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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, 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 August 9, 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 June 30, 2004
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2004 and
December 31, 2003........................................... 1
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2004 and 2003........... 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2004 and 2003......................... 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........................................... 16
ITEM 4. Controls and Procedures.......................................... 16
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................ 17
ITEM 2. Changes in Securities............................................ 17
ITEM 3. Defaults Upon Senior Securities.................................. 17
ITEM 4. Submission of Matters to a Vote of Security Holders.............. 17
ITEM 5. Other Information................................................ 17
ITEM 6. Exhibits and Reports on Form 8-K................................. 18
Signatures ............................................................. 18
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2004 2003
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 471,441 $ 62,851
Restricted cash ............................................. 109,323 60,365
Accounts receivable, net of allowance for doubtful accounts
of $417 in 2003 and 2002 ................................. 751,543 707,301
Deposits with factor ........................................ 2,045 1,313
Prepaid expenses and other current assets ................... 11,435 31,106
------------ ------------
Total current assets .............................................. 1,345,787 862,936
Other non-current assets .......................................... 19,123 18,773
Property and equipment, net of accumulated depreciation of $861,592
and $817,554 respectively ................................... 344,957 381,354
Developed and purchased software net of accumulated amortization of
$225,678 and $205,661 respectively .......................... 86,242 92,527
Assets under capital leases, net of accumulated amortization of
$251,434 and $232,514, respectively ......................... 185,496 204,279
------------ ------------
Total assets ...................................................... 1,981,605 1,559,869
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations ................ 42,574 41,177
Current portion of notes payable ............................ 58,063 44,986
Trade accounts payable ...................................... 57,928 113,364
Payable to clients .......................................... 97,729 54,008
Accrued professional fees ................................... 15,541 19,662
Accrued payroll and benefits ................................ 247,466 209,461
Accrued expenses - Allied Health Options .................... 42,892 43,284
Accrued expenses other ...................................... 44,387 13,123
------------ ------------
Total current liabilities ......................................... 606,580 539,065
Long term capital lease obligations ............................... 125,261 146,535
Long term notes payable, excluding current portion ................ 238,744 165,996
Deferred revenue - Pampa Economic Development Corporation ......... 120,000 120,000
------------ ------------
Total liabilities ................................................. 1,090,585 971,596
------------ ------------
Stockholders' equity:
Common stock; $0.01 par value; 50,000,000 shares authorized;
31,019,097 and 29,519,097 shares issued, respectively .... 310,191 295,191
10% Cumulative convertible preferred stock; $0.01 par value;
5,000,000 shares authorized; none issued ................. -- --
Less treasury stock at cost, 350,547shares .................. (223,456) (221,881)
Additional paid-in capital .................................. 18,800,771 18,815,771
Retained deficit ............................................ (17,996,486) (18,300,808)
------------ ------------
Total stockholders' equity ........................................ 891,020 588,273
------------ ------------
Total liabilities and stockholders' equity ........................ $ 1,981,605 $ 1,559,869
============ ============
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,
------------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues:
Billing, collection, and coding services... $ 1,163,937 $ 805,167 $ 2,186,556 $ 1,630,548
Coding services ........................... 61,591 46,986 109,723 92,469
Other revenues ............................ 17,463 15,250 40,182 30,625
----------- ----------- ----------- -----------
Total revenues ......................... 1,242,991 867,403 2,336,461 1,753,642
Expenses:
Wages and benefits ........................ 703,812 606,596 1,449,152 1,198,183
Selling, general and administrative ....... 249,305 165,530 437,952 325,799
Depreciation and amortization ............. 41,717 22,572 82,974 41,626
Office, vehicle and equipment rental ...... 3,500 4,369 8,338 10,330
Professional fees ......................... 19,502 24,857 37,509 45,364
Interest, net ............................. 8,010 4,609 16,214 7,981
Loss on disposal of assets ................ -- -- -- --
Provision for doubtful accounts ........... -- -- -- --
----------- ----------- ----------- -----------
Total expenses ............................ 1,025,846 828,533 2,032,139 1,629,283
----------- ----------- ----------- -----------
Net income ...................................... $ 217,145 $ 38,870 $ 304,322 $ 124,359
=========== =========== =========== ===========
Basic earnings per common share:
Net income ................................ $ 0.0072 $ 0.0013 $ 0.0102 $ 0.0043
=========== =========== =========== ===========
Weighted average shares outstanding ............. 29,963,550 29,213,550 29,713,550 29,211,884
Diluted earnings per common share:
Net income ................................ $ 0.0069 $ 0.0012 $ 0.0097 $ 0.0040
=========== =========== =========== ===========
Weighted average shares outstanding ............. 31,416,308 31,200,000 31,372,687 31,319,500
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,
2004 2003
---------- ----------
Cash flows from operating activities:
Net income ................................................... $ 304,322 $ 124,359
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of assets under capital leases .......... 19,318 4,742
Depreciation of fixed assets ......................... 63,656 36,884
Changes in assets and liabilities:
Restricted cash ...................................... (48,958) 10,625
Accounts receivable, gross ........................... (44,242) 24,932
Factor reserve ....................................... (732) (76,335)
Prepaid expenses and other assets .................... 19,321 (34,665)
Accounts payable ..................................... (55,436) 15,136
Payable to clients ................................... 43,721 (13,020)
Accrued liabilities .................................. 64,756 (3,350)
---------- ----------
Net cash provided by operating activities .......................... 365,726 89,308
---------- ----------
Cash flows from investing activities:
Purchase of automobiles, furniture, equipment and improvements (10,323) (64,375)
Capitalized software development ............................. (11,300) (32,605)
Proceeds from sale of equipment .............................. 114 1,500
---------- ----------
Net cash used in investing activities .............................. (21,509) (95,480)
---------- ----------
Cash flows from financing activities:
Repayment of capital lease obligations ....................... (19,877) (21,287)
Repayment of notes payable ................................... (16,175) (9,003)
Purchase of treasury stock ................................... (1,575) 50
Net proceeds from bank lines of credit ....................... 102,000 27,350
---------- ----------
Net cash used in financing activities .............................. 64,373 (2,890)
---------- ----------
Increase (decrease) in cash and cash equivalents ................... 408,590 (9,062)
Cash and cash equivalents at beginning of period ................... 62,851 51,760
---------- ----------
Cash and cash equivalents at end of period ......................... $ 471,441 $ 42,698
========== ==========
Supplemental disclosures:
Cash paid for interest ............................................. $ 16,214 $ 7,981
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, 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 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.
ACCOUNTS RECEIVABLE CONCENTRATION
The following table shows the concentration of total net accounts receivable at
June 30, 2004 and December 31, 2003. There was a significant change in the
concentration of the Company's accounts receivable due to the cancellation of a
significant contract as of March 31, 2004 and the addition of two new
significant contracts in March and May of 2004. As of the date of the filing of
this form 10Q, management does not anticipate any problems in collecting its
accounts receivable.
06/30/04 12/31/03
---------- ----------
Customer A............................... 7% 63%
Customer B............................... 1 3
Customer C............................... 44 --
Customer D............................... 23 --
Other customers.......................... 25 34
---------- ----------
100% 100%
========== ===========
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 six months of 2004,
the Company capitalized $11,300 in costs incurred for new internal software
development that was in the application development stage.
