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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-10418
UNITED MEDICORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2217002
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 N. CUYLER STREET
PAMPA, TEXAS 79065
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (806) 669-9223
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO | |
As of May 10, 2003, there were outstanding 29,213,550 shares of Common
Stock, $0.01 par value.
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UNITED MEDICORP, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2003 and December 31, 2002 ..... 1
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2003 and 2002 ...................................................... 2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2003 and 2002 ..................................................... 3
Notes to the Condensed Consolidated Financial Statements .......................... 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................................ 6
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings ................................................................. 13
ITEM 2. Changes in Securities ............................................................. 13
ITEM 3. Defaults Upon Senior Securities ................................................... 13
ITEM 4. Submission of Matters to a Vote of Security Holders ............................... 13
ITEM 5. Other Information ................................................................. 14
ITEM 6. Exhibits and Reports on Form 8-K .................................................. 14
Signatures ................................................................................ 14
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 56,530 $ 51,760
Restricted cash ............................................. 52,100 32,080
Accounts receivable, net of allowance for doubtful accounts
of $504 in 2003 and 2002.................................. 163,105 198,235
Factor reserve .............................................. 345,332 215,817
Prepaid expenses and other current assets ................... 9,755 7,911
------------- -------------
Total current assets .............................................. 626,822 505,803
Other non-current assets .......................................... 2,969 2,969
Property and equipment, net of accumulated depreciation of $953,810
and $937,283, respectively .................................. 358,103 346,052
Assets under capital leases, net of accumulated amortization of
$212,333 and $209,805, respectively ......................... 84,360 39,171
------------- -------------
Total assets ...................................................... 1,072,254 893,995
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations ................ 16,167 6,017
Current portion of notes payable ........................... 16,933 16,982
Trade accounts payable ...................................... 70,933 44,441
Payable to clients .......................................... 51,956 32,051
Accrued professional fees ................................... 12,632 23,984
Accrued payroll and benefits ................................ 207,794 172,925
Accrued expenses - Allied Health Options .................... 43,819 44,024
Accrued expenses other ...................................... 16,873 19,673
------------- -------------
Total current liabilities ......................................... 437,107 360,097
Long-term capital lease obligations ............................... 51,580 31,157
Long-term notes payable, excluding current portion ................ 91,706 96,370
Deferred revenue - Pampa Economic Development Corporation ......... 144,000 144,000
------------- -------------
Total liabilities ................................................. 724,393 631,624
------------- -------------
Stockholders' equity:
10% Cumulative convertible preferred stock; $0.01 par value;
5,000,000 shares authorized; none issued ................. -- --
Common stock; $0.01 par value; 50,000,000 shares authorized;
29,515,764 shares issued ................................. 295,157 295,157
Less treasury stock at cost, 305,547 shares ................. (221,881) (221,881)
Additional paid-in capital .................................. 18,778,254 18,778,254
Accumulated deficit ......................................... (18,503,669) (18,589,159)
------------- -------------
Total stockholders' equity ............................... 347,861 262,371
------------- -------------
Total liabilities and stockholders' equity ............... $ 1,072,254 $ 893,995
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements
1
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2003 2002
----------- -----------
REVENUES:
Billing and collection services ......... $ 870,864 $ 782,780
Other revenues .......................... 15,375 17,678
----------- -----------
Total revenues ....................... 886,239 800,458
EXPENSES:
Wages and benefits ...................... 591,587 491,662
Selling, general and administrative ..... 160,269 150,175
Office, vehicle and equipment rental .... 5,961 3,797
Depreciation and amortization ........... 19,054 23,032
Professional fees ....................... 20,507 13,491
Interest, net ........................... 3,371 7,537
----------- -----------
Total expenses .......................... 800,749 689,694
----------- -----------
NET INCOME .................................... $ 85,490 $ 110,764
