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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 8, 2003, there were outstanding 29,213,550 shares of
Common Stock, $0.01 par value.
================================================================================
UNITED MEDICORP, INC.
FORM 10-Q
For the quarterly period ended June 30, 2003
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2003 and
December 31, 2002.......................................... 1
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2003 and 2002.......... 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk.......................................... 14
ITEM 4. Controls and Procedures......................................... 14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... 15
ITEM 2. Changes in Securities........................................... 15
ITEM 3. Defaults Upon Senior Securities................................. 15
ITEM 4. Submission of Matters to a Vote of Security Holders............. 15
ITEM 5. Other Information............................................... 15
ITEM 6. Exhibits and Reports on Form 8-K................................ 16
Signatures ................................................................ 16
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2003 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 42,698 $ 51,760
Restricted cash ............................................... 21,455 32,080
Accounts receivable, net of allowance for doubtful accounts
of $504 in 2003 and 2002 ................................... 173,303 198,235
Factor reserve ................................................ 292,152 215,817
Prepaid expenses and other current assets ..................... 42,576 7,911
------------ ------------
Total current assets ................................................ 572,184 505,803
Other non-current assets ............................................ 2,969 2,969
Property and equipment, net of accumulated depreciation of $777,405
and $750,243 respectively ..................................... 340,781 309,080
Developed and purchased software net of accumulated amortization of
$193,967 and $187,040 respectively ............................ 66,254 36,972
Assets under capital leases, net of accumulated amortization of
$216,933 and $209,805, respectively ........................... 79,760 39,171
------------ ------------
Total assets ........................................................ 1,061,948 893,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations .................. 16,436 6,017
Current portion of notes payable .............................. 27,263 16,982
Trade accounts payable ........................................ 59,577 44,441
Payable to clients ............................................ 19,031 32,051
Accrued professional fees ..................................... 15,183 23,984
Accrued payroll and benefits .................................. 181,632 172,925
Accrued expenses - Allied Health Options ...................... 43,664 44,024
Accrued expenses other ........................................ 16,777 19,673
------------ ------------
Total current liabilities ........................................... 379,563 360,097
Long term capital lease obligations ................................. 47,168 31,157
Long term notes payable, excluding current portion .................. 104,436 96,370
Deferred revenue - Pampa Economic Development Corporation ........... 144,000 144,000
------------ ------------
Total liabilities ................................................... 675,167 631,624
------------ ------------
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;
29,519,097 and 29,515,764 shares issued, respectively ...... 295,191 295,157
Less treasury stock at cost, 305,547shares .................... (221,881) (221,881)
Additional paid-in capital .................................... 18,778,271 18,778,254
Retained deficit .............................................. (18,464,800) (18,589,159)
------------ ------------
Total stockholders' equity .......................................... 386,781 262,371
------------ ------------
Total liabilities and stockholders' equity .......................... $ 1,061,948 $ 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 Six Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues:
Billing, collection, and coding services $ 852,153 $ 817,726 $ 1,723,017 $ 1,600,418
Other revenues ......................... 15,250 19,276 30,625 37,041
----------- ----------- ----------- -----------
Total revenues ...................... 867,403 837,002 1,753,642 1,637,459
Expenses:
Wages and benefits ..................... 606,596 590,292 1,198,183 1,081,954
Selling, general and administrative .... 165,530 172,207 325,799 322,382
Depreciation and amortization .......... 22,572 22,320 41,626 45,351
Office, vehicle and equipment rental ... 4,369 6,280 10,330 10,078
Professional fees ...................... 24,857 13,818 45,364 27,309
Interest, net .......................... 4,609 525 7,981 8,062
Loss on disposal of assets ............. -- 1,716 -- 1,716
Provision for doubtful accounts ........ -- 2,323 -- 2,323
----------- ----------- ----------- -----------
Total expenses ......................... 828,533 809,481 1,629,283 1,499,175
----------- ----------- ----------- -----------
Net income ................................... $ 38,870 $ 27,521 $ 124,359 $ 138,284
=========== =========== =========== ===========
Basic earnings per common share:
Net income ............................. $ 0.0013 $ 0.0009 $ 0.0043 $ 0.0047
=========== =========== =========== ===========
Weighted average shares outstanding .......... 29,213,550 29,210,217 29,211,884 29,210,217
Diluted earnings per common share:
Net income ............................. $ 0.0012 $ 0.0009 $ 0.0040 $ 0.0044
=========== =========== =========== ===========
Weighted average shares outstanding .......... 31,200,000 31,299,264 31,319,500 31,299,264
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)
Six Months Ended
June 30,
2003 2002
---------- ----------
Cash flows from operating activities:
Net income ...................................................... $ 124,359 $ 138,284
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of assets under capital leases ............. 4,742 17,109
Depreciation of fixed assets ............................ 36,884 28,242
Provision for doubtful accounts ......................... -- 2,323
Loss on sale of auto .................................... -- 1,716
Changes in assets and liabilities:
Restricted cash ......................................... 10,625 (57,941)
Accounts receivable, gross .............................. 24,932 (26,446)
Factor reserve .......................................... (76,335) (84,793)
Prepaid expenses and other assets ....................... (34,665) (7,759)
Accounts payable ........................................ 15,136 (7,987)
Payable to clients ...................................... (13,020) 58,049
Accrued liabilities ..................................... (3,350) 20,940
---------- ----------
Net cash provided by operating activities ............................. 89,308 81,737
---------- ----------
Cash flows from investing activities:
Purchase of automobiles, furniture, equipment and improvements... (64,375) (39,218)
Capitalized software development ................................ (32,605) --
Proceeds from sale of auto and equipment ........................ 1,500 5,800
---------- ----------
Net cash used in investing activities ................................. (95,480) (33,418)
---------- ----------
Cash flows from financing activities:
Repayment of capital lease obligations .......................... (21,287) (31,590)
Repayment of notes payable ...................................... (9,003) (15,882)
Proceeds from exercise or stock options ......................... 50 --
Proceeds from auto loan ......................................... 27,350 --
---------- ----------
Net cash used in financing activities ................................. (2,890) (47,472)
---------- ----------
Increase (decrease) in cash and cash equivalents ...................... (9,062) 847
Cash and cash equivalents at beginning of period ...................... 51,760 3,571
---------- ----------
Cash and cash equivalents at end of period ............................ $ 42,698 $ 4,418
========== ==========
Supplemental disclosures:
Cash paid for interest ................................................ $ 7,981 $ 8,062
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 SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of United
Medicorp, Inc. ("UMC" or the "Company" or the "registrant") 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 consolidated financial information has been prepared in
accordance with the Company's customary accounting policies and practices.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments necessary for a fair presentation of results for the
interim period, have been included.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. The results for
interim periods are not necessarily indicative of results to be expected for
the year.
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 stages 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
balances of the required and available reserves included in the Factor Reserve
as of June 30, 2003 and December 31, 2002 were as follows:
June 30, December 31,
2003 2002
------------ ------------
Required Reserve ................................. $ 67,455 $ 69,010
Available Reserve ................................ 224,697 146,807
------------ ------------
Factor Reserve at end of period................... $ 292,152 $ 215,817
============ ============
4
UNITED MEDICORP, INC. AND SUBSIDIARY
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 for the first six months of the respective years 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:
Six Months Ended June 30
-------------------------
2003 2002
---------- ----------
Pro forma impact of fair value method (FAS 148)
Net income .......................................... $ 124,359 $ 138,284
SFAS No. 148 employee compensation cost ............. (4,123) (3,543)
---------- ----------
Pro forma net income ................................ 120,236 134,741
Earnings per common share
Basic as reported ................................... $ .0043 $ .0047
Diluted as reported ................................. .0040 .0044
Basic - pro forma ................................... .0041 .0046
Diluted - pro forma ................................. $ .0038 $ .0043
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 filed, and was
granted 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 $300,000 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 SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations
SUBSEQUENT EVENTS
On July 23, 2003 the Company purchased a new phone system to replace its
current system that has been in service since 1989. The new system includes a
Nortel switch, upgraded automated attendant functions, expanded voice mail
capacity, monitoring and recording software, and various other accessories. The
total cost of the equipment and software is $140,100, and is being financed
through a 60-month lease-purchase agreement with General Electric Capital
Corporation. The terms of the lease include an effective interest rate of 8.5%,
and a $1 purchase option at the end of the lease term. Installation of the new
system is scheduled for mid September.