4
UNITED MEDICORP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements
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 June
30, 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 June 30, 2004 and December 31, 2003 were as follows
June 30, December 31,
2004 2003
------------ ------------
Required Reserve................................. $ -- $ --
Available Reserve................................ 2,045 1,313
------------ ------------
Factor Reserve at end of period.................. $ 2,045 $ 1,313
============ ============
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:
Three Months Six Months
----------------------- -----------------------
Ended June 30 Ended June 30
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Pro forma impact of fair value method (FAS 148)
Net income ......................................... $ 217,145 $ 38,870 $ 304,322 $ 124,359
SFAS No. 148 employee compensation cost............. (1,885) (2,045) (2,951) (4,123)
---------- ---------- ---------- ----------
Pro forma net income ............................... 215,260 36,825 301,371 120,236
Earnings per common share
Basic as reported.................................... $ .0072 $ .0013 $ .0102 $ .0043
Diluted as reported.................................. .0069 .0012 .0097 .0040
Basic - pro forma................................... .0072 .0013 .0101 .0041
Diluted - pro forma................................. $ .0069 $ .0012 $ .0096 $ .0038
Weighted average Black-Scholes
fair value assumptions
Risk free interest rate.............................. 2.5% 2.5% 2.5% 2.5%
Expected life........................................ 10 years 10 years 10 years 10 years
Expected volatility................................. 230% 230% 230% 230%
Expected dividend yield............................. -- -- -- --
5
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations
ITEM 2 - Management's Discussion and Analysis Of Financial Condition and Results
of 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.
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. UMC continued to receive placements of accounts from PHS
through March 31, 2004, and revenues ramped down rapidly through the second
quarter. This contract provided revenues of $788,757, $2,434,000, $2,246,000 and
$1,744,000, which represented 34%, 62%, 65%, and 63% of total revenue for the
first six months 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
$147,498 and $118,000 during the first six months of 2004 and for the year 2003
which represented 6% and 3% of each period's gross revenue respectively.
On March 11, 2004, the Company executed a day one claims management
agreement with Lubbock Heart Hospital ("LHH"). This contract had an original
term of three months and new placements to UMC were discontinued on June 11,
6
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
2004. This contract generated revenue of $331,000 during the second quarter of
2004, which represented 27% of second quarter 2004 gross revenue. Management
expects revenue from this contract to ramp down rapidly during the third quarter
of 2004.
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. This
division generated revenue of $110,000 and $183,000 during the first six
months of 2004 and for the year 2003 respectively.
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 August 6, 2004, the Company has executed the
following new contracts:
o On July 8, 2004 the Company executed a contract for bad debt
collections with a hospital in East Texas.
o On July 1, 2004 the Company executed a contract for bad debt
collections with a hospital in East Texas.
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 On May 1, 2004 the Company executed a contract for bad debt second
collections with a hospital in South Texas.
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.
7
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
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.
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 60%
and 98 % 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 86% and 115% 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, UMC
management is not able to provide guidance with regard to net income. Net income
as a percentage of revenue may deviate from historical norms. 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 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
2004 2003 2002 2001
--------------- --------------------------------- --------------------------------- ---------------
Quarter Quarter Quarter Quarter
--------------- --------------------------------- --------------------------------- ---------------
Second First Fourth Third Second First Fourth Third Second First Fourth Third
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
- ----------------
Number of Claims
Accepted for
Processing:
Ongoing 26,250 36,869 36,740 42,001 31,282 30,549 32,602 43,522 37,952 34,012 21,818 11,905
Backlog 1,588 -- -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 27,838 36,869 36,740 42,001 31,282 30,549 32,602 43,522 37,952 34,012 21,818 11,905
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 84,830 34,232 40,723 36,662 24,272 23,033 26,717 30,772 22,085 23,336 14,221 8,864
Backlog 4,733 -- -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 89,563 34,232 40,723 36,662 24,272 23,033 26,717 30,772 22,085 23,336 14,221 8,864
Collections $
(000's)
Ongoing 20,635 8,780 7,897 6,923 6,098 5,010 6,126 6,091 4,837 4,710 4,470 4,147
Backlog 4 -- -- -- -- -- -- -- -- 6 11 80
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 20,639 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 830 560 522 500 448 460 460 471 408 416 301 298
Backlog -- -- -- -- -- -- -- -- -- 1 2 13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 858 560 522 500 448 460 460 471 408 417 303 311
Average Fee %
Ongoing 4.0% 6.4% 6.6% 7.2% 7.3% 8.6% 7.5% 7.7% 8.4% 8.8% 6.7% 7.2%
Backlog -- -- -- -- -- -- -- -- 16.6% 18.2% 16.3%
For Ongoing claims, there is typically a time lag of approximately 5 to 90
days from contract execution to complete development of system interfaces and
definition of procedural responsibilities with customer personnel. During this
period, Company personnel survey the customer's existing operations and prepare
for installation. Once the customer begins transmitting claims to the Company,
there is usually a time lag of 30 to 90 days between transmission of claims to
third party payers and collection of those claims from payers.