=========== ===========
BASIC EARNINGS PER COMMON SHARE:
Net income .............................. $ .0029 $ .0038
=========== ===========
Weighted average shares outstanding ........... 29,210,217 29,210,217
DILUTED EARNINGS PER COMMON SHARE:
Net income .............................. $ .0027 $ .0036
=========== ===========
Weighted average shares outstanding ........... 31,314,000 31,145,133
The accompanying notes are an integral part of these condensed consolidated
financial statements
2
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 85,490 $ 110,764
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of assets under capital leases .......... 2,528 9,386
Depreciation of fixed assets ......................... 16,526 13,646
Changes in assets and liabilities:
Restricted cash ...................................... (20,020) (11,751)
Accounts receivable .................................. 35,130 (38,988)
Factor reserve ....................................... (129,515) (46,029)
Prepaid expenses and other assets .................... (1,844) (1,736)
Accounts payable ..................................... 26,492 2,806
Payable to clients ................................... 19,905 11,965
Accrued liabilities .................................. 20,512 12,439
----------- -----------
Net cash provided by operating activities .......................... 55,204 62,502
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment .......................... (9,282) (29,938)
Capitalized software development ............................. (19,295) --
----------- -----------
Net cash used in investing activities .............................. (28,577) (29,938)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations ....................... (17,144) (15,660)
Repayment of notes ........................................... (4,713) (4,231)
----------- -----------
Net cash used in financing activities .............................. (21,857) (19,891)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS ............................. 4,770 12,673
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 51,760 3,571
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 56,530 $ 16,244
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest ............................................. $ 3,371 $ 7,537
NON CASH INVESTING AND FINANCING ACTIVITIES:
Additions to Capital Lease Obligations ............................. $ 47,717 $ --
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of United Medicorp, Inc. ("UMC" or the "Company") include its
wholly owned subsidiary, United MoneyCorp. Inc. ("UMY"). All material
intercompany transactions and balances have been eliminated. Certain prior
year balances have been reclassified to conform with current year
presentation. The financial information presented should be read in
conjunction with the audited financial statements of the Company for the
year ended December 31, 2002 included in the Company's Form 10-K.
The unaudited condensed consolidated financial information has been
prepared in accordance with the Company's customary accounting policies
and practices. In the opinion of management, all adjustments, consisting
of normal recurring adjustments necessary for a fair presentation of
results for the interim period, have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. The results for interim periods are not necessarily
indicative of results to be expected for the year.
SOFTWARE DEVELOPMENT COSTS
The cost of software that is developed or purchased for internal use, is
accounted for pursuant to AICPA Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
Pursuant to SOP 98-1, the Company capitalizes costs incurred during the
application development stage of software developed for internal use, and
expenses costs incurred during the preliminary project and the
post-implementation operation stage's of development.
FACTOR RESERVE
The Factor Reserve account includes 20% of outstanding invoices purchased
by the factoring company (required reserve) and the excess above this 20% which
is available to be drawn by UMC as cash upon demand (available reserve). The
breakdown of the required and available reserve included in the Factor Reserve
as of March 31, 2003 and December 31, 2002 was as follows:
MARCH 31, DECEMBER 31,
2003 2002
----------- ------------
REQUIRED RESERVE ............................. $ 67,765 $ 69,010
AVAILABLE RESERVE ............................ 277,567 146,807
----------- -----------
FACTOR RESERVE AT END OF PERIOD .............. $ 345,332 $ 215,817
=========== ===========
4
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SFAS NO. 148 PRO FORMA
Pro forma net income 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:
2002 2001
----------- -----------
PRO FORMA IMPACT OF FAIR VALUE METHOD (FAS 148)
Net income ......................................................... $ 85,490 $ 110,764
SFAS No. 148 employee compensation cost ............................ (2,078) (1,771)
----------- -----------
Pro forma net income ............................................... 83,412 108,993
EARNINGS PER COMMON SHARE
Basic as reported .................................................. $ .0029 $ .0038
Diluted as reported ................................................ .0027 .0036
Basic - pro forma .................................................. .0029 .0037
Diluted - pro forma ................................................ $ .0026 $ .0035
WEIGHTED AVERAGE BLACK-SCHOLES FAIR VALUE ASSUMPTIONS
Risk free interest rate ............................................ 2.5% 2.5%
