship
intangible assets of financial institutions. The provisions of SFAS 147 do not
apply to the Company.
In December 2002, the FASB issued Statements of Financial Accounting
Standards No.148, "Accounting for Stock-Based compensation - Transition and
Disclosure - an amendment of FASB Statement 123" (SFAS 123). For entities that
change their accounting for stock-based compensation from the intrinsic method
to the fair value method under SFAS 123, the fair value method is to be applied
prospectively to those awards granted after the beginning of the period of
adoption (the prospective method). The amendment permits two additional
transition methods for adoption of the fair value method. In addition to the
prospective method, the entity can choose to either (i) restate all periods
22
presented (retroactive restatement method) or (ii) recognize compensation cost
from the beginning of the fiscal year of adoption as if the fair value method
had been used to account for awards (modified prospective method). For fiscal
years beginning December 15, 2003, the prospective method will no longer be
allowed. The Company currently accounts for its stock-based compensation using
the intrinsic value method as proscribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and plans on continuing using
this method to account for stock options , therefore, it does not intend to
adopt the transition requirements as specified in SFAS 148. The Company has
adopted the new SFAS 148 disclosure requirements of SFAS 148 in these financial
statements.
2001 COMPARED TO 2000
REVENUES increased $487,900 or 21% primarily due to the following:
- - Ongoing Accounts Receivable Management Services revenue of $1,147,000 in
2001 decreased by $172,321 compared to 2000 primarily due to the effect of
the previously disclosed loss of the Washington Hospital Center contract,
which was partially offset by increased placements from new and existing
customers during 2001.
- - Backlog Accounts Receivable Management Services revenue of $139,000 in
2001 decreased by $322,000 compared to 2000 as a result of the winding
down of a Backlog medical claims management contract executed on March 22,
2000 with a major hospital system located in New Mexico. This contract
generated revenues of $139,000 and $370,000 in 2001, and 2000
respectively.
- - Collection Agency Services revenue of $1,376,000 in 2001 increased by
$813,000 compared to 2000 due primarily to a collection agency services
contract executed October 13, 2000. This contract generated revenues of
$891,000 and $227,000 in 2001 and 2000 respectively. The Company also
received a significant increase in placements during 2001 from a
collection agency services contract executed in March of 2000. This
contract provided revenues of $272,000 and $35,000 in 2001 and 2000
respectively.
- - Other revenue of $121,000 in 2001 increased by $13,000 compared to 2000
which was primarily due to incentives received in accordance with the
agreement with the PEDC.
- - UMClaimPros revenue of $2,000 in 2001 decreased by $56,000 compared to
2000 due to the discontinuation of UMClaimPro services in February of
2001.
WAGES AND BENEFITS expense increased $114,000 or 7% primarily due to
increased headcount as a result of increased business placements during 2001. As
of March 15, 2002, UMC had a total of 73 full time and 5 part time employees in
Pampa, and 4 full time employees in Dallas.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense increased $16,000 or
3%.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense decreased $77,000 or 79%
primarily due to the move of the Companies operations center from Dallas to
Pampa in September of 2000, and the movement of its corporate offices to a 937
square foot space in Garland, Texas in November of 2000. This allowed the
Company to negotiate the early termination of its lease agreement for 6,836
square feet of office space in
23
Dallas, resulting in a monthly expense reduction of approximately $6,800. The
company also had two leased automobiles, which reached the end of their lease
terms in March and April of 2001. Both vehicles were purchased at the end of the
lease terms.
DEPRECIATION AND AMORTIZATION expense decreased $15,000 or 13% in 2001.
PROFESSIONAL FEES expense increased $17,000 or 40% primarily due to
increased tax preparation fees and costs associated with business licenses in
Louisiana and New Mexico.
INTEREST, NET decreased $3,000 or 8% primarily due to lower interest
rates, and paid down balances on notes and leases payable.
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES decreased $30,000 due to
recovery of accounts previously reserved, and good collection experience in
2001.
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
There have been no changes in or disagreements with UMC's accountants
during the reporting period.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
PETER W. SEAMAN (53) 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. Mr. Seaman was
elected to the Board of Directors of the South Texas Chapter of the Healthcare
Financial Management Association on June 1, 2001.
MICHAEL P. BUMGARNER (59) 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 medical management consulting firm positioned to deliver
accreditation preparation, ongoing regulatory and reimbursement compliance and
other management services to all 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 30 years gaining extensive senior business and
management experience.
JOHN F. LEWIS (56) was elected to the Board of Directors on November 12,
1996. Mr. Lewis is President/CEO of Lewis Consulting, LLC., a national health
care policy and financial assessment consulting firm 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 1996, 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 his degree in Business
Administration from the American College of Switzerland and his MBA, University
of Geneva, School of Business and Socio-Economics, Switzerland.
VERNON C. ROSENBERY (74) was elected to the Board of Directors on November
13, 2002, and elected to the Compensation Committee on January 26, 2003. Mr.