9
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 customer service and collection accounts received and
fees recognized for UMY.
COLLECTION SERVICES - PROCESSING VOLUME
2004 2003 2002 2001
--------------- --------------------------------- --------------------------------- ---------------
Quarter Quarter Quarter Quarter
--------------- --------------------------------- --------------------------------- ---------------
Second First Fourth Third Second First Fourth Third Second First Fourth Third
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
- -----------------
Number of
Accounts Accepted
for Collection:
(000's)
Early out 43,803 37,828 37,336 34,601 24,330 11,266 13,859 17,818 17,467 26,963 27,413 28,537
Bad debt 22,268 21,728 38,092 27,390 15,448 15,322 26,281 16,430 14,598 19,856 25,811 932
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 39,778 59,556 75,428 61,991 39,778 26,588 40,140 34,248 32,065 46,819 53,224 29,469
Gross $ Amount
of Accounts
Accepted for
Collection
(000's)
Early out 50,768 38,110 32,808 30,561 17,897 10,815 12,021 13,424 14,120 22,647 20,724 20,972
Bad debt 3,598 14,067 24,693 16,993 12,379 12,547 15,934 9,714 10,358 12,880 17,035 762
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 54,366 52,177 57,501 47,554 30,276 23,362 27,955 23,138 24,478 35,527 37,759 21,734
Collections $
(000's)
Early out 2,456 2,679 2,535 1,862 1,105 949 1,220 1,563 2,007 2,449 2,433 3,810
Bad debt 618 1,140 1,301 1,283 1,074 1,155 909 939 892 740 422 57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 3,074 3,819 3,836 3,145 2,179 2,104 2,129 2,502 2,899 3,189 2,855 3,867
Fees Earned $
(000's)
Early out 191 222 202 182 132 113 131 157 187 227 215 356
Bad debt 143 241 279 279 226 252 203 208 186 152 94 9
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 334 463 481 461 358 365 334 365 373 379 309 365
Average Fee %
Early out 7.9% 8.3% 8.0% 9.7% 11.9% 11.9% 10.7% 10.0% 9.3% 9.3% 8.8% 9.3%
Bad debt 23.5% 21.3% 21.4% 21.7% 21.0% 22.1% 22.3% 22.1% 20.8% 20.4% 22.2% 15.8%
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.
10
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,
------------------ ------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenue 100% 100% 100% 100%
-------- -------- -------- --------
Wages and benefits................................... 57 70 62 68
Selling, general and administrative.................. 20 19 19 18
Depreciation and amortization........................ 3 2 3 2
Office, vehicle and equipment rental................. -- 1 -- 1
Professional fees.................................... 2 3 2 3
Interest, net, and other (income) expense............ 1 1 1 1
Provision for doubtful accounts...................... -- -- -- --
-------- -------- -------- --------
Total expenses....................................... 83 96 87 93
-------- -------- -------- --------
Net income .......................................... 17% 4% 13% 7%
======== ======== ======== ========
Comparison of the Quarter Ended June 30, 2004 to the Quarter Ended June 30, 2003
Revenues increased $376,000 or 43% primarily due to the following:
o Ongoing Claims Management Services revenue of $830,000 in the current
quarter increased by $382,000 compared to the same quarter in 2003 as a
result of multiple changes to the Company's claims inventory mix. The
increase was due primarily to revenue from six ongoing accounts receivable
management services contracts that were executed after the second quarter
of 2003. These contracts provided revenue of $574,000 during the second
quarter of 2004. The Company also received $14,000 in increased revenue
from an ongoing accounts receivable management contract that was signed
October 31, 2000. This revenue increase was partially offset by reduced
revenue from an ongoing accounts receivable management services contract
that was signed March 22, 2000 and was cancelled effective March 31, 2004.
