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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, 2004
[ ] 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, 2004, there were outstanding 30,713,550 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, 2004
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at March 31, 2004 and
December 31, 2003.......................................... 1
Consolidated Statements of Operations for the Three
Months Ended March 31, 2004 and 2003....................... 2
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2004 and 2003....................... 3
Notes to the 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............................................... 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 ................................................................ 17
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2004 2003
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 80,533 $ 62,851
Restricted cash ............................................... 48,370 60,365
Accounts receivable, net of allowance for doubtful accounts
of $417 ................................................... 520,228 707,301
Deposits with factor .......................................... 204,329 1,313
Prepaid expenses and other current assets ..................... 46,421 31,106
------------ ------------
Total current assets ................................................ 899,881 862,936
Other non-current assets ............................................ 19,023 18,773
Property and equipment, net of accumulated depreciation of $1,055,012
and $1,023,215, respectively .................................. 459,170 473,881
Assets under capital leases, net of accumulated amortization of
$241,974 and $232,514, respectively ........................... 194,819 204,279
------------ ------------
Total assets ........................................................ 1,572,893 1,559,869
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations .................. 41,402 41,177
Current portion of notes payable ............................. 45,524 44,986
Trade accounts payable ........................................ 42,847 113,364
Payable to clients ............................................ 39,667 54,008
Accrued professional fees ..................................... 14,693 19,662
Accrued payroll and benefits .................................. 228,002 209,461
Accrued expenses - Allied Health Options ...................... 43,088 43,284
Accrued expenses other ........................................ 31,283 13,123
------------ ------------
Total current liabilities ........................................... 486,506 539,065
Long-term capital lease obligations ................................. 136,509 146,535
Long-term notes payable, excluding current portion .................. 154,428 165,996
Deferred revenue - Pampa Economic Development Corporation ........... 120,000 120,000
------------ ------------
Total liabilities ................................................... 897,443 971,596
------------ ------------
Stockholders' equity:
Common stock; $0.01 par value; 50,000,000 shares authorized;
29,519,097 shares issued ................................... 295,191 295,191
10% Cumulative convertible preferred stock; $0.01 par value;
5,000,000 shares authorized; none issued ................... -- --
Less treasury stock at cost, 305,547 shares ................... (221,881) (221,881)
Additional paid-in capital .................................... 18,815,771 18,815,771
Accumulated deficit ........................................... (18,213,631) (18,300,808)
------------ ------------
Total stockholders' equity ................................. 675,450 588,273
------------ ------------
Total liabilities and stockholders' equity ................. $ 1,572,893 $ 1,559,869
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
1
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2004 2003
------------ ------------
Revenues:
Billing and collection services...................................... $ 1,022,618 $ 825,381
Coding services...................................................... $ 47,133 $ 45,483
Other revenues....................................................... 23,719 15,375
------------ ------------
Total revenues.................................................... 1,093,470 886,239
Expenses:
Wages and benefits................................................... 745,340 591,587
Selling, general and administrative.................................. 188,647 160,269
Office, vehicle and equipment rental................................. 4,838 5,961
Depreciation and amortization........................................ 41,257 19,054
Professional fees.................................................... 18,006 20,507
Interest, net........................................................ 8,205 3,371
------------ ------------
Total expenses....................................................... 1,006,293 800,749
------------ ------------
Net income................................................................. $ 87,177 $ 85,490
============ ============
Basic earnings per common share:
Net income........................................................... $ .0030 $ .0029
============ ============
Weighted average shares outstanding........................................ 29,213,550 29,210,217
Diluted earnings per common share:
Net income........................................................... $ .0028 $ .0027
============ ============
Weighted average shares outstanding....................................... 30,655,568 31,314,000
The accompanying notes are an integral part of these consolidated financial
statements
2
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2004 2003
---------- ----------
Cash flows from operating activities:
Net income .......................................................... $ 87,177 $ 85,490
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of assets under capital leases ................. 9,460 2,528
Depreciation of fixed assets ................................ 31,797 16,526
Changes in assets and liabilities:
Restricted cash ............................................. 11,995 (20,020)
Accounts receivable ......................................... 187,073 35,130
Factor reserve .............................................. (203,016) (129,515)
Prepaid expenses and other assets ........................... (15,565) (1,844)
Accounts payable ............................................ (70,517) 26,492
Payable to clients .......................................... (14,341) 19,905
Accrued liabilities ......................................... 31,536 20,512
---------- ----------
Net cash provided by operating activities ................................. 55,599 55,204
Cash flows from investing activities:
Purchase of equipment and software .................................. (5,786) (9,282)
Capitalized software development .................................... (11,300) (19,295)
---------- ----------
Net cash used in investing activities ..................................... (17,086) (28,577)
---------- ----------
Cash flows from financing activities:
Repayment of capital lease obligations .............................. (9,801) (17,144)
Repayment of notes .................................................. (11,030) (4,713)
---------- ----------
Net cash used in financing activities ..................................... (20,831) (21,857)
---------- ----------
Increase in cash and cash equivalents ..................................... 17,682 4,770
Cash and cash equivalents at beginning of period .......................... 62,851 51,760
---------- ----------
Cash and cash equivalents at end of period ................................ $ 80,533 $ 56,530
========== ==========
Supplemental disclosures:
Cash paid for interest .................................................... $ 8,205 $ 3,371
Non-cash investing and financing activities:
Additions to Capital Lease Obligations .................................... $ -- $ 47,717
The accompanying notes are an integral part of these consolidated financial
statements
3
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of United
Medicorp, Inc. ("UMC" or the "Company") include its wholly owned subsidiary,
United Moneycorp. Inc. ("UMY"). All material intercompany transactions and
balances have been eliminated. Certain prior year balances have been
reclassified to conform with current year presentation. The financial
information presented should be read in conjunction with the audited
financial statements of the Company for the year ended December 31, 2003
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 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 stages of development. During the first quarter of 2004, the
Company capitalized $11,300 in costs incurred for new internal software
development that was in the application development stage.
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). At
March 31, 2004 and December 31, 2003, UMC had no factored invoices outstanding,
therefore the balance in the factor reserve account represents cash reserves on
deposit at the factoring company. The factoring company pays interest at the
rate of prime minus two percent on excess funds that remain on deposit with the
factoring company. The balances of the available reserves included in the Factor
Reserve as of March 31, 2004 and December 31, 2003 were as follows:
March 31, December 31,
2004 2003
------------ ------------
Required Reserve ............................. $ -- $ --
Available Reserve ............................ 204,329 1,313
------------ ------------
Factor Reserve at end of period............... $ 204,329 $ 1,313
============ ============
4
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATMENTS
SFAS NO. 148 PRO FORMA
Pro forma net income (loss) and earnings per share presented below reflect
the results of the Company as if the fair value based accounting method
described in SFAS No. 148 had been used to account for stock and warrant-based
compensation costs, net of taxes and forfeitures of prior year grants:
Three Months Ended March 31
-----------------------------
2004 2003
------------ ------------
Pro forma impact of fair value method (FAS 148)
Net income .......................................... $ 87,177 $ 85,490
SFAS No. 148 employee compensation cost ............. (1,066) (2,078)
------------ ------------
Pro forma net income ................................ 86,111 83,412
Earnings per common share
Basic as reported ................................... $ .0030 $ .0029
Diluted as reported ................................. .0028 .0027
Basic - pro forma ................................... .0029 .0029
Diluted - pro forma ................................. $ .0028 $ .0026
Weighted average Black-Scholes fair value assumptions
Risk free interest rate ............................. 2.5% 2.5%
Expected life ....................................... 10 years 10 years
Expected volatility ................................. 228% 230%
Expected dividend yield ............................. -- --
5
UNITED MEDICORP, INC. AND SUBSIDIARIES
Managements 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.
LOSS OF SIGNIFICANT CUSTOMERS
On October 22, 2003 UMC announced the resignation of its key contact at
Presbyterian Healthcare Services of New Mexico ("PHS"). On February 20, 2004 UMC
announced that it had been informed by new management at PHS that most of the
business outsourced to UMC would be re-bid, and that the remaining business
would be brought back in house in mid 2004. On March 15, 2004 PHS informed UMC
that it was not selected as one of the vendors to provide ongoing services for
PHS. PHS management stated that the reason UMC was not selected was because
other vendors had submitted proposals with fee percentages lower than those
proposed by UMC. PHS management also stated that UMC would continue to receive
placements of accounts from PHS through March 31, 2004. UMC management expects
revenues from PHS to ramp down rapidly during the second quarter of 2004. This
contract provided revenues of $549,371, $2,434,000, $2,246,000 and $1,744,000,
which represented 50%, 62%, 65%, and 63% of total revenue for the first quarter
of 2004 and for the years 2003, 2002, and 2001 respectively.