Expected life ...................................................... 10 years 10 years
Expected volatility ................................................ 230% 220%
Expected dividend yield ............................................ -- --
LEGAL PROCEEDINGS
On March 28, 2003 management was contacted by representatives of UMC's
health insurance provider, HealthMarket, and American Travelers Assurance
Company ("ATAC") and informed that ATAC was conducting an investigation into
UMC's application for coverage with ATAC in April of 2002. The representatives
of ATAC alleged that UMC had made a material misrepresentation regarding one of
the Company's employees during the application process. The representatives of
ATAC then said that they would continue their investigation and would contact
UMC management the following week to discuss the matter further. The following
day, ATAC suspended health insurance coverage for UMC's employees, which
management, based on advice from UMC's legal counsel, believe to be a breach of
UMC's contract with ATAC. In response, UMC filed a lawsuit against ATAC and
HealthMarket in State court seeking a declaration that the insurance policy was
still in effect. In connection with the lawsuit, UMC posted a bond of $20,000
and was granted a temporary restraining order preventing cancellation of the
insurance policy. ATAC removed the case to federal court, and UMC has filed a
motion to remand the case back to state court. UMC intends to seek compensation
for any damages it has incurred as a result of ATAC's actions, including
reimbursement of legal fees. UMC management does not believe that any
misrepresentation was made to ATAC at any time regarding the medical or claims
history of any UMC employee. ATAC claims that the alleged misrepresentations
render the policy void, and that its damages are approximately $200,000 plus
attorney fees. Based on the advice of legal counsel, UMC management does not
believe that ATAC's allegations have merit, and therefore no contingent
liability has been accrued.
5
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
GENERAL CONSIDERATIONS
Except for the historical information contained herein, the matters
discussed may include forward-looking statements relating to such matters as
anticipated financial performance, legal issues, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that forward-looking statements
include the intent, belief, or current expectations of the Company and members
of its senior management team, as well as the assumptions on which such
statements are based. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements. Important factors
currently known to management that could cause actual results to differ
materially from those in forward-looking statements are set forth in the safe
harbor compliance statement for forward-looking statements included as Exhibit
99.1 to this Form 10-Q and are 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.
6
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UMC and UMY derive their primary revenues from medical claims processing
and accounts receivable management services. A substantial portion of UMC and
UMY revenues are derived from recurring monthly charges to its customers under
service contracts that typically are cancelable with a 30 to 60 day notice.
CLAIMS MANAGEMENT SERVICES - PROCESSING VOLUMES
2003 2002 2001 2000
------- --------------------------------- --------------------------------- -----------------------
QUARTER QUARTER QUARTER QUARTER
------- --------------------------------- --------------------------------- -----------------------
First Fourth Third Second First Fourth Third Second First Fourth Third Second
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Number of Claims
Accepted for
Processing:
Ongoing 30,549 32,602 43,522 43,761 34,012 21,818 11,905 13,161 18,473 12,637 12,774 38,702
Backlog -- -- -- -- -- -- -- -- -- 3,252 9,135 10,928
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 30,549 32,602 43,522 43,761 34,012 21,818 11,905 13,161 18,473 15,889 21,909 49,630
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 23,033 26,717 30,772 22,085 23,336 14,221 8,864 8,382 9,365 10,571 10,186 28,801
Backlog -- -- -- -- -- -- -- -- -- 1,777 6,216 2,987
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 23,033 26,717 30,772 22,085 23,336 14,221 8,864 8,382 9,365 12,348 16,402 31,788
Collection $
(000's)
Ongoing 5,010 6,126 6,091 4,840 4,710 4,470 4,147 4,307 3,736 3,730 7,092 12,343
Backlog -- -- -- -- 6 11 80 387 910 1,636 1,561 1,112
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 5,010 6,126 6,091 4,840 4,716 4,481 4,227 4,694 4,646 5,366 8,653 13,455
Fees Earned
(000's)
Ongoing 460 460 471 405 403 301 298 290 257 132 239 370
Backlog -- -- -- -- 1 2 13 35 87 123 155 137
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 460 460 471 405 404 303 311 325 344 255 394 507
Average Fee %
Ongoing 8.6% 7.5% 7.7% 8.4% 8.5% 6.7% 7.2% 6.7% 6.9% 3.5% 3.3% 3.0%
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 5 to 90
days from contract execution to complete development of system interfaces and
definition of procedural responsibilities with customer personnel. During this
period, Company personnel survey the customer's existing operations and prepare
for installation. Once the customer begins transmitting claims to the Company,
there is usually a time lag of 30 to 90 days between transmission of claims to
third party payers and collection of those claims from payers.