This contract provided revenues of $109,000 and $315,000 during the second
quarter of 2004 and 2003 respectively
Of the $574,000 received during the second quarter of 2004 from new
contracts, $426,000 was from contracts for which the term was completed
during the second quarter. Management is currently seeking renewal of these
contracts. If management is not successful in negotiating a renewal, it
expects revenue from these contracts to ramp down rapidly during the third
quarter of 2004.
o Collection Agency Services revenue of $334,000 in the current quarter was
$24,000 less than the amount of collection agency services revenue
recognized in the same quarter of 2003, primarily due to loss of the PHS
contract in March 2004. This contract provided combined revenue of
$131,000 and $305,000 during the second quarter of 2004 and 2003
respectively. This decrease in revenue was partially offset by revenue
from four contracts that were signed after the second quarter of 2003.
These contracts provided combined revenue of $122,000 during the first six
months of 2004. The Company also received increased revenue from an early
stage self pay collections agreement signed April 15, 2003. This contract
provided revenue of $41,000 and $5,000 during the second quarter of 2004
and 2003 respectively. Net revenues from other customers decreased by
11
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
$8,000 during the second quarter of 2004 as compared to the second quarter
of 2003.
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
$62,000 and $47,000 during the second quarter of 2004 and 2003
respectively. During the third quarter of 2002, the Company began offering
off-site 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
--------------- --------------------------------- ---------------
Second First Fourth Third Second First Fourth Third
------ ------ ------ ------ ------ ------ ------ ------
- ---------------------------------
Number of Claims accepted
for Coding:
Inpatient 602 832 303 177 213 161 140 9
Outpatient 780 699 1,007 734 761 553 201 --
------ ------ ------ ------ ------ ------ ------ ------
Total 1,382 1,531 1,310 911 974 714 341 9
o Other revenue of $17,000 increased by $2,000 compared to the same quarter
of 2003 due to $1,000 in consulting revenue and medical records storage
fees recognized during the second quarter of 2004 and incentive income
from the Pampa Economic Development Corporation ("PEDC") of $16,000
compared to PEDC incentive income of $15,000 during the previous year
quarter.
Wages and benefits expense increased $97,000 or 16% as a result of
multiple factors. Salary and wage expense increased $43,000 as result of the
addition of a Director of Claims Operations in September of 2003, a slight
increase in headcount and normal merit raises. UMC averaged 91 full time and 11
part time employees during the second quarter of 2004 compared to 89 full time
and 10 part time during the second quarter of 2003. Employee benefit cost
increased $16,000 as a result more employees being eligible for the Company's
benefit plans. During the second quarter of 2004 there was an average of 82
employees enrolled in the Company's group health insurance plan compared to 69
during the second quarter of 2003. Bonus expense increased by $38,000 due to
higher performance and annual bonus accruals as a result of increased collection
fees and profitability.
Selling, general and administrative expense increased $84,000 or 51% due
primarily to increases in postage $6,000 and office supplies $4,000 as the
result of an increase in the number of collection letters sent during the second
quarter of 2004; sales commissions $23,000 as a result of increased sales;
employee relocation $25,000 as a result of moving UMC's Vice President of Sales
from Midland, Texas to Garland Texas; software maintenance $12,000 due to
increased claims billing start up projects; Taxes and Insurance $9,000 due to
accruals for state franchise tax; and contract labor $5,000 due to reimbursement
to a customer for the use of one of its employees for on-site labor.