Rosenbery has been retired since July 1, 1993. From 1988 to 1993 Mr. Rosenbery
performed consulting services for Stangeland
25
Enterprises, an entity that had purchased two companies from Mr. Rosenbery in
1988. These companies were Foley Construction Company, and Clinton Engineering
Company. These companies performed earth moving, paving, and underground
construction work and were located in Clinton, Iowa. Mr. Rosenbery was either
employed by, or owned these businesses from 1960 to 1988. From 1955 to 1960 Mr.
Rosenbery was a Resident Construction Engineer for the Iowa Department of
Transportation. From 1952 to 1955 Mr. Rosenbery was employed as a plant engineer
for the Dupont Company in Clinton, Iowa. Mr. Rosenbery holds a Bachelor of
Science degree in Civil Engineering from the University of Illinois.
MARK A. MCVAY (40) was elected to the Board of Directors, and then elected
to the Audit Committee, on March 24, 2003. Mr. McVay is the Assistant
Superintendent of Finance for Pampa Independent School District ("PISD") in
Pampa, Texas, where he has been employed since 1989. His responsibilities with
PISD include management and oversight of $20 million budget with approximately
500 full time employees, coordination of annual independent audit and management
of PISD's self-funded employee health insurance plan. Prior to his employment
with PISD, Mr. McVay worked in public accounting for Mike Ruff, CPA (1987 -
1989) and Stewart Ferguson & Robinette, CPA's (1984 - 1987) where he performed
audit and income tax services. Mr. McVay holds a Bachelors degree in Business
Administration from West Texas State University and is a Certified Public
Accountant. The UMC Board of Directors believes that Mr. McVay meets the
requirements to qualify as the "audit committee financial expert" as defined
under the Sarbanes-Oxley Act of 2002.
MORGAN HAY (54) was elected Vice President on February 25, 2002, with
primary responsibility for sales and marketing. Mr. Hay was previously Vice
President of Finance for Valley Baptist Medical Center, a 540-bed acute care
facility, in Harlingen, Texas, where he was employed from 1991 to 2002. Prior to
his employment with Valley Baptist Medical Center, Mr. Hay held finance
positions with St. Joseph Hospital, Fort Worth, Texas; Sherman Healthcare, Inc.,
Sherman, Texas; and Cooper Communities, Inc. and Wicklow Corporation, real
estate development and construction companies in Bentonville, Arkansas. Mr. Hay
holds a BBA in Business Management from Stetson University and a BSBA in
Accounting from Missouri Southern State College. Mr. Hay is a Certified Public
Accountant (CPA) and a Fellow in the Healthcare Financial Management Association
(FHFMA). Mr. Hay is Past President of the South Texas Chapter of the Healthcare
Financial Management Association
NATHAN E. BAILEY (42) was elected Vice President and Corporate Controller
on March 25, 2002 with primary responsibility for Finance and Accounting. Mr.
Bailey Joined the Company on August 27, 2000 as the Corporate Controller. Mr.
Bailey has previously served as an accountant for Engineered Carbons, Inc,
Borger, Texas from 1998 to 2000; Controller for Nunn Manufacturing, Amarillo,
Texas 1998; General Manager and Controller for West Texas Ford Lincoln Mercury,
Inc., Pampa Texas, from 1992 to 1998; and Controller for The Texas Cattle
Feeders Association in Amarillo, Texas from 1990 to 1992. Mr. Bailey practiced
public accounting from 1985 to 1990 with KPMG Peat Marwick, and H.V. Robertson
and Co. both in Amarillo, Texas. Mr. Bailey holds a BBA in accounting from West
Texas State University and is a Certified Public Accountant.
JANICE K. NEAL (49) was elected Vice President of Coding Services on April
1, 2002. Jan was previously employed as a coding consultant with Parrish, Moody
and Fikes, P.C., from 2000 through March 2002. From 1996 through 2000, Mrs. Neal
was self-employed, providing coding consulting services to hospitals. From 1991
through 1996, Mrs. Neal worked in the medical records department for a small
rural hospital. Mrs. Neal served as The Director of Medical Records and
Utilization for a large city hospital from
26
1988 through 1991, and as the Utilization Review Manager of another large
hospital from 1986 through 1988. From 1985 through 1986, Mrs. Neal was employed
by the Texas Medical Foundation, the peer review organization for the State of
Texas. Mrs. Neal has an Associate's degree from The El Centro School of Nursing
in Fort Worth and is an RN and a Certified Coding Specialist (CCS).
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 $100,000 in the fiscal years 2002, 2001 or 2000:
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ----------------------------------- -------
OTHER RESTRICTED SECURITIES
NAME ANNUAL STOCK UNDERLYING LTIP ALL OTHER
AND PRINCIPAL COMPENS- AWARD(S) OPTIONS/ PAYOUTS COMPEN-
POSITION YEAR SALARY ($) BONUS ($) SATION ($) ($) WARRANTS (#) ($) SATION ($)
- --------------------------------------------------------------------------------------------------------------------
Peter W. Seaman 2002 153,708 29,136 (1) -- -- -- -- --
Chairman and 2001 143,799 -- -- -- -- -- --
CEO 2000 131,669 -- -- -- -- -- --
(1) Represents 2001 bonus paid in 2002
27
AGGREGATED OPTION/WARRANT EXERCISES
AND FISCAL YEAR-END OPTION/WARRANT VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/WARRANTS AT FISCAL OPTIONS/WARRANTS AT
ON VALUE YEAR-END (#) FISCAL YEAR-END (3) ($)
EXERCISE REALIZED --------------------------- -----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------
Peter W. Seaman 500,000 10,000 1,000,000 1,500,000 -- 30,000
(3) The last reported sale of the Company's Common Stock as reported on the
NASD OTC Bulletin Board as of December 31, 2002 was $0.035 per share.