On May 4, 2004, the Company received notification from management of
Hamilton Hospital ("Hamilton") that they would be canceling their contract with
UMC for day one claims management services effective June 24, 2004, which is the
end of the initial one-year contract term. Hamilton management praised the work
that UMC has done for them during the term of the contract, but cited cost
considerations as the reason for termination. This contract generated revenue of
$118,000 during 2003 and $81,492 during the first quarter of 2004, which
represented 3% and 7.5% of 2003 and first quarter 2004 gross revenue
respectively.
SUBSEQUENT EVENTS
On May 7, 2004, the Company executed a contract with a hospital in East
Texas for day one claims management, early stage patient balance collection, and
bad debt patient balance collection services. This contract supercedes a
contract that was executed on February 23, 2004 for early stage patient balance
and bad debt patient balance collection services. UMC management anticipates
that this contract will generate combined revenue of $115,000 during the second
quarter of 2004, $270,000 during the third quarter, and $315,000 in the fourth
quarter of 2004.
On April 23, 2004, the Company's Chairman and CEO, Peter W. Seaman,
exercised a warrant to purchase 1,500,000 shares of UMC common stock. This
warrant was issued to Mr. Seaman on December 28, 1999 with a $0.00 exercise
price, as incentive to reposition the Company such that his personal guarantee
would no longer be required on the Company's factoring agreement, or other
financing arrangements. These warrants became fully exercisable upon: (i)
release of any and all personal guarantee(s) required to obtain financing from
the Company's factor or any other financing source, and (ii) the Company
qualifying for bank credit for which personal guarantees are not required or,
(iii) elimination of the Company's need for financing to meet its working
capital and other operating requirements. Requirements (i) and (ii) were met,
and the warrant became exercisable on December 23, 2003.
6
UNITED MEDICORP, INC. AND SUBSIDIARIES
Managements Discussion and Analysis of
Financial Condition and Results of Operations
MANAGEMENT'S PLAN WITH RESPECT TO LOST REVENUES
During the past several years, management has taken steps to lessen the
Company's concentration risk associated with its large customers. These steps
include, but are not limited to:
o In April 2002, the Company started up UMC's Coding Services Division.
During 2003 this division generated revenue of $183,000.
o In March 2003, the Company began development of its Electronic Medical
Records Storage service. The beta test of this product was completed in
September 2003, and the Company began offering this service to its
customers shortly thereafter.
o From 2000 to 2004 the annual budget for UMC's sales and marketing
department has increased from $0 to $299,000. In 2003 the Company's actual
expenses for sales and marketing were $233,000 compared to $117,000 in
2002 and $15,000 in 2001.
o From June 24, 2003 through May 10, 2004, the Company has executed the
following new contracts:
o On May 7, 2004 the Company executed a contract for day one medical
claims billing and follow up service, early stage patient balance
collection service, and bad debt patient balance collection service
with a hospital located in East Texas. This contract supercedes a
contract that was previously executed on February 23, 2004 for early
stage and bad debt patient balance collection services.
o A collection services contract for early stage and bad debt patient
balance accounts was executed on April 9, 2004, with a hospital in
South Texas.
o An offsite electronic medical records storage contract with a
hospital in Central Texas was executed on March 17, 2004.
o A medical claims management contract for day one billing and follow
up was executed on March 12, 2004, with a hospital located in West
Texas. The term of this contract is only two months, with an option
to renegotiate the fee structure for ongoing billing at the end of
the term.
o A collection services contract for early stage and bad debt patient
balance accounts was executed on February 23, 2004, with a hospital
in East Texas.
o A coding services contract with a hospital in West Texas was
executed on February 16, 2004.
o A medical claims management contract for day one billing and follow
up was executed on January 22, 2004, with a hospital located in West
Texas.
o A collection services contract for early stage patient balance
accounts was executed on December 18, 2003 with a hospital in South
Texas.
o An offsite electronic medical records storage contract with a
hospital in West Texas was executed on December 18, 2003.
o A coding services contract with a hospital in Central Texas was
executed on December 12, 2003.
o A collection services contract for bad debt patient balance accounts
was executed on December 10, 2003 with a hospital in South Texas.
o A coding services contract with two hospitals in Central Texas was
executed on November 28, 2003.
o A collection services contract for early stage patient balance
accounts was executed on November 20, 2003 with a hospital in West
Texas.
o A coding services contract for overflow coding was executed with a
hospital in East Texas was executed on November 5, 2003
o A collection services contract for bad debt patient balance accounts
was executed on September 15, 2003 with a hospital in West Texas.
