<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended
September 30, 1997 Commission File No.1-10418
UNITED MEDICORP, INC.
(Exact name of registrant as specified in charter)
Delaware 75-2217002
- ------------------------------- ----------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
10210 N. Central Expressway, #400
Dallas, Texas 75231
------------- -----
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
214/691-2140
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 November 11, 1997, there were outstanding 27,910,217 shares of Common
Stock, $.01 par value.
<PAGE>
UNITED MEDICORP, INC.
September 30, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1997
and December 31, 1996 3
Consolidated Statement of Revenues and Expenses
for the Three Months Ended September 30, 1997 and 1996, and
for the Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1997 and 1996, and
for the Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Default Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
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UNITED MEDICORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
(UNAUDITED) (AUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 137,978 $ 188,868
Restricted Cash 184,336 8,143
Funded Claims 21,714 0
Accounts receivable, less allowance for
doubtful accounts of $12,590 and $18,177,
respectively 379,998 171,273
Notes receivable, less allowance for
doubtful accounts of $0 and $0, respectively 4,000 0
Prepaid expenses and other 13,177 19,920
------------ ------------
TOTAL CURRENT ASSETS 741,203 388,204
PROPERTY AND EQUIPMENT (NET) 202,828 120,142
OTHER ASSETS 11,148 15,301
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TOTAL ASSETS $ 955,179 $ 523,647
------------ ------------
------------ ------------
CURRENT LIABILITIES:
Payable to customers $ 123,532 $ 8,143
Payable to funding sources 77,411 0
Trade accounts payable 62,796 46,077
Accrued expenses 238,906 181,136
Current portion of capital lease obligations 44,293 36,862
------------ ------------
TOTAL CURRENT LIABILITIES 546,938 272,218
LONG TERM PORTION OF LEASE OBLIGATIONS 91,317 100,344
DEFERRED CREDITS 12,572 23,891
------------ ------------
TOTAL LIABILITIES $ 650,827 $ 396,453
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 50,000,000 authorized,
28,015,764 and 26,415,764 shares issued and
outstanding at 9/30/97 and 12/31/96, respectively. $ 280,157 $ 264,157
Less: 105,547 shares of treasury stock, at cost (221,881) (221,881)
Additional paid-in capital 18,695,828 18,552,341
Retained deficit (18,449,752) (18,467,423)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 304,352 127,194
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 955,179 $ 523,647
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
UNITED MEDICORP, INC.
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES
(UNAUDITED)
<TABLE>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Fee income $ 737,754 $ 542,838 $ 1,774,093 $ 1,471,263
Other income 16,513 54,001 22,973 60,901
Interest income 1,559 936 5,111 936
----------- ----------- ----------- -----------
TOTAL REVENUES 755,826 597,775 1,802,177 1,533,100
EXPENSES:
Salaries and benefits 548,072 271,011 1,277,492 856,292
Selling, general and
administrative 144,661 110,700 332,662 323,642
Professional fees (5,687) 16,600 23,745 53,104
Office and equipment rental 23,694 22,668 62,854 75,442
Depreciation and amortization 31,052 28,192 76,830 80,828
Interest 4,161 5,590 11,239 14,581
Other 0 (144) (316) (70)
----------- ----------- ----------- -----------
TOTAL EXPENSES 745,953 454,617 1,784,506 1,403,819
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 9,873 $ 143,158 $ 17,671 $ 129,281
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.00 $ 0.01 $ 0.00 $ 0.00
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 27,718,913 26,310,217 26,790,803 26,310,217
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
UNITED MEDICORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 9,873 $143,158 $ 17,671 $129,281
(Gain) on disposal of assets 0 0 (316) 0
Adjustments to reconcile net income to cash used in
operating activities:
Depreciation and amortization 31,052 28,192 76,830 80,828
(Increase) Decrease in restricted cash (58,369) 18,951 (176,193) (31,130)
(Increase) Decrease in purchased claims (14,081) 0 (21,714) 0
(Increase) Decrease in accounts receivable (111,766) (92,198) (208,725) (94,004)
(Increase) Decrease in notes receivable 4,000 0 (4,000) 214
(Increase) Decrease in prepaid expenses and other 2,445 (6,059) 6,743 (3,183)
Increase (Decrease) in payable to customers 50,934 (18,951) 115,389 11,228
Increase (Decrease) in payable to funding sources 14,240 0 77,411 0
Increase (Decrease) in accounts payable (16,168) (63,908) 16,719 2,706
Increase (Decrease) in accrued expenses 60,108 33,942 57,770 32,800
(Decrease) in deferred revenue 0 0 0 (15,959)
(Increase) Decrease in deposits and other (387) 518 4,154 1,554
Increase (Decrease) in deferred credits (3,774) (3,772) (11,319) (3,772)
--------- -------- --------- --------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (31,893) 39,873 (49,580) 110,563
--------- -------- --------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment (48,241) (6,779) (118,068) (17,870)
--------- -------- --------- --------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (48,241) (6,779) (118,068) (17,870)
--------- -------- --------- --------
FINANCING ACTIVITIES:
Net proceeds from the sale of common stock 159,487 0 159,487 0
Principal payments on capital lease obligations (13,354) (3,468) (42,729) (26,582)
--------- -------- --------- --------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 146,133 (3,468) 116,758 (26,582)
--------- -------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 65,999 29,626 (50,890) 66,111
CASH AND CASH EQUIVALENTS, beginning of period 71,979 94,563 188,868 58,078
--------- -------- --------- --------
CASH AND CASH EQUIVALENTS, end of period $ 137,978 $124,189 $ 137,978 $124,189
--------- -------- --------- --------
--------- -------- --------- --------
Supplemental Disclosures:
Cash paid for:
Interest $ 2,170 $ 4,322 $ 4,497 $ 10,742
Non-cash investing and financial activities:
Additions to capital lease obligations $ 19,747 $ 0 $ 41,133 $ 0
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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UNITED MEDICORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of United
Medicorp, Inc. ("UMC" or "Company") are presented in accordance with the
requirements of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the audited financial
statements of the Company for the year ended December 31, 1996 included in
the Company's Annual Report on Form 10-K filed March 12, 1997.