Value is calculated on the basis of the difference between the option
exercise price and $0.035 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. Beginning in 2002 non-employee members receive
compensation of $500 per board meeting attended, in addition to reimbursement
for expenses of meeting attendance. The Company paid director fees of $5,000 in
2002.
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.
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 then 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
expired on 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, 2002.
28
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 an initial 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 under
the DICA agreement. The Company did not pay any commissions under DICA during
the years 2002 or 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Lewis and
Rosenbery. 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 2002.
29
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, 2003 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:
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 -- 27.6%
33 King William Street
London EC4R 9AS Great Britain
Tambura Limited 1,484,000 -- 5.1%
Rue du Moulin
Sark, Channel Islands
Peter W. Seaman 660,000 2,500,000 9.9%
Michael P. Bumgarner 100,000 400,000 1.7%
John F. Lewis -- 400,000 1.4%
Vernon Rosenbery 1,020,100 3.5%
Nathan Bailey 133,333 0.5%
All officers and directors as
a group (3 persons) 1,780,100 3,433,333 15.1%
(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 29,210,217 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 29,210,217 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
30
as well as shares that may be acquired within 60 days of March 31, 2002, upon
exercise of options/warrants.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
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 an initial 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 under
the DICA agreement. The Company did not pay any commissions under DICA during
the years 2002 or 2001.
For the years ended December 31, 2002 and 2001, the Company recognized
$30,065 and $26,000 respectively in commission expense for new business
introduction from a corporation of which the majority shareholder is a
non-employee Director of UMC. This commission expense was recognized pursuant to
a contract with the corporation in which UMC agrees to pay said corporation a
percentage of the fees billed and collected from any new customers sold by or
with the assistance of the corporation. 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.
ITEM 14. CONTROLS AND PROCEDURES
In order to ensure that the information that we must disclose in our
filings with the Securities and Exchange Commission is recorded, processed,
summarized and reported on a timely basis, we have adopted disclosure controls
and procedures. Our Chief Executive Officer, Peter W. Seaman, and our Chief
Financial Officer, Nathan E. Bailey, have reviewed and evaluated our disclosure
controls and procedures as of February 21, 2003, and concluded that our
disclosure controls and procedures are appropriate and that no changes are
required at this time.
There have been no significant changes in our internal controls, or in
other factors that could affect our internal controls, since February 21, 2003.
31
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Reference is made to the Consolidated Financial Statements and
1Financial Statement Schedules included at page 40.
2. Financial Statement Schedules
Reference is made to the Consolidated Financial Statements and
Financial Statement Schedules included at page 40.
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
32
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 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).
33
10.26 Severance Agreement by and between Registrant and Peter W.
Seaman (previously filed).
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).
34
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)
99(a) Certification of Chief Executive Officer
99(b) Certification of Chief Financial Officer
(b) Reports on Form 8-K
No reports of Form 8-K were filed during the fourth quarter of 2002.
35
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 28, 2003 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 28, 2003
- ---------------------------- Executive Officer (Principal Executive
PETER W. SEAMAN Officer)
/s/ Nathan E. Bailey Corporate Controller (Principal March 28, 2003
- ---------------------------- Financial Officer and Principal
NATHAN E. BAILEY Accounting Officer)
/s/ Michael P. Bumgarner Director March 28, 2003
- ----------------------------
MICHAEL P. BUMGARNER
/s/ John F. Lewis Director March 28, 2003
- ----------------------------
JOHN F. LEWIS
/s/ Vernon Rosenbery Director March 28, 2003
- ----------------------------
VERNON ROSENBERY
/s/ Mark McVay Director March 28, 2003
- ----------------------------
MARK MCVAY
36
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Peter W. Seaman, Chairman of the Board of Directors and Chief Executive
Officer of United Medicorp, Inc.), certify that:
1. I have reviewed this annual report on Form 10-K of United Medicorp,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flow of the registrant as of, and for, the periods presented in
this annual report.;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the evaluation date;
5. The registrant's other certifying Officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 28, 2003 /s/ Peter W. Seaman
-------------- ---------------------------
Peter W. Seaman
Chairman of the Board and Chief Executive Officer
37
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Nathan E. Bailey, Vice President and Controller of United Medicorp, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of United Medicorp,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flow of the registrant as of, and for, the periods presented in
this annual report.;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the evaluation date;
5. The registrant's other certifying Officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 28, 2003 /s/ Nathan E. Bailey
-------------- -------------------------------------
Nathan E. Bailey
Vice President and
Controller
38
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2002
ITEMS 8 AND 14(A)
39
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, 2002 and 2001.............................................. 41
Consolidated Statements of Operations for each of the three years ended December 31, 2002 ................ 42
Consolidated Statements of Changes in Stockholders' Equity for each of the three years ended
December 31, 2002.................................................................................. 43
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2002 ................ 44
Notes to Consolidated Financial Statements................................................................ 45
Report of Independent Accountants - Hein + Associates LLP................................................. 60
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
II- Valuation and Qualifying Accounts..................................................................... 61
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.