7
UNITED MEDICORP, INC. AND SUBSIDIARIES
Managements Discussion and Analysis of
Financial Condition and Results of Operations
o A medical claims management contract for claims follow up and
patient balance collections was executed on August 28, 2003 with a
hospital located in West Texas.
o A collection services contract for early stage patient balance
accounts was executed on August 6, 2003 with a hospital in West
Texas.
o A medical claims management contract for day one billing and follow
up was executed on June 24, 2003, with a hospital located in Central
Texas. UMC management has received notice of this customer's
intention to cancel this contract at June 24, 2004 (the end of the
initial contract term), due to cost considerations.
Management continues to vigorously pursue new business while rigorously
managing expenses without negatively impacting service levels. However, there
can be no assurance that UMC will be successful in obtaining enough new business
to replace the lost business from PHS.
REVENUE AND EARNINGS GUIDANCE FOR 2004
As of the date of this report, management's projection of annualized
revenues from the new contracts listed above falls within a range between 58%
and 94 % of the 2003 total revenues from PHS. With the remaining revenue to be
received during 2004 from PHS during the ramp down phase, the new contracts
described above along with other existing customers are projected to place the
Company's 2004 revenues between 90% and 105% of 2003 revenues. In addition,
management believes it will acquire additional new contracts in 2004 that will
make up most if not the entire amount of revenue lost from PHS. Due to
uncertainties regarding the profitability of new customer contracts, net income
may deviate from historical amounts. If management is unable to successfully
develop and implement new profitable customer contracts and new service lines,
payroll expense will be scaled down to the level required to service existing
contracts, without sacrificing quality of service. If this adjustment in
headcount is not sufficient to bring expenses in line with revenue and future
cash requirements, management will be required to adopt other alternative
strategies, which may include but are not limited to, actions such as further
reducing management and line employee headcount and compensation, restructuring
existing financial obligations, seeking a strategic merger or acquisition,
seeking the sale of the Company or the Company's public shell, and/or seeking
additional debt or equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms.
8
UNITED MEDICORP, INC. AND SUBSIDIARIES
Managements 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
2004 2003 2002 2001
------- ------------------------------ ------------------------------ ----------------------
Quarter Quarter Quarter Quarter
------- ------------------------------ ------------------------------ ----------------------
First Fourth Third Second First Fourth Third Second First Fourth Third Second
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Number of Claims
Accepted for
Processing:
Ongoing 36,869 36,740 42,001 31,282 30,549 32,602 43,522 43,761 34,012 21,818 11,905 13,161
Backlog -- -- -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 36,869 36,740 42,001 31,282 30,549 32,602 43,522 43,761 34,012 21,818 11,905 13,161
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 34,232 40,723 36,662 24,272 23,033 26,717 30,772 22,085 23,336 14,221 8,864 8,382
Backlog -- -- -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 34,232 40,723 36,662 24,272 23,033 26,717 30,772 22,085 23,336 14,221 8,864 8,382
Collection $
(000's)
Ongoing 8,780 7,897 6,923 6,098 5,010 6,126 6,091 4,840 4,710 4,470 4,147 4,307
Backlog -- -- -- -- -- -- -- -- 6 11 80 387
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 8,780 7,897 6,923 6,098 5,010 6,126 6,091 4,840 4,716 4,481 4,227 4,694
Fees Earned
(000's)
Ongoing 560 522 500 448 460 460 471 405 401 301 298 290
Backlog -- -- -- -- -- -- -- -- 1 2 13 35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 560 522 500 448 460 460 471 405 404 303 311 325
Average Fee %
Ongoing 6.4% 6.6% 7.2% 7.3% 8.6% 7.5% 7.7% 8.4% 8.5% 6.7% 7.2% 6.7%
Backlog --% --% --% --% --% --% --% --% 16.6% 18.2% 16.3% 9.0%
For Ongoing claims, there is typically a time lag of approximately 30 to
90 days from contract execution to complete development of system interfaces and
definition of procedural responsibilities with customer personnel. During this
period, Company personnel survey the customer's existing operations and prepare
for installation. Once the customer begins transmitting claims to the Company,
there is usually a time lag of 20 to 60 days between transmission of claims to
third party payors and collection of those claims from payors.