On July 10, 2003 the Company received approval from Wells Fargo Bank on a
$100,000 unsecured line of credit, which is personally guaranteed by UMC's Chief
Executive Officer Pete Seaman. This line bears interest at a rate of prime plus
6.75 %. No advances have been made on the line of credit as of August 7, 2003.
On July 30, 2003 the Company received approval from Bank One on a $100,000
unsecured line of credit, with no personal guarantees. The note bears interest
at a rate of prime plus 2 %. No advances have been made on the line of credit as
of August 7, 2003. These lines of credit were obtained to provide additional
cash availability (if needed) during times of business expansion.
ITEM 2 - Management's Discussion 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-Q 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 claims management services
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.
6
UNITED MEDICORP, INC. AND SUBSIDIARY
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 insurance claims received and fees recognized for each of
the Company's two principal accounts receivable management services.
CLAIMS MANAGEMENT SERVICES - PROCESSING VOLUMES
2003 2002 2001 2000
--------------- --------------------------------- --------------------------------- ---------------
Quarter Quarter Quarter Quarter
--------------- --------------------------------- --------------------------------- ---------------
Second First Fourth Third Second First Fourth Third Second First Fourth Third
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
UMC
- ----------------
Number of Claims
Accepted for
Processing:
Ongoing 31,282 30,549 32,602 43,522 37,952 34,012 21,818 11,905 13,161 18,473 12,637 12,774
Backlog -- -- -- -- -- -- -- -- -- -- 3,252 9,135
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 31,282 30,549 32,602 43,522 37,952 34,012 21,818 11,905 13,161 18,473 15,889 21,909
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 24,272 23,033 26,717 30,772 22,085 23,336 14,221 8,864 8,382 9,365 10,571 10,186
Backlog -- -- -- -- -- -- -- -- -- -- 1,777 6,216
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 24,272 23,033 26,717 30,772 22,085 23,336 14,221 8,864 8,382 9,365 12,348 16,402
Collections $
(000's)
Ongoing 6,098 5,010 6,126 6,091 4,837 4,710 4,470 4,147 4,307 3,736 3,730 7,092
Backlog -- -- -- -- -- 6 11 80 387 910 1,636 1,561
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 6,098 5,010 6,126 6,091 4,837 4,716 4,481 4,227 4,694 4,646 5,366 8,653
Fees Earned $
(000's)
Ongoing 448 460 460 471 408 416 301 298 290 257 132 239
Backlog -- -- -- -- -- 1 2 13 35 87 123 155
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 448 460 460 471 408 417 303 311 325 344 255 394
Average Fee %
Ongoing 7.3% 8.6% 7.5% 7.7% 8.4% 8.8% 6.7% 7.2% 6.7% 6.8% 3.5% 5.3%
Backlog -- -- -- -- -- 16.6% 18.2% 16.3% 9.0% 9.5% 7.5% 9.9%
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 SUBSIDIARY
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 early out and bad debt accounts received and fees
recognized for UMY.