40
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------------
2002 2001
------------- --------------
Current assets:
Cash and cash equivalents............................................. $ 51,760 $ 3,571
Restricted cash....................................................... 32,080 589
Accounts receivable, net of allowance for doubtful accounts
of $504 and $435, respectively..................................... 198,235 230,998
Factor reserve........................................................ 215,817 54,957
Prepaid expenses and other current assets............................. 7,911 5,796
------------- --------------
Total current assets............................................... 505,803 295,911
Other non-current assets.................................................... 2,969 2,969
Property and equipment, net of accumulated depreciation of
$937,283 and $883,636, respectively................................... 346,052 283,389
Assets under capital leases, net of accumulated amortization of
$209,805 and $187,573, respectively................................... 39,171 20,088
------------- --------------
Total assets....................................................... 893,995 602,357
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations.......................... 6,017 31,590
Current portion of notes payable...................................... 16,982 19,031
Trade accounts payable................................................ 44,441 48,367
Payable to clients.................................................... 32,051 434
Accrued professional fees............................................. 23,984 21,879
Accrued payroll and benefits.......................................... 172,925 125,488
Accrued expenses - Allied Health Options.............................. 44,024 44,709
Accrued expenses other................................................ 19,673 28,315
------------- --------------
Total current liabilities............................................. 360,097 319,813
Long term liabilities:
Long term capital lease obligations, excluding current portion........ 31,157 --
Long term notes payable, excluding current portion.................... 96,370 112,004
Deferred revenue - Pampa Economic Development Corp.................... 144,000 168,000
------------- --------------
Total liabilities.................................................. 631,624 599,817
------------- --------------
Contingency and Commitment (Notes D and E)
Stockholders' equity :
Common stock; $0.01 par value; 50,000,000 shares authorized;
29,515,764 and 29,015,764 shares issued respectively............... 295,157 295,157
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............................................ 18,778,254 18,778,254
Accumulated deficit................................................... (18,589,159) (18,848,990)
------------- --------------
Total stockholders' equity ........................................ 262,371 2,540
------------- --------------
Total liabilities and stockholders' equity ........................ $ 893,995 $ 602,357
============= ==============
The accompanying notes are an integral part of
these consolidated financial statements
41
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
2002 2001 2000
--------------- --------------- ----------------
REVENUES:
Billing and collection services................ $ 3,189,460 $ 2,664,686 $ 2,189,152
Coding services................................ 117,211 -- --
Other revenues................................. 131,313 121,011 108,645
--------------- --------------- ----------------
Total revenues.............................. 3,437,984 2,785,697 2,297,797
EXPENSES:
Wages and benefits............................. 2,315,105 1,769,134 1,654,666
Selling, general and administrative............ 673,329 536,276 520,507
Office, vehicle and equipment rental........... 20,366 20,637 97,460
Depreciation and amortization.................. 81,438 100,654 115,295
Professional fees.............................. 61,844 60,002 42,835
Interest, net.................................. 20,307 36,482 39,463
Provision for doubtful accounts and notes...... 1,756 (3,329) 26,503
Other expense, net............................. 4,008 -- --
--------------- --------------- ----------------
Total expenses.............................. 3,178,153 2,519,856 2,496,729
--------------- --------------- ----------------
NET INCOME (LOSS).................................... $ 259,831 $ 265,841 $ (198,932)
=============== =============== ================
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss).............................. $ .0089 $ .0091 $ (.0069)
=============== =============== ================
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss).............................. $ .0083 $ .0086 $ (.0069)
=============== =============== ================
The accompanying notes are an integral part of
these consolidated financial statements
42
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM DECEMBER 31, 1999 TO DECEMBER 31, 2002
COMMON STOCK ADDITIONAL TREASURY STOCK
--------------------- PAID-IN ----------------------- ACCUMULATED
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT OTHER TOTAL
---------- -------- ----------- ---------- ---------- ------------ --------- ----------
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)
Exercise of
Warrants 500,000 5,000 (5,000) -- -- -- -- --
Net income -- -- -- -- -- 265,841 -- 265,841
---------- -------- ----------- ---------- ---------- ------------ --------- -------
Balance at
December 31,
2001 29,515,764 295,157 18,778,254 305,547 (221,881) (18,848,990) -- 2,540
Net income -- -- -- -- -- 259,831 -- 259,831
---------- -------- ----------- ---------- ---------- ------------ --------- -------
Balance at
December 31,
2002 29,515,764 $295,157 $18,778,254 305,547 ($221,881) $(18,589,159) -- $ 262,371
========== ======== =========== ========== ========== ============ ========= ==========
The accompanying notes are an integral part of
these consolidated financial statements
43
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS DECEMBER 31,
----------------------------------------------
2002 2001 2000
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 259,831 $ 265,841 $ (198,932)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation of fixed assets...................... 59,206 51,446 52,031
Amortization of assets under capital leases....... 22,232 49,209 63,264
Provision for doubtful accounts and notes......... 69 (3,329) 26,503
Loss on disposition of assets..................... 4,008 -- 23,234
PEDC Incentives................................... (24,000) (64,000) (10,000)
Changes in assets and liabilities:
Restricted cash................................... (31,490) 1,618 (2,207)
Accounts receivable............................... 32,694 (112,448) (523)