During the fourth quarter of 2001, the Company began processing secondary
claims under an ongoing accounts receivable management services contract signed
March 22, 2000. The Number of Claims Accepted for Processing and the Gross $
Amount of Claims Accepted for Processing shown in the preceding table include
secondary claims that are subject to automatic crossover payments from certain
payors. The Company does not take credit for, nor report as collections, such
crossover payments that are received by the customer within 35 days of the date
that the claim is transmitted to UMC. UMC management estimates that about 30% to
50% of the secondary claims accepted for processing are due from crossover
payors, of these, approximately 60% pay with no effort required (and no credit
9
UNITED MEDICORP, INC. AND SUBSIDIARIES
Managements Discussion and Analysis of
Financial Condition and Results of Operations
for collections received is taken) by UMC. As a result, the ratio of Collections
to the Gross $ Amount of Claims Accepted for Processing shown in the preceding
table will be lower for periods beginning with the fourth quarter of 2001 than
for the preceding quarters shown.
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
2004 2003 2002 2001
------- ------------------------------ ------------------------------ ----------------------
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 37,828 37,336 34,601 24,330 11,266 13,859 17,818 17,250 26,977 27,413 28,537 42,351
Bad debt 21,728 38,092 27,390 15,448 15,322 26,281 16,430 14,815 20,028 25,811 932 587
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 59,556 75,428 61,991 39,778 26,588 40,140 34,248 32,065 47,005 53,224 29,469 42,938
Gross $ Amount
of Accounts
Accepted for
Collection
(000's)
Early out 38,110 32,808 30,561 17,897 10,815 12,021 13,424 14,022 22,611 20,724 20,972 30,834
Bad debt 14,067 24,693 16,993 12,379 12,547 15,934 9,714 10,476 12,959 17,035 762 576
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 52,177 57,501 47,554 30,276 23,362 27,955 23,138 24,478 35,570 37,759 21,734 31,410
Collection $
(000's)
Early out 2,679 2,535 1,862 1,105 949 1,220 1,563 2,004 2,444 2,433 3,810 3,904
Bad debt 1,140 1,301 1,283 1,074 1,155 909 939 895 745 422 57 64
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 3,819 3,836 3,145 2,179 2,104 2,129 2,502 2,899 3,189 2,855 3,867 3,968
Fees Earned
(000's)
Early out 222 202 182 132 113 131 157 187 227 215 356 370
Bad debt 241 279 279 226 252 203 208 186 152 94 9 10
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 463 481 461 358 365 334 365 373 379 309 365 380
Average Fee %
Early out 8.3% 8.0% 9.7% 11.9% 11.9% 10.7% 10.0% 9.3% 9.3% 8.8% 9.3% 9.5%
Bad debt 21.3% 21.4% 21.7% 21.0% 22.1% 22.3% 22.1% 20.8% 20.4% 22.2% 15.8% 15.6%
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 a few 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.
10
UNITED MEDICORP, INC. AND SUBSIDIARIES
Managements Discussion and Analysis of
Financial Condition and Results of Operations
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,
-------------------
2004 2003
-------- --------
Revenue ........................................ 100.0% 100.0%
-------- --------
Wages and benefits ........................... 68.2 66.8
Selling, general and administrative .......... 17.3 18.1
Office, vehicle and equipment rental .... .... .4 .7
Depreciation and amortization ................ 3.8 2.1
Professional fees ............................ 1.6 2.3
Interest, net ................................ .7 .4
-------- --------
Total expenses ............................... 92.0 90.4
-------- --------
Net income ................................... 8.0% 9.6%
======== ========
Comparison of the Quarter Ended March 31, 2004 to the Quarter Ended March 31,
2003
Revenues increased $207,000, or 23% primarily due to the following:
o Ongoing Accounts Receivable Management Services revenue of $560,000 in the
current quarter increased by $100,000 compared to the same quarter in 2003
primarily as a result of the addition of five new ongoing accounts
receivable management contracts signed after the first quarter of 2003.