7
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table sets forth for each period indicated the volume and
gross dollar amount of customer service and collection accounts received and
fees recognized for UMY.
COLLECTION AGENCY SERVICES - PROCESSING VOLUME
2003 2002 2001 2000
------- --------------------------------- --------------------------------- -----------------------
QUARTER QUARTER QUARTER QUARTER
------- --------------------------------- --------------------------------- -----------------------
First Fourth Third Second First Fourth Third Second First Fourth Third Second
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
UMY
Number of
Accounts
Accepted
for Collection:
(000's)
Early out 11,266 13,859 17,818 17,250 26,977 27,413 28,537 42,351 27,132 38,126 43,328 11,377
Bad debt 15,322 26,281 16,430 14,815 20,028 25,811 932 587 1,413 920 1,640 817
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 26,588 40,140 34,248 32,065 47,005 53,224 29,469 42,938 28,545 39,046 44,968 12,194
Gross $ Amount
of Accounts
Accepted for
Collection
(000's)
Early out 10,815 12,021 13,424 14,002 22,611 20,724 20,972 30,834 19,487 24,963 25,213 9,122
Bad debt 12,547 15,934 9,714 10,476 12,959 17,035 762 576 1,143 804 1,076 704
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 23,362 27,955 23,138 24,478 35,570 37,759 21,734 31,410 20,630 25,767 26,289 9,826
Collection $
(000's)
Early out 949 1,220 1,563 2,004 2,444 2,433 3,810 3,904 3,276 2,618 697 610
Bad debt 1,155 909 939 895 745 422 57 64 53 57 83 72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 2,104 2,129 2,502 2,899 3,189 2,855 3,867 3,968 3,329 2,675 780 682
Fees Earned
(000's)
Early out 113 131 157 187 227 215 356 370 314 261 87 89
Bad debt 252 203 208 186 152 94 9 10 8 15 22 17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 365 334 365 373 379 309 365 380 322 276 109 106
Average Fee %
Early out 11.9% 10.7% 10.0% 9.5% 9.3% 8.8% 9.3% 9.5% 9.6% 10.0% 21.9% 14.6%
Bad debt 22.1% 22.3% 22.1% 20.8% 20.4% 22.2% 15.8% 15.6% 15.1% 26.3% 26.5% 23.6%
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.