Factor reserve.................................... (160,860) 5,240 (16,722)
Prepaid expenses and other assets................. (2,116) 3,542 40,624
Accounts payable.................................. (3,925) (62,408) 27,832
Payable to clients................................ 31,616 (1,060) 1,495
Accrued liabilities............................... 40,215 47,042 (168,815)
------------- ------------- ---------------
Net cash provided by (used in) operating activities............. 227,480 180,693 (162,216)
------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of building and improvements thereto............... (17,344) (7,763) (159,184)
Purchase of furniture and equipment....................... (118,582) (81,937) (54,143)
Sale of furniture and equipment........................... 10,050 -- --
------------- ------------- --------------
Net cash used in investing activities........................... (125,876) (89,700) (213,327)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage loan............................... -- -- 137,000
Proceeds from auto loan................................... 20,479 19,616 --
Short term borrowings from credit facility................ -- -- 12,502
Proceeds from PEDC loans and deferred incentives............ -- -- 242,000
Principal payments on notes payable....................... (38,163) (36,348) (51,282)
Principal payments on capital lease obligations........... (35,731) (78,481) (78,588)
------------- ------------- --------------
Net cash provided by (used in) financing activities............. (53,415) (95,213) 261,632
------------- ------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ 48,189 (4,220) (113,911)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................. 3,571 7,791 121,702
------------- ------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................ $ 51,760 $ 3,571 $ 7,791
============= ============= ==============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.......................................... $ 20,307 $ 36,482 $ 39,770
Non-cash investing and financing activities:
Additions to Capital Lease Obligations,...................... $ 41,315 $ -- $ --
The accompanying notes are an integral part of
these consolidated financial statements
44
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.
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.
45
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
UMC and its wholly owned subsidiary UMY. All material intercompany transactions
and balances have been eliminated in consolidation. Certain prior year balances
have been reclassified to conform with current year presentation.
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. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS No. 140") under which 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 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.
46
BILLING AND COLLECTION SERVICES AND CODING SERVICE 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. Coding
service revenue is recognized when the services are performed.
OTHER REVENUE RECOGNITION
For 2002 and 2001 other revenues consisted primarily of incentives from
the PEDC agreement, which were recognized when earned according to the
agreement. For 2000 other revenues consisted primarily of advance funding fees
and consulting revenues recognized as services were performed. Consulting
revenues were netted with the associated cost of services.
EARNINGS PER SHARE
The Company applies 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, 2002, 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.
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.
STOCK-BASED COMPENSATION
SFAS No. 123 and SFAS No. 148, "Accounting for Stock-based Compensation"
("Nos. 123 and 148") require 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 Nos. 123 and 148, 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 Nos. 123 and 148, which will impact
the Company's consolidated balance sheet and statement of operations.
47
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB approved for issuance Statements of Financial
Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of SFAS 13, and Technical Corrections ("SFAS 145"). SFAS 145 rescinds
previous accounting guidance, which required all gains and losses from
extinguishment of debt be classified as an extraordinary item. Under SFAS 145
classification of debt extinguishment depends on the facts and circumstances of
the transaction. SFAS 145 is effective for fiscal years beginning after May 15,
2002 and adoption is not expected to have a material effect on the Company's
financial position or results of its operations.
In July 2002, the FASB issued Statements of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by SFAS 146
include lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146
is not expected to have a material effect on the Company's financial position or
results of its operations.
In August 2002, the FASB issued Statements of Financial Accounting
Standards No. 147, "Acquisitions of Certain Financial Institutions" (SFAS 147).
SFAS 147 requires financial institutions to follow the guidance in SFAS 141 and
SFAS 142 for business combinations and goodwill and intangible assets, as
opposed to the previously applied accounting literature. This statement also
amends SFAS 144 to include in its scope long-term customer relationship
intangible assets of financial institutions. The provisions of SFAS 147 do not
apply to the Company.
In December 2002, the FASB issued Statements of Financial Accounting
Standards No.148, "Accounting for Stock-Based compensation - Transition and
Disclosure - an amendment of FASB Statement 123" (SFAS 123). For entities that
change their accounting for stock-based compensation from the intrinsic method
to the fair value method under SFAS 123, the fair value method is to be applied
prospectively to those awards granted after the beginning of the period of
adoption (the prospective method). The amendment permits two additional
transition methods for adoption of the fair value method. In addition to the
prospective method, the entity can choose to either (i) restate all periods
presented (retroactive restatement method) or (ii) recognize compensation cost
from the beginning of the fiscal year of adoption as if the fair value method
had been used to account for awards (modified prospective method). For fiscal
years beginning December 15, 2003, the prospective method will no longer be
allowed. The Company currently accounts for its stock-based compensation using
the intrinsic value method as proscribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and plans on continuing using
this method to account for stock options , therefore, it does not intend to
adopt the transition requirements as specified in SFAS 148. The Company has
adopted the new SFAS 148 disclosure requirements of SFAS 148 in these financial
statements.