These contracts produced revenue of $144,000 during the first quarter of
2004. The Company also recognized an $8,000 increase in revenue from an
ongoing accounts receivable management contract that was signed October
31, 2000. This increase in revenue was offset by decreased revenue of
$23,000 from an ongoing accounts receivable management services contract
that was signed March 22, 2000. During the first quarter of 2003, the
Company also recognized revenue of $29,000 from a contract dated August 1,
2002, that was terminated in December 2002. This contract did not generate
any revenue during the first quarter of 2004.
o Collection Agency Services revenue of $463,000 in the current quarter
increased by $98,000 compared to the same quarter of 2003, due primarily
to the addition of eighteen new contracts for collection services that
were signed after the first quarter of 2003. These contracts produced
revenue of $116,000 during the first quarter of 2004. The Company also
received increased revenues from a contract signed April 5, 2002. This
contract provided revenues of $41,500 and $100 during the first quarter of
2004 and 2003 respectively. This increased revenue was partially offset by
reduced revenue from a collection agency services contract that was
executed in March of 2000. This contract provided revenue of $276,000 and
$306,000 during the first quarter of 2004 and 2003 respectively.
Collection agency services revenue was also decreased as the result of the
termination of a collection agency services revenue contract in February
2003 that was executed in August 2001. This contract provided revenue of
$400 and $17,500 during the first quarter of 2004 and 2003 respectively.
Revenue from other collection agency services contracts decreased by
$12,000 during the first quarter of 2004 as compared to the first quarter
of 2003.
11
UNITED MEDICORP, INC. AND SUBSIDIARIES
Managements Discussion and Analysis of
Financial Condition and Results of Operations
o Coding Services revenue -Revenue from coding services of $47,000 during
the first quarter of 2004 increased by $2,000 compared to first quarter of
2003. 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
2004 2003 2002
------- ------------------------------ --------------
Quarter Quarter Quarter
------- ------------------------------ --------------
First Fourth Third Second First Fourth Third
------ ------ ------ ------ ------ ------ ------
UMY
- ---------------
Number of Claims accepted
for Coding:
Inpatient 832 303 177 213 161 140 9
Outpatient 699 1,007 734 761 553 201 --
------ ------ ------ ------ ------ ------ ------
Total 1,531 1,310 931 974 714 341 9
o Other Income of $23,700 in the current quarter consisted of: Incentives
from the Pampa Economic Development Corporation ("PEDC")of $17,500;
Interest charges on past due invoices of $4,000; and installation charges
and service fees for the Medical Records Storage service of $2,200. Other
income during the first quarter of 2003 consisted of $15,400 in incentives
from the PEDC.
Wages and benefits expense increased $154,000 or 26% due primarily to
increased headcount. Average headcount for the first quarter of 2004 was 117,
compared to an average headcount of 87 during the first quarter of 2003. Wage
and salary expense was $542,184 during the first quarter of 2004 compared to
$431,792 during the first quarter of 2003. Wage and 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 with UMC. The Company had 86 employees
enrolled in such benefit plans during March of 2004, compared to 72 during March
of 2003. Premiums paid for these employee benefits totaled $83,247 during the
first quarter of 2004 compared to $59,716 during the first quarter of 2003.
Other payroll expenses, which include taxes, vacation accrual, and workers
compensation premiums, totaled $119,909 during the first quarter of 2004,
compared to $100,079 during the first quarter or 2003.
Selling, general and administrative expense increased $28,000 or 18%
primarily due to increases in postage, $11,500; travel $7,000; and taxes and
insurance expense, $7,500. The increase in postage expense was the result of an
increase in collection letters sent during the first quarter of 2004, due to
increased customer placements of collection accounts. The increase in travel
expense was the result of increased travel required by a larger customer base,
and increased activity in the sales and marketing department. The increase in
taxes and insurance expense was primarily the result of the accrual of Texas
state franchise tax expense during the first quarter of 2004. Texas state
franchise tax was not accrued during the previous year due to the availability
of net operating loss carryforwards to offset taxable income. These increased
expenses were partially offset by a decrease in factoring fees of $5,000 during
the current year quarter. The Company factored invoices during the first two
weeks of the first quarter of 2004, but factored invoices for the entire first
quarter of 2003. All other SG&A expenses increased by a net $7,000 during the
first quarter of 2004 as compared to the first quarter of 2003.