ACCOUNTS RECEIVABLE MANAGEMENT SERVICES - PROCESSING VOLUME
2003 2002 2001 2000
--------------- --------------------------------- --------------------------------- ---------------
Quarter Quarter Quarter Quarter
--------------- --------------------------------- --------------------------------- ---------------
Second First Fourth Third Second First Fourth Third Second First Fourth Third
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
UMY
- ----------------
Number of
Accounts Accepted
for Collection:
(000's)
Early out 24,330 11,266 13,859 17,818 17,467 26,963 27,413 28,537 42,351 27,132 38,126 43,328
Bad debt 15,448 15,322 26,281 16,430 14,598 19,856 25,811 932 587 1,413 920 1,640
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 39,778 26,588 40,140 34,248 32,065 46,819 53,224 29,469 42,938 28,545 39,046 44,968
Gross $ Amount
of Accounts
Accepted for
Collection
(000's)
Early out 17,897 10,815 12,021 13,424 14,120 22,647 20,724 20,972 30,834 19,487 24,963 25,213
Bad debt 12,379 12,547 15,934 9,714 10,358 12,880 17,035 762 576 1,143 804 1,076
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 30,276 23,362 27,955 23,138 24,478 35,527 37,759 21,734 31,410 20,630 25,767 26,289
Collections $
(000's)
Early out 1,105 949 1,220 1,563 2,007 2,449 2,433 3,810 3,904 3,276 2,618 697
Bad debt 1,074 1,155 909 939 892 740 422 57 64 53 57 83
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 2,179 2,104 2,129 2,502 2,899 3,189 2,855 3,867 3,968 3,329 2,675 780
Fees Earned $
(000's)
Early out 132 113 131 157 186 232 215 356 370 314 261 87
Bad debt 226 252 203 208 188 162 94 9 10 8 15 22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 358 365 334 365 374 394 309 365 380 322 276 109
Average Fee %
Early out 11.9% 11.9% 10.7% 10.0% 9.4% 9.4% 8.8% 9.3% 9.5% 9.6% 10.0% 21.9%
Bad debt 21.0% 22.1% 22.3% 22.1% 21.5% 21.9% 22.2% 15.8% 15.6% 15.1% 26.3% 26.5%
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 SUBSIDIARY
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 Six Months Ended
June 30, June 30,
------------------ -------------------
2002 2001 2003 2002
-------- -------- -------- --------
Revenue ................................. 100% 100% 100% 100%
-------- -------- -------- --------
Wages and benefits ...................... 70 71 68 66
Selling, general and administrative ..... 19 20 18 20
Depreciation and amortization ........... 2 3 2 3
Office, vehicle and equipment rental .... 1 1 1 1
Professional fees ....................... 3 2 3 2
Interest, net, and other (income) expense 1 -- 1 --
Provision for doubtful accounts ......... -- -- -- --
-------- -------- -------- --------
Total expenses .......................... 96 97 93 92
-------- -------- -------- --------
Net income .............................. 4% 3% 7% 8%
======== ======== ======== ========
Comparison of the Quarter Ended June 30, 2003 to the Quarter Ended June 30, 2002
Revenues increased $30,000, or 4% primarily due to the following:
o Ongoing Accounts Receivable Management Services revenue of $448,000 in the
current quarter increased by $40,000 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 revenue from the secondary claims
portion of an ongoing accounts receivable management services contract
that was signed March 22, 2000. Revenues from secondary claims processed
under this contract were $240,000 during second quarter of 2003, compared
to revenues of $194,000 during the second quarter of 2002. This increase
in revenue was offset by reduced revenues from the primary claims
processed under this contract. Revenues from such primary claims totaled
$75,000 and $113,000 during the second quarter of 2003 and 2002
respectively. The company also received increased revenues from an ongoing
accounts receivable management contract that was signed October 31, 2000.
This contract provided revenues of $133,000 and $85,000 during the second
quarter of 2003 and 2002 respectively. Revenue from other contracts
totaled $0 and $16,000 for the second quarter of 2003 and 2002
respectively.