48
C. 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. UMC met the FTEE requirement for this incentive in 2001 and
2002, and recognized $24,000 of the incentive revenue at December 31st of each
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. UMC recognized $40,000 in
revenue from this incentive for each of the years 2002 and 2001.
(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. UMC
recognized $10,000 in revenue from this incentive for each of the years 2002 and
2001.
(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. UMC recognized $5,875 in revenue from this
incentive for 2001 and $13,250 for 2002.
(e) an incentive payment of $10,000 which was 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 guaranteed up to $137,000 for the benefit of UMC's lender (the
"Lender"), relative to the purchase of the 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 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.
49
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 previously disclosed
forgivable loan from the PEDC. On July 28, 2001 and July 28, 2002 UMC received
$27,400 from the PEDC in payment of the incentive described in paragraph (f)
above. Of this, $11,536 and $14,178 was remitted to National Bank of Commerce
(the lien holder on the building) as a principal payment on the building loan in
accordance with the agreement for 2002 and 2001 respectively. As of March 15,
2003 UMC had 76 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 minimum employment requirements to trigger incentive
payments, (b) maintaining the minimum employment requirements to prevent
triggering the aforementioned claw back provision, or (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.
D. 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,
------------------------------------------------
2002 2001 2000
--------------- -------------- ---------------
Proceeds received....................................... $ 2,304,000 $ 2,231,000 $ 1,628,450
Uncollected balance at year end......................... $ 345,049 $ 307,875 $ 265,459
E. COMMITMENTS
The Company entered a maintenance agreement in 2002 that requires monthly
payments through 2007. The Company's commitment under this agreement is as
follows:
2003............................................................................ $ 6,420
2004............................................................................ $ 6,420
2005............................................................................ $ 6,420
2006 ........................................................................... $ 6,420
2007 ........................................................................... $ 4,815
----------
Total $ 30,495
==========
The Company paid $1,605 during 2002 under this agreement.
50
F. PROPERTY AND EQUIPMENT / ASSETS UNDER CAPITAL LEASES
At December 31, 2002 property and equipment consist of the following:
CAPITAL
PURCHASED LEASE TOTAL
---------------- --------------- ----------------
Building and Improvements................................... $ 184,291 $ $ 184,291
Equipment................................................. 712,941 248,976 961,917
Software systems.......................................... 224,012 -- 224,012
Furniture and fixtures.................................... 129,113 -- 129,113
Automobiles............................................... 32,978 -- 32,978
---------------- --------------- ----------------
Gross property and equipment......................... 1,283,335 248,976 1,532,311
Accumulated depreciation and amortization................. (937,283) (209,805) (1,147,088)
---------------- --------------- ----------------
Net property and equipment........................... $ 346,052 $ 39,171 $ 385,223
================ =============== ================
At December 31, 2001 property and equipment consist of the following:
CAPITAL
PURCHASED LEASE TOTAL
---------------- --------------- ----------------
Building and Improvements ................................ $ 166,947 $ -- $ 166,947
Equipment................................................. 658,863 207,661 866,524
Software systems.......................................... 193,495 -- 193,495
Furniture and fixtures.................................... 128,104 -- 128,104
Automobiles............................................... 19,616 -- 19,616
---------------- --------------- ----------------
Gross property and equipment......................... 1,167,025 207,661 1,374,686
Accumulated depreciation and amortization................. (883,636) (187,573) (1,071,209)
---------------- --------------- ----------------
Net property and equipment........................... $ 283,389 $ 20,088 $ 303,477
================ =============== ================
Depreciation expense related to property and equipment was $59,206,
$51,446 and $52,031 during 2002, 2001 and 2000, respectively. Amortization
expense relative to assets under capital leases was $22,232, $49,209 and $63,264
during 2002, 2001 and 2000, 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 was purchased at the
end of the lease on July 1, 2002 for the then fair market value of $5,591.
51
During 2002, the Company leased certain mail processing equipment for a
term of 60 months. This equipment may be purchased at the end of the lease term
for the then fair market value.
At December 31, the remaining capital lease obligations are as follows:
2002 2001
----------- -----------
6.9% lease related to IBM AS/400, rollover financing maturing in 2002.............. $ -- $ 31,590
15.0% lease related to mail processing equipment maturing in 2007.................. 37,174 --
----------- -----------
Total capital lease obligations........................................... 37,174 31,590
Less current portion of capital lease obligations............................... (6,017) (31,590)
----------- -----------
Long-term capital lease obligations............................................. $ 31,157 $ --
=========== ===========
As of December 31, 2002, total lease payments due under capital leases are as
follows: Year ending December 31:
2003............................................................................ $ 12,960
2004............................................................................ $ 12,960
2005............................................................................ $ 12,960
2006............................................................................ $ 12,960
2007............................................................................ $ 7,560
Less amount representing interest............................................... $ (22,226)
-----------
Principal amount of net lease payments.......................................... $ 37,174
===========
Interest expense on capital lease obligations was $1,259, $6,026 and
$13,610 during 2002, 2001 and 2000, respectively.