Depreciation and amortization expense increased $19,000 or 85% as a result
of the addition of approximately $404,000 in leased and purchased fixed assets
during 2003, and additions of approximately $22,000 during the first six months
of 2004.
Office, vehicle and equipment rental expense decreased $800 or 20%
primarily due to the completion of the lease term on a 2000 Toyota Avalon in
April of 2003.
12
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
Professional fees decreased $5,000 or 22% due to primarily to legal fees
of $11,000 incurred during the second quarter of 2003 compared to legal fees of
$2,000 incurred during the first quarter of 2004. This decrease in legal fees
was partially offset by an increase in audit and accounting fees of $3,000 and
an increase in other professional fees of $1,000.
Interest expense increased $3,400 due to interest incurred on a capital
lease, three auto loans, and two unsecured lines of credit that were added after
the second quarter of 2003.
Comparison of the Six Months Ended June 30, 2004 to the Six Months Ended June
30, 2003
Revenues increased $583,000 or 33% primarily due to the following:
o Ongoing Claims Management Services revenue of $1,390,000 in the current
six-month period increased by $482,000 compared to the first six months of
2003 as a result of multiple changes to the Company's claims inventory
mix. The increase was due primarily to revenue from seven ongoing accounts
receivable management services contracts that were executed after the
second quarter of 2003. These contracts provided revenue of $718,000
during the second quarter of 2004. The Company also received $22,000 in
increased revenue from an ongoing accounts receivable management contract
that was signed October 31, 2000. This revenue increase was partially
offset by reduced revenue from an ongoing accounts receivable management
services contract that was signed March 22, 2000 and was cancelled
effective March 31, 2004. This contract provided revenues of $382,000 and
$611,000 during the first six months of 2004 and 2003 respectively. During
the first six months 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
six months of 2004
Of the $718,000 received during the first six months of 2004 from new
contracts, $481,000 was from contracts for which the term was completed
during the second quarter. Management is currently seeking renewal of
these contracts. If management is not successful in negotiating a renewal,
it expects revenue from these contracts to ramp down rapidly during the
third quarter of 2004.
o Collection Agency Services revenue of $797,000 in the current six-month
period increased by $75,000 compared to the same period of 2003, primarily
due to revenue from seventeen contracts that were signed after the second
quarter of 2003. These contracts provided combined revenue of $192,000
during the first six months of 2004. The Company also received increased
revenue from an early stage self pay collections agreement signed April
15, 2003. This contract provided revenue of $86,000 and $5,000 during the
fist six months of 2004 and 2003 respectively. This increased revenue was
partially offset by reduced revenue from an early stage self-pay
collections and bad debt collection agreement signed March 13, 2000 and
cancelled March 31, 2004. This contract provided combined revenue of
$407,000 and $610,000 during the second quarter of 2004 and 2003
respectively. Net revenues from other customers increased by $5,000 during
the first six months of 2004 as compared to the first six months of 2003.
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
$110,000 and $92,000 during the first six months of 2004 and 2003
respectively.
13
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
o Other revenue of $40,000 during the current six-month period increased by
$9,000 compared to the same six-month period of 2003. For the first six
months of 2004, other income consisted of $33,600 of PEDC incentive
income, $700 in consulting fee income, $4,000 of interest income, and
$1,700 in installation and service fees for medical records storage. Other
income consisted of PEDC incentive income of $31,000 during the first six
months of 2003.
Wages and benefits expense increased $251,000 or 11% due primarily to
increased headcount. The Company averaged 98 full time and 11 part time
employees during the first six months of 2004 compared to 87 full time and 9
part time during the first 6 months of 2003. Salary and wage expense increased
by $153,000, payroll tax expense $12,000, and employee benefit cost increased
$46,000 during the first six months of 2004 as compared to the first six months
of 2003. Bonus expense increased $40,000 during the current six-month period due
to higher performance bonuses paid and higher annual bonus accruals as a result
of increased fees and profitability.