8
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statements of Operations expressed as a percentage of revenues:
Three Months
Ended March 31,
-------------------
2003 2002
-------- --------
Revenue .................................................. 100.0% 100.0%
-------- --------
Wages and benefits ..................................... 66.8 61.4
Selling, general and administrative .................... 18.1 18.8
Office, vehicle and equipment rental ................... .7 .5
Depreciation and amortization .......................... 2.1 2.9
Professional fees ...................................... 2.3 1.7
Interest, net .......................................... .4 .9
-------- --------
Total expenses ......................................... 90.4 86.2
-------- --------
Net income ............................................. 9.6% 13.8%
======== ========
COMPARISON OF THE QUARTER ENDED MARCH 31, 2002 TO THE QUARTER ENDED
MARCH 31, 2001
REVENUES increased $86,000, or 11% primarily due to the following:
- - Ongoing Accounts Receivable Management Services revenue of $460,000 in the
current quarter increased by $57,000 compared to the same quarter in 2002
as a result of multiple changes to the Company's claims inventory mix. The
increase was due primarily to increased placements of secondary claims
from an ongoing accounts receivable management services contract that was
signed March 22, 2000. Revenues from secondary claims processed under this
contract were $219,000 and $170,000 during first quarter of 2003 and 2002
respectively. This increase in revenue was offset by reduced revenues from
the primary claims processed under this contract. Revenues from such
primary claims totaled $77,000 and $118,000 during the first quarter of
2003 and 2002 respectively. The Company also received increased revenue
from an ongoing accounts receivable management contract that was signed
October 31, 2000. This contract provided revenues of $134,000 and $98,000
during the first quarter of 2003 and 2002 respectively. Ongoing accounts
receivable management services revenue for the first quarter of 2003 also
included $29,000 from the settlement of an ongoing accounts receivable
management services contract that was dated August 1, 2002 and was
terminated in December 2002. Ongoing accounts receivable management
services revenue for the first quarter of 2002 also included $13,000 in
revenue provided by an ongoing accounts receivable management services
contract that was dated November 20, 2001 and was terminated December 1,
2002. This contract did not generate any revenue during the first quarter
of 2003.
- - Backlog Accounts Receivable Management Services revenue of $0 in the
current quarter decreased by $1,000 compared to the same quarter in 2002
as a result of the winding down of a backlog accounts receivable
management contract signed March 22, 2000.
- - Collection Agency Services revenue of $365,000 in the current quarter
decreased by $13,000 compared to the same quarter of 2002, due to various
changes in the inventory mix. The Company received increased revenues from
the bad debt portion of a collection agency services contract that was
executed in March of 2000. The bad debt portion of this contract provided
revenue of $225,000 and $141,000 during the first
9
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
quarter of 2003 and 2002 respectively. The increased revenue from the bad
debt portion of the contract was offset by decreased revenue from the
early out portion of the contract which provided revenue of $81,000 and
$104,000 during the first quarter of 2003 and 2002 respectively.
Collection agency services revenue was also decreased as the result of the
termination of a collection agency services revenue contract on June 30,
2002 that was executed March 13, 2000. Under the terms of the contract,
The Company was allowed to continue working accounts for which the Company
had made payment arrangements prior to the contract's termination. As a
result, this contract provided revenue of $11,000 during the first quarter
of 2003, as compared to revenue of $96,000 during the first quarter of
2002. Revenue from other collection agency services contracts increased by
$11,000 during the first quarter of 2003 as compared to the first quarter
of 2002.
- - 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
$46,000 during the first quarter of 2003. Management believes that the
coding services division has significant growth potential. To pursue the
marketing of these services, management has invested $10,460 in 2002 and
$4,000 during the first quarter of 2003 to develop software for internet
based services that will be marketed and provided by the coding services
division. During 2002, the coding services division provided coding for
350 claims through the internet based service. During the first quarter of
2003, the coding services division provided coding for 735 claims through
this service.
- - Other Income of $15,000 in the current quarter decreased by $3,000
compared to the same quarter in 2002. Other income for the first quarter
of both years was made up primarily or incentive income received from the
Pampa Economic Development Corporation (PEDC) pursuant to the previously
disclosed Economic Development and Incentive Agreement executed on July
28, 2000, by UMC and the PEDC. The Company also recognized interest income
on customer invoices aged greater than 30 days of $3,000 during the first
quarter of 2002. The Company did not recognize any interest income for the
first quarter of 2003.