H. NOTES PAYABLE
Notes payable at December 31, consists of the following: 2002 2001
----------- -----------
Bank loan, interest at 9% per annum, monthly installments of $898
including interest, paid off August 2002, secured
by two automobiles........................................................... $ -- $ 13,502
Real estate lien note, interest at prime plus1/2% per annum (4.75%
at December 31, 2002), monthly installments of $1,322
including interest, matures August 20, 2020, secured
by land and building......................................................... 95,568 117,533
Bank loan, interest at 6.5% per annum, monthly installments of $628
including interest, matures July 10, 2005, secured
by a 2002 Toyota Camry....................................................... 17,784 --
----------- -----------
Total notes payable.......................................................... 113,352 131,035
Less current portion of notes payable..................................... (16,982) (19,031)
----------- -----------
Long term notes payable................................................... $ 96,370 $ 112,004
=========== ===========
52
As of December 31, 2002, future maturities of notes payable were as follows:
Year ending December 31:
2003............................................................................ $ 16,982
2004............................................................................ 18,048
2005............................................................................ 15,956
2006............................................................................ 12,465
2007............................................................................ 12,084
Thereafter...................................................................... 37,817
-----------
Total.......................................................................... $ 113,352
===========
I. INCOME TAXES
There is no current or deferred tax expense for the years ended December
31, 2002, 2001 and 2000. The Company utilized NOL carryforwards to offset
taxable income in 2002 and 2001 and recorded a net operating tax loss ("NOL") in
2000.
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, 2002, 2001 and 2000, the
Company's deferred tax assets are fully reserved. The tax effects of temporary
differences and NOLs that give rise to the net deferred tax assets at December
31, are as follows:
Deferred tax assets: 2002 2001
--------------- ----------------
Net operating tax loss carryforward................. $ 3,998,455 $ 4,095,873
Accrued liabilities................................. 20,477 12,151
Property and equipment.............................. (2,833) 3,097
Accounts receivable................................. 187 161
--------------- ----------------
Gross deferred tax assets........................... 4,016,286 4,111,282
Valuation allowance................................. (4,016,286) (4,111,282)
--------------- ----------------
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.
53
J. STOCKHOLDERS' EQUITY
At December 31, 2002, 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 4,910,000 shares of Common Stock reserved for issuance for
outstanding warrants and options at December 31, 2002.
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,
----------------------------------------
2002 2001 2000
----------- ----------- ------------
Net income (loss) available to common stockholders ...... $ 259,831 $ 265,841 $ (198,932)
Weighted average number of common shares
in basic EPS ........................................ 29,210,000 29,110,000 28,710,217
Effect of dilutive weighted average common
share equivalents ................................... 1,948,000 1,933,000 --
----------- ----------- ------------
Weighted average number of common shares and
dilutive potential common shares in diluted EPS ...... 31,158,000 31,043,000 28,710,217
=========== =========== ============
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. 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.
On May 3, 2001 the warrant for the remaining 500,000 shares was exercised by the
Company's Chief Executive Officer.
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
54
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 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, 2002 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 expired on May 26, 2001.
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. 400,000 of these warrants expired on May 26,
2001 as a result of the resignation of one of the directors on February 26,
2001. None of these warrants had been exercised as of December 31, 2002.
Neither the warrants nor 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, 2002, 660,000 options were outstanding under the 1998 Plan.
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, 2002, options for 997,500 shares were outstanding under the 1995
Plan.
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"
55
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, 2002, options for 952,500 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.
The following table summarizes activity for the years ended December 31:
2002 2001 2000
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ----------- ----------- ----------- -----------
Options outstanding at
January 1, 1,710,000 $ 0.05 1,779,000 $ 0.05 1,786,500 $ 0.07
Granted 995,000 0.02 345,000 0.02 455,000 0.02
Exercised -- -- -- -- -- --
Canceled (95,000) 0.02 (414,000) 0.07 (462,500) 0.07
----------- ----------- ----------- ----------- ----------- -----------
Options outstanding at
December 31, 2,610,000 0.04 1,710,000 0.05 1,779,000 0.05
=========== =========== =========== =========== =========== ===========
Options exercisable at
December 31, 1,315,000 $ 0.06 1,131,667 $ 0.06 1,294,001 $ 0.06
=========== =========== =========== =========== =========== ===========
56
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 2002 LIFE PRICE 2002 PRICE
- ---------------- ------------- ------------- ---------- ------------ ----------
$0.012--- $0.03 1,610,000 8.7 years $ 0.01 315,000 $ 0.01
$0.05 --- $0.07 1,000,000 4.1 years 0.06 1,000,000 0.05
- ---------------- ------------- ------------- ---------- ------------ ----------
$0.012 -- $0.07 2,610,000 7.1 years $ 0.04 1,315,000 $ 0.05
================ ============= ============= ========== ============ ==========
N. SFAS NO. 148 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. 148 had been used to account for stock and warrant-based
compensation costs, net of taxes and forfeitures of prior year grants:
YEAR ENDED DECEMBER 31,
-----------------------------
2002 2001 2000
-------- -------- ---------
Net income (loss) $259,831 $265,841 $(198,932)
SFAS No. 148 employee compensation cost 7,085 2,342 9,425
-------- -------- ---------
Pro forma net income (loss) $252,746 $263,499 $(208,357)
======== ======== =========
Pro forma basic earnings per share $ .0087 $ 0.0090 $ (0.0073)
======== ======== =========
Pro forma diluted earnings per share $ .0081 $ 0.0085 $ (0.0073)
======== ======== =========
The fair value for options granted in 2002, 2001 and 2000 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,
------------------------------------
2002 2001 2000
---------- ---------- ----------
Dividend yield -- -- --
Expected volatility 222.4% 220.0% 220.0%
Risk-free rate of return 2.5% 2.0% 4.6%
Expected life, years 10 5 3
Grant-date fair value per share $0.02 $0.02 $0.05
No warrants were granted during 2002, 2001 or 2000.