o Collection Agency Services revenue of $358,000 in the current quarter was
$15,000 less than the amount of collection agency services revenue
recognized in the same quarter of 2002. Revenues from early out
collections decreased from $186,000 in the second quarter of 2002, to
$132,000 during the second quarter of 2003, primarily as a result of
decreased revenue from an early stage self-pay collections agreement
signed March 13, 2000 and was terminated June 30, 2002. Under the terms of
the contract, The Company will continue to monitor and collect fees on
accounts for which the company had set up payment arrangements prior to
the contracts termination. This contract provided revenue of $7,000 and
$87,000 during the second quarter of 2003 and 2002 respectively. This
9
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
reduction was partially offset by increased revenue from the early stage
collection portion of a contract signed March 22, 2000 which provided
revenue of $93,000 and $73,000 during the second quarter of 2003 and 2002
respectively. The overall reduction in revenues from early out collections
was partially offset by revenues from bad debt collections, which
increased from $188,000 during the second quarter of 2002, to $225,000
during the second quarter of 2003. This increase was attributable to
increased revenue from the bad debt collection portion of a contract
signed March 22, 2000 and from an agreement for bad debt collection
services signed September 30, 1999.
o Coding Services revenue - In April of 2002, Janice K. Neal joined UMC as
Vice President of Coding Services, and the Company began providing such
services to various hospitals. Total revenues from coding services were
$47,000 and $37,000 during the second quarter of 2003 and 2002
respectively. During the third quarter of 2002, the Company began offering
online coding services through its proprietary coding web site. The table
below displays the number of claims accepted and coded through the web
site by quarter.
ONLINE CODING SERVICES - PROCESSING VOLUME
2003 2002
------------------ -----------------
Quarter Quarter
------------------ -----------------
Second First Fourth Third
------ ------ ------ ------
Number of Claims accepted
for Coding:
Inpatient 213 161 140 9
Outpatient 761 553 201 --
------ ------ ------ ------
Total 974 714 341 9
o Other revenue decreased by $4,000 compared to the same quarter of 2002 due
primarily to $3,000 of interest income that was recognized during the
second quarter of 2002. No interest income was recognized during the
second quarter of 2003.
Wages and benefits expense increased $16,000 or 3% as a result of multiple
factors. Payroll tax expense increased by $8,000 primarily as a result of an
increase in the Company's state unemployment tax rate from the previous year.
The cost of employee benefits increased by $13,000 primarily due to additional
health insurance premiums paid for duplicate coverage during the last half of
the month of April as a result of the dispute with UMC's health insurance
provider. UMC paid $11,559.53 to Blue Cross Blue Shield of Texas for coverage
during this period, even though a full month's premium had been previously paid
to HealthMarket. A description of this matter is included under Part II Item 1.
Legal Proceedings. Salary, wage and bonus expense decreased by $5,000 due
primarily to having fewer salaried employees during the second quarter of 2003
as compared to the second quarter of 2002.
Selling, general and administrative expense decreased $7,000 or 4%
primarily due to decreases in postage and printing, partially offset by an
increase in office supplies as a result of the discontinuation of the
outsourcing of letter processing during the fourth quarter of 2002. The entire
collection letter process is now performed in house. This decrease was partially
offset by increased travel and commission costs as a result of the additions of
the Vice President of Sales and the Vice President of Coding Services during
March and April of 2002 and by increased software maintenance and system usage
fees associated with the expansion of the companies systems and online
resources.
Depreciation and amortization expense increased $250 or 1%.
Office, vehicle and equipment rental expense decreased $1,900 or 30%
primarily due to the completion of the lease term on a 2000 Toyota Avalon in
April of 2003.
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UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
Professional fees increased $11,000 or 80% primarily as a result of legal
fees paid in connection with a dispute with UMC's health insurance provider. A
description of this matter is included under Part 11 Item 1. Legal Proceedings.
Interest expense increased $4,000 due primarily to the addition of a two
capital leases during 2003.
Provision for doubtful accounts expense decreased $2,300 due to
receivables reserved in the second quarter of 2002. There were no accounts
reserved during the second quarter of 2003.
Comparison of the Six Months Ended June 30, 2003 to the Six Months Ended June
30, 2002
Revenues increased $116,000 or 7% primarily due to the following:
o Ongoing Accounts Receivable Management Services revenue of $908,000 in the
current six-month period increased by $100,000 compared to the same
quarter in 2002 as a result of the following: Revenues received from the
secondary portion of an ongoing accounts receivable management services
contract that was signed March 22, 2000 increased from $364,000 during the
first six months of 2002, to $459,000 during the current six-month period.