WAGES AND BENEFITS expense increased $100,000 or 20% due primarily to
increased headcount and the addition of two corporate officers during March and
April of 2002. Average headcount for the first quarter of 2003 was 87, compared
to an average headcount of 79 during the first quarter of 2002. Salary expense
associated with the two new corporate officers was $50,000 during the first
quarter of 2003 compared to $8,333 during the first quarter of 2002. Wage and
benefits expense also increased as a result of having more employees eligible
for health, life, dental, vision, and disability benefits that are provided by
the Company for employees who have completed 90 days of employment with UMC. The
Company had 55 employees enrolled in such benefit plans during March of 2002,
compared to 72 during March of 2003. Premiums paid for employee benefits totaled
$59,716 during the first quarter of 2003 compared to $36,310 during the first
quarter of 2002. The Company has also incurred an increased state unemployment
tax rate for 2003. UMC paid $16,258 for state unemployment tax during the first
quarter of 2003 compared to $7,376 for the first quarter of 2002.
SELLING, GENERAL AND ADMINISTRATIVE expense increased $10,000 or 7%
primarily due to increases in travel, conventions and tradeshows, software
maintenance and system usage, and commission costs. These increases were the
result of additional travel requirements of the new Vice President of Sales and
Marketing and the new Vice President of Coding Services, sponsorship and
demonstration costs for various healthcare association conferences and trade
shows (conventions and trade shows), claims clearinghouse fees for electronic
claims submission and increased contract programming costs (software maintenance
and system usage), and commission costs associated with the addition of a Vice
President of Sales and Marketing.
10
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense increased $2,000 or 57%
primarily due to the assumption of a vehicle lease during the second quarter of
2002.
DEPRECIATION AND AMORTIZATION expense decreased $4,000 or 17% primarily as
a result of leased computer equipment becoming fully amortized during the third
quarter of 2002.
PROFESSIONAL FEES expense increased $7,000 or 52% due to legal fees, and
increased director fees as a result of an increased number of board members in
the first quarter of 2003 as compared to the first quarter of 2002. The number
of independent directors on the board was increased from two in the first
quarter of 2002 to four in the first quarter of 2003 as a result of compliance
requirements contained in the Sarbanes-Oxley Act.
INTEREST expense decreased $4,000 or 55% due to lower utilization of
factoring line and lower interest rates.
NET INCOME for the current quarter decreased to $85,490 from net income of
$110,764 for the same quarter in the previous year, due primarily to the
increase in revenues offset by the increased costs for wages and benefits;
selling, general and administrative expenses; and professional fees as described
above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, the Company's liquid assets, consisting of cash,
totaled $56,530 compared to cash of $51,760 at December 31, 2002. Working
capital was $190,000 at March 31, 2003 compared to working capital of $146,000
at December 31, 2002.
Operating activities from continuing operations during the current quarter
provided cash of $55,000 compared to cash of $63,000 provided by operating
activities during the same period of 2002. This increase is primarily due to net
income from operations during the current quarter offset by an increase in the
factoring reserve.
Cash of $9,000 was expended on investing activities during the current
quarter for the purchase of furniture and equipment, and $19,000 was expended
for new internal software development. The Company expended cash of $30,000 for
investing activities during the same period of 2002.
Financing activities during the current quarter used cash of $22,000 and
consisted of principal payments totaling $5,000 for notes payable and principal
payments on capital lease obligations totaling $17,000. Financing activities
during the same quarter of 2002 used cash of $20,000 and consisted of principal
payments totaling $4,000 for notes payable and principal payments on capital
lease obligations totaling $16,000.
During the current quarter, cash flow from operations was adequate to
cover all working capital and liquidity requirements. Assuming that the current
contracts with UMC's customers remain in force, UMC management believes the
Company will continue to generate cash flow from operations sufficient to meet
all working capital and liquidity requirements.
If UMC is unable to service its financial obligations as they become due,
it will be required to adopt alternative strategies, which may include but are
not limited to, actions such as reducing management and line employee headcount
and compensation, attempting to restructure existing financial obligations,
seeking a strategic merger or acquisition, seeking the sale of the company,
and/or seeking additional debt or equity capital. There can be no assurance that
any of these strategies could be effected on satisfactory terms.