O. FINANCIAL INSTRUMENTS AND 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
57
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
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 for the years ended December 31, was:
2002 2001 2000
--------------- --------------- ---------------
Customer A.......................................... --% --% 29%
Customer B.......................................... 65 63 31
Customer C.......................................... -- 9 16
Customer D........................................... 7 10 2
Customer E........................................... 13 9 --
Other customers........................................... 15 9 22
--------------- --------------- ---------------
100% 100% 100%
=============== =============== ===============
The percentage market mix of total net accounts receivable for the years
ended December 31, for the customers identified above was:
2002 2001
------------- ------------
Customer A.......................................... --% --%
Customer B.......................................... 27 21
Customer C.......................................... -- --
Customer D........................................... 1 9
Customer E........................................... 12 50
Other customers..................................... 60 20
------------- ------------
100% 100%
============= ============
P. RELATED PARTY TRANSACTIONS
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 an initial 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 under
the DICA agreement. The Company did not pay any commissions under DICA during
the years 2002 or 2001. The Company has also in the past issued certain warrants
under DICA as described in Note L.
For the year ended December 31, 2002, the Company paid $41,390 in
commissions for new business introduction to a corporation of which the majority
shareholder is a non-employee Director of UMC. This commission was paid pursuant
to a contract with the corporation in which UMC agrees to pay said corporation a
percentage of the fees billed and collected from any new customers sold by or
with the assistance of the corporation. 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.
58
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, claims coding services and other healthcare related
ancillary services. UMY provides customer services, early out, bad debt and
secondary 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 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, 2002
Total revenues ........................................... $ 800,458 $ 837,002 $ 924,443 $ 876,081
Net income ............................................... 110,764 27,521 109,381 12,165
Net income per common share:
Basic ................................... $ 0 0038 $ 0 0009 $ 0 0037 0 0004
Diluted ................................. 0 0036 0 0009 0 0035 0 0004
Weighted average number of common
share outstanding:
Basic ................................... 29,210,217 29,210,217 29,210,217 29,210,217
Diluted ................................. 31,145,133 31,299,264 30,998,983 31,188,342
YEAR ENDED DECEMBER 31, 2001
Total revenues ........................................... $ 694,319 $ 727,643 $ 716,046 $ 647,689
Net income ............................................... 111,828 53,318 64,061 36,634
Net income per common share:
Basic ................................... $ 0 0039 $ 0 0018 $ 0 0022 0 0012
Diluted ................................. 0 0036 0 0017 0 0021 0 0012
Weighted average number of common
share outstanding:
Basic ................................... 28,710,217 29,210,217 29,210,217 29,210,217
Diluted ................................. 30,710,217 30,811,667 30,948,750 31,043,000
59
INDEPENDENT AUDITOR'S REPORT
Board of Directors
United Medicorp, Inc.
Pampa, Texas
We have audited the accompanying consolidated balance sheets of United Medicorp,
Inc. as of December 31, 2002 and 2001, and the related consolidated statements
of operations, stockholder's equity (deficit), and cash flows for the years
ended December 31, 2002, 2001 and 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2002 and 2001, and the consolidated results of its
operations and its cash flows for the years ended December 31, 2002, 2001 and
2000 in conformity with accounting principles generally accepted in the United
States of America. 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
February 28, 2003
Dallas, Texas
60
UNITED MEDICORP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
BALANCE
AT BALANCE
BEGINNING AT
OF END OF
DESCRIPTION YEAR ADDITIONS DEDUCTIONS YEAR
--------- --------- ---------- ---------
(1)
YEAR ENDED DECEMBER 31, 2002
Allowance for doubtful accounts ......... $ 435 $ 1,756 $ (1,687) $ 504
YEAR ENDED DECEMBER 31, 2001
Allowance for doubtful accounts ........ $ 22,073 $ (3,329) $ (18,309) $ 435
YEAR ENDED DECEMBER 31, 2000
Allowance for doubtful accounts ........ $ 8,219 $ 26,503 $ (12,649) $ 22,073
- --------------------
(1) Represents write-off of uncollectible trade receivables.
61
INDEX TO EXHIBITS
DESCRIPTION
1. Financial Statements
Reference is made to the Consolidated Financial Statements and
Financial Statement Schedules included at page 40.
2. Financial Statement Schedules
Reference is made to the Consolidated Financial Statements and
Financial Statement Schedules included at page 40.
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, 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).
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)
99(a) Certification of Chief Executive Officer
99(b) Certification of Chief Financial Officer