This increase in revenue was offset by reduced revenues from the primary
claims processed under this contract. Revenues from such primary claims
totaled $153,000 and $231,000 during the second quarter of 2003 and 2002
respectively. The Company also received increased revenues from an ongoing
accounts receivable management contract that was signed October 31, 2000.
This contract provided revenues of $267,000 and $182,000 during the second
quarter of 2003 and 2002 respectively. Revenue from other contracts
decreased by $2,000 during the first six months of 2003 as compared to the
first six months of 2002.
o Collection Agency Services revenue of $722,000 in the current six month
period decreased by $29,000 compared to the same period of 2002, due
primarily to the following. The Company saw an increase in revenue from
the bad debt portion of a collection agency services contract executed
September 25, 2000. The bad debt portion of this contract provided
revenues of $436,000 and $324,000 during the first six months of 2003 and
2002 respectively. The Company received a significant decrease in revenue
from an early stage self-pay collections agreement that was signed March
13, 2000 and was terminated June 30, 2002. Under the terms of the
contract, The Company will continue to monitor and collect fees on
accounts for which the company had set up payment arrangements prior to
the contracts termination. This contract provided revenue of $18,000 and
$183,000 during the second quarter of 2003 and 2002 respectively. Revenue
from all other contracts increased by $24,000 during the first six months
of 2003 as compared to the first six months of 2002.
o Coding Services revenue - In April of 2002, Janice K. Neal joined UMC as
Vice President of Coding Services, and the Company began providing such
services to various hospitals. Total revenues from coding services were
$92,000 and $40,000 during the first six months of 2003 and 2002
respectively.
o Other revenue of $31,000 during the current six-month period decreased by
$6,000 compared to the same six-month period of 2002 as a result of $6,000
in interest income that was recognized during the first six months of
2002. No interest income was recognized in the first six months of 2003.
Wages and benefits expense increased $116,000 or 11% due to several
factors. Salary and wage expense increased by $59,000 primarily as a result of
the addition of two corporate officers during March and April of 2002. Salary
expense for these two positions was $96,000 and $58,000 for the first six months
of 2003 and 2002 respectively. Other salary and wage expense increased by
$21,000 primarily as a result of an increase in average full time employee
11
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
headcount from 80 during the first six months of 2002 to 86 during the first six
months of 2003. Payroll tax expense increased by $22,000 primarily as a result
of an increase in the Company's state unemployment tax rate, and the previously
mentioned increase in employee head count. Employee benefits expense also
increased as a result of having more employees eligible for health, life,
dental, and disability benefits that are provided by the Company for employees
who have completed 90 days of employment. 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 $119,000 during the first six months
of 2003 compared to $98,000 during the first six months of 2002. Workers
compensation insurance expense increased by $2,500 and vacation benefit expense
increased by $4,500 during the first six months of 2003 primarily as a result of
the increase in head count.
Selling, general and administrative expense increased $3,400 or 1 % during
the first six months of 2003, as compared to the first six months of 2002.
Depreciation and amortization expense decreased $4,000 or 8% primarily due
to certain assets becoming fully depreciated.
Office, vehicle and equipment rental expense increased $250 or 3% during
the first six months of 2003, as compared to the first six months of 2002.
Professional fees increased $18,000 or 65% during the first six months of
2003, as compared to the first six months of 2002, primarily as a result of
legal fees associated with the dispute with UMC's health insurance provider. A
description of this matter is included under Part 11 Item 1. Legal Proceedings.
Interest, net decreased $81 or 1% during the first six months of 2003, as
compared to the first six months of 2002.
Provision for doubtful accounts expense decreased $2,000 or 100% primarily
due to a small amount of receivables being reserved during the first six months
of 2002, and no balances being reserved during the first six months of 2003.