12
UNITED MEDICORP, INC. AND SUBSIDIARIES
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Office, vehicle and equipment rental expense decreased $1,000 or 19%
primarily due to the vehicle lease expense that was incurred during the first
quarter of 2003. The Company did not incur vehicle lease expense during the
first quarter of 2004.
Depreciation and amortization expense increased $22,000 or 117% as a
result of the addition of approximately $404,000 in leased and purchased fixed
assets during 2003, and additions of approximately $17,000 during the first
quarter of 2004.
Professional fees expense decreased $2,500 or 12% due to primarily to
legal fees of $4,000 incurred during the first quarter of 2003. No legal fees
were incurred during the first quarter of 2004. This decrease in legal fees was
partially offset by an increase in director fees as a result of an increased
number of members on the Company's board of directors in the first quarter of
2004 as compared to the first quarter of 2003.
Interest expense increased $5,000 or 143% due to interest expense incurred
on two capital leases, four auto loans, and an unsecured line of credit that
were added after the first quarter of 2003.
Net Income for the current quarter increased to $87,177 from net income of
$85,490 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 depreciation and amortization expense
as described above.
Liquidity and Capital Resources
At March 31, 2004, the Company's liquid assets, consisting of cash,
totaled $80,533 plus unencumbered cash due from the factoring company of
$204,329, compared to cash of $62,851 and unencumbered cash due from the
factoring company of $ 1,313 at December 31, 2003. The cash due from the
factoring company is available to be wired to UMC by the factoring company upon
UMC's request. Working capital was $413,000 at March 31, 2004 compared to
working capital of $324,000 at December 31, 2003.
Operating activities during the current quarter provided cash of $56,000
compared to cash of $55,000 provided by operating activities during the same
period of 2003.
Cash of $6,000 was expended on investing activities during the current
quarter for the purchase of equipment, and $11,000 was expended for new internal
software development. The Company expended cash of $28,500 for investing
activities during the same period of 2003.
Financing activities during the current quarter used cash of $21,000 and
consisted of principal payments totaling $11,000 for notes payable plus
principal payments on capital lease obligations totaling $10,000. Financing
activities during the same quarter of 2002 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.
During the current quarter, cash flow from operations was adequate to
cover all working capital and liquidity requirements. Despite the loss of the
contract with PHS as described in the Company's Form 10-K for the year ended
December 31, 2003, management believes that current cash and cash equivalents
and projected cash flows from operations together with the Company's lines of
credit, factoring agreement, incentives under the Economic Development and
Incentive Agreement, capital leases and other potential financing should be
sufficient to support the Company's cash requirements.
13
UNITED MEDICORP, INC. AND SUBSIDIARIES
Managements Discussion and Analysis of
Financial Condition and Results of Operations
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 2003 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 and fees for medical record storage services are 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, 2004
there were no factored invoices outstanding.
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 2004, the Company capitalized $11,300 in costs incurred for new internal
software development that was in the application development stage.
14
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 UMC must disclose in its
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 4, 2004, 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 4, 2004.
PART 11. Other Information
Item 1. Legal Proceedings
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
Item 6. Exhibits and Reports on Form 8-K
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:
The Company filed the following reports on Form 8-K during the quarter
ended March 31, 2004:
1) On February 20, 2004 the Company furnished a Current Report on
Form 8-K attaching a press release reporting notification from
the Company's largest customer of its intent to re-bid or bring
back in-house all work currently outsourced to the Company.
2) On March 18, 2004 the Company furnished a Current Report on Form
8-K attaching a press release reporting notification from the
Company's largest customer that the Company was not selected to
provide ongoing services for the customer.
3) On March 31, 2004 the Company furnished a Current Report on Form
8-K attaching a press release reporting the Company's financial
results for the fourth quarter and year ended December 31, 2003.
16
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 12, 2004
------------------------------------- ------------
Nathan E. Bailey
Vice President and Controller
(Principal Accounting Officer)
17