11
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MANAGEMENT CHANGES
On May 1, 2003 Clint Owen joined UMC as Vice President of Sales and
Marketing. Mr. Owen will assume the duties of Morgan Hay, UMC's former Vice
President of Sales and Marketing, who left the Company effective April 1, 2003.
CRITICAL ACCOUNTING POLICIES
Accounting principles generally accepted in the United States of America
require the use of management's judgments and estimates in addition to the rules
and requirements imposed by the accounting pronouncements. More detailed
information about UMC's accounting policies is contained in Note B, Summary of
Significant Accounting Policies, to our Consolidated Financial Statements
included in our 2002 Form 10-K. Other accounting policies not discussed here are
described there, and readers should review that information carefully. We have
summarized below the accounting policies that we believe are most critical to
understanding UMC's interim 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 March 31, 2003
there were no factored invoices that had aged more than 90 days.
The cost of software that is developed or purchased for internal use is
accounted for pursuant to AICPA Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
Pursuant to SOP 98-1, the Company capitalizes costs incurred during the
application development stage of software developed for internal use, and
expenses costs incurred during the preliminary project and the
post-implementation operation stage's of development. During the first quarter
of 2003, the Company capitalized $19,295 in costs incurred for new internal
software development that was in the application development stage.
12
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ITEM 3 - 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 4 - 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 May 6, 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 May 6, 2003.
PART 11. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 28, 2003 management was contacted by representatives of UMC's
health insurance provider, HealthMarket, and American Travelers Assurance
Company ("ATAC") and informed that ATAC was conducting an investigation into
UMC's application for coverage with ATAC in April of 2002. The representatives
of ATAC alleged that UMC had made a material misrepresentation regarding one of
the Company's employees during the application process. The representatives of
ATAC then said that they would continue their investigation and would contact
UMC management the following week to discuss the matter further. The following
day, ATAC suspended health insurance coverage for UMC's employees, which
management, based on advice from UMC's legal counsel, believe to be a breach of
UMC's contract with ATAC. In response, UMC filed a lawsuit against ATAC and
HealthMarket in State court seeking a declaration that the insurance policy was
still in effect. In connection with the lawsuit, UMC posted a bond of $20,000
and was granted a temporary restraining order preventing cancellation of the
insurance policy. ATAC removed the case to federal court, and UMC has filed a
motion to remand the case back to state court. UMC intends to seek compensation
for any damages it has incurred as a result of ATAC's actions, including
reimbursement of legal fees. UMC management does not believe that any
misrepresentation was made to ATAC at any time regarding the medical or claims
history of any UMC employee. ATAC claims that the alleged misrepresentations
render the policy void, and that its damages are approximately $200,000 plus
attorney fees. Based on the advice of legal counsel, UMC management does not
believe that ATAC's allegations have merit, and therefore no contingent
liability has been accrued.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
13
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
99.1 Safe Harbor Compliance Statement for Forward-Looking Statements
99(a) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99(b) Safe Harbor Compliance Statement for Forward-Looking Statements
(B) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED MEDICORP, INC.
(REGISTRANT)
By: /s/ Nathan E. Bailey Date: May 14, 2003
---------------------------------
Nathan E. Bailey
Vice President and Controller
(Principal Accounting Officer)
14
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 quarterly report on Form 10-Q of United
Medicorp, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 rules 13a-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 quarterly
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 quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 14, 2003 /s/ Peter W. Seaman
----------------------------------------
Peter W. Seaman
Chairman of the Board and Chief
Executive Officer
15
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Nathan E. Bailey, Vice President and Controller of United Medicorp, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of United
Medicorp, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 rules 13a-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 quarterly
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 quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly 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 quarterly 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: May 14, 2003 /s/ Nathan E. Bailey
------------------------------------
Nathan E. Bailey
Vice President and Controller
16
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
99.1 Safe Harbor Compliance Statement for Forward-Looking Statements
99(a) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99(b) Safe Harbor Compliance Statement for Forward-Looking Statements