Liquidity and Capital Resources
At June 30, 2003, the Company's liquid assets, consisting of cash, and
available factoring reserve totaled $267,000 compared to $199,000 at December
31, 2002. Working capital was $193,000 at June 30, 2003 compared to $146,000 at
December 31, 2002.
Operating activities during the current six-month period provided cash of
$89,000, compared to cash of $82,000 provided by operating activities during the
same period of 2002.
Cash of $64,000 was expended on investing activities during the current
six-month period. $35,000 was expended for the purchase of three automobiles,
two of which are assigned to sales personnel, and one which is assigned to the
Director of Collection Operations for business travel. $29,000 was expended for
the purchase of equipment, software and building improvments, and $33,000 was
expended for new software development. The Company also received proceeds from
the sale of a computer and other office equipment in the amount of $1,500 during
this period. The Company expended $39,000 on investing activities during the
same six-month period of 2002 for the purchase of equipment, software and
building improvements.
12
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
Financing activities during the current six-month period used cash of
$3,000 and consisted of $27,000 in loan proceeds for the purchase of three used
automobiles and $50 in proceeds from the exercise of employee stock options,
offset by principal payments totaling $9,000 for notes payable, and $21,000 on
capital lease obligations. Financing activities during the same six-month period
of 2002 used cash of $47,000 and consisted of principal payments totaling
$16,000 for notes payable, and principal payments on capital lease obligations
totaling $31,000.
During the current six-month period, cash flow from operations was
adequate to cover all working capital and liquidity requirements. Assuming that
the current contracts with UMC's customers remain in force, UMC management
believes the Company will continue to generate cash flow from operations
sufficient to meet all working capital and liquidity requirements.
If UMC is unable to service its financial obligations as they become due,
it will be required to adopt alternative strategies, which may include but are
not limited to, actions such as reducing management and line employee headcount
and compensation, attempting to restructure existing financial obligations,
seeking a strategic merger or acquisition, seeking the sale of the company,
and/or seeking additional debt or equity capital. There can be no assurance that
any of these strategies could be effected on satisfactory terms.
CHANGES IN CUSTOMER BASE
On June 24, 2003 UMC executed a contract with a hospital in central Texas.
Under this contract, UMC will provide day one claims billing and follow up
services for the hospital. The company also received a backlog placement of the
hospital's entire current claims inventory. Management believes that this
contract will generate revenues of approximately $240,000 per year.
On August 11, 2003 UMC executed a contract with a hospital in west Texas.
Under this contract, UMC will provide claims billing and follow up services for
the hospital for claims that have aged over 30 days. The Company will also as
provide early out patient balance account management services for the hospital.
Management believes that this contract will generate revenues of approximately
$360,000 per year.
MANAGEMENT CHANGES
On May 1, 2003 Clint Owen joined UMC as Vice President of Sales and
Marketing. Mr. Owen was previously employed by Business Office Systems and
Solutions ("BOSS"), where he was a partner, and served as CEO from January 1996
through March 2003. Prior to his employment with BOSS, Mr. Owen was a National
Sales Executive with Nationwide Credit, Inc., from 1994 through December 1995.
From 1991 through July 1994 Mr. Owen was Sales Manager and Vice President of
Sales for Spectra Claims Collection Services and CRW Financial, Inc. Mr. Owen
began his career in healthcare collection services with TRW in May of 1989.
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.
13
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
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 June 30, 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 six
months of 2003, the Company capitalized $32,605 in costs incurred for new
internal software development that was in the application development stage.
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 August 4, 2003, and concluded that our disclosure
controls and procedures are appropriate and that no changes are required at this
time.
14
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
There have been no significant changes in our internal controls, or in other
factors that could affect our internal controls, since August 4, 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. None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
15
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
31-1 Section 302 - Certification of Chief Executive Officer
31-2 Section 302 - Certification of Chief Financial Officer
32-1 Section 906 - Certification of Chief Executive Officer
32-2 Section 906 - Certification of Chief Financial Officer
99.1 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: August 12, 2003
--------------------------------- ---------------
Nathan E. Bailey
Vice President and Controller
(Principal Accounting Officer)
16