Selling, general and administrative expense increased $112,000 or 34%
primarily due to increases in postage $17,000 and office supplies $7,000 due to
an increase in the number of collection letters sent during the first six months
of 2004; sales commissions $24,000 and telephone expense $3,000 as a result of
increased business and sales; employee relocation $25,000 as a result of moving
UMC's Vice President of Sales from Midland, Texas to Garland Texas; software
maintenance and system usage fees $14,000 due to increased claims billing start
up projects and an increase in day one claims billed; Taxes and Insurance
$16,000 due to accruals for Texas state franchise tax (Texas state franchise tax
was not accrued during the previous year due to the availability of net
operating loss carryforwards to offset taxable income); contract labor $5,000
due to reimbursement to a customer for the use of one of its employees for
on-site labor; travel and entertainment $6,000 as a result of increased travel
required by a larger customer base, and increased activity in the sales and
marketing department. These increased expenses were partially offset by a
decrease in factoring fees of $12,000 during the current six-month period. The
Company factored invoices during the first two weeks of 2004, but factored
invoices for the entire first six months of 2003. All other SG&A expenses
increased by a net $7,000 during the first six months of 2004 as compared to the
first six months of 2003.
Depreciation and amortization expense increased $41,000 or 99% as a result
of the addition of approximately $404,000 in leased and purchased fixed assets
during 2003, and additions of approximately $22,000 during the first six months
of 2004.
Office, vehicle and equipment rental expense decreased $2,000 or 190%
primarily due to the completion of the lease term on a 2000 Toyota Avalon in
April of 2003.
Professional fees decreased $8,000 or 17% due to primarily to legal fees
of $15,000 incurred during the first six months of 2003 compared to legal fees
of $2,000 incurred during the first six months of 2004. This decrease in legal
fees was partially offset by an increase in audit and accounting fees of $6,000.
Other professional fees decreased by $1,000 during the current six-month period.
Interest, net increased $8,000 or 103% due to interest incurred on a
capital lease, three auto loans, and two unsecured lines of credit that were
added after the second quarter of 2003.
Liquidity and Capital Resources
At June 30, 2004, the Company's liquid assets, consisting of cash, totaled
$471,441 plus unencumbered cash due from the factoring company of $2,044,
compared to cash of $62,851 and unencumbered cash due from the factoring company
14
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
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 $739,000 at March 31, 2004 compared to working capital of
$324,000 at December 31, 2003.
Operating activities during the current six-month period provided cash of
$366,000, compared to cash of $89,000 provided by operating activities during
the same period of 2003.
Cash of $21,000 was expended on investing activities during the current
six-month period. $10,000 was expended for the purchase of equipment, software
and building improvements, and $11,000 was expended for new software
development. The Company expended $64,000 on investing activities during the
same six-month period of 2003 for the purchase of automobiles, equipment,
software and building improvements, 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 the prior year period.
Financing activities during the current six-month period provided cash of
$64,000 and consisted of $102,000 in net loan proceeds from the Company's two
unsecured lines of credit, offset by principal payments totaling $16,000 for
notes payable, and $20,000 on capital lease obligations. The Company also
expended $2,000 for the purchase of treasury stock during the current six-month
period. Financing activities during the same six-month period of 2003 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.
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.
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".
15
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
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 June 30, 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 six
months of 2004, the Company capitalized $11,300 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 6, 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 August 6, 2004.
16
UNITED MEDICORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis Of
Financial Condition and Results of Operations (Continued)
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
17
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:
The Company filed the following reports on Form 8-K during the quarter
ended March 31, 2004:
1) On May 17, 2004 the Company furnished a Current Report on Form
8-K attaching a press release reporting the Company's
financial results for the first quarter ended March 31, 2004.
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 11, 2004
------------------------------- ----------------
Nathan E. Bailey
Vice President and Controller
(Principal Accounting Officer)
18