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. Actual results could differ from those estimates.
The results for interim periods are not necessarily indicative of results
to be expected for the year. The Company's consolidated statements have
been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal
course of business. On March 12, 1997, the Company's independent auditors
noted in a modifying paragraph to their unqualified independent report on
the Company's financial statements included in the Form 10-K that, because
the Company had suffered recurring losses from operations, substantial
doubt was raised about the Company's ability to continue as a going
concern. The Company's consolidated financial statements do not include
any adjustments relating to the recoverability of assets and classification
of liabilities that may be necessary should the Company, contrary to plans
and expectations, be unable to continue as a going concern.
2. CAPITAL INFUSION
At September 30, 1997, the Company had $137,978 in unrestricted cash and
cash equivalents. These funds along with forecasted revenues and expenses
are projected by management to be adequate to fund ongoing operations. The
Company continues to pursue and sign new business primarily through direct
contacts with prospective customers in an effort to generate additional
cash flow. There is no assurance that cash flow generated from existing
customers will continue as forecasted or that the Company will be
successful in securing new customers or sources of cash flow. In the event
that cash flow generated from existing customers does not continue, the
Company will be required to raise additional capital in order to continue
operating in its present form. Due to the Company's history of operating
losses in prior years there can be no assurance that additional investment
capital could be raised in the event the Company is not successful in
securing new customers or new sources of cash flow.
3. RESTRICTED CASH
Restricted cash represents payments ("Payments") collected from insurance
carriers, patients, guarantors of patient accounts on behalf of UMC
customers and funds ("Funds") held as the agent of the Funding Sources
described below. Payments are remitted to customers by UMC on a weekly,
semi-monthly, or monthly interval. Funds are remitted to the Funding
Sources upon mutual agreement or termination of the underlying agreement
between UMC and the Funding Sources.
6
<PAGE>
UNITED MEDICORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. FUNDED CLAIMS
Funded claims represent accounts receivable purchased by UMC under medical
claims purchase contracts.
5. ACCOUNTS RECEIVABLE
Accounts receivable represents fees which have been billed to and are due
from customers.
6. NOTES RECEIVABLE
Included in notes receivable at September 30, 1997 is $4,000 related to
services rendered to Healthcare Advisory Service of Puerto Rico, Inc.
("HAS"). The ability of HAS to pay UMC for services rendered is contingent
upon receipt by HAS of payment from its customers for services rendered.
There can be no assurance that such payment will be received, or if it will
be received within the time frame anticipated by HAS and UMC management.
The Company has not established any reserve for bad debts related to the
note receivable from HAS.
7. PAYABLE TO CUSTOMERS
Payable to customers includes payments collected from insurance carriers,
patients, guarantors of patient accounts on behalf of UMC customers. These
payments are remitted to customers by UMC on a weekly, semi-monthly, or
monthly interval.
8. PAYABLE TO FUNDING SOURCES
In order to access capital with which to provide advance funding services
to a new customer, the Company completed an "Assignment And Agency
Agreement" on January 31, 1997 (the "Agreement"). Under the Agreement, UMC
assigned certain rights under a Medical Claims Purchase Contract between
UMC and its customer to two members of its Board of Directors (the
"Funding Sources"). The Funding Sources provided UMC with $127,327 in
funds, which UMC in turn used to advance fund certain eligible receivables
of its customer. As of September 30, 1997, the "Payable to Funding
Sources" represents cash held by UMC in its capacity as the agent of the
Funding Sources, which is payable to the Funding Sources to the extent not
invested in eligible receivables. Fees earned attributable to capital
provided by the Funding Sources are credited to the Funding Sources. UMC
retains all fees attributable to the billing and collection services
rendered and funding provided with UMC's capital. UMC acts as the agent
of the Funding Sources for the purchase of eligible receivables and has
custodial responsibility for cash held as the agent of the Funding Sources
pending investment in funded receivables. UMC has not guaranteed repayment
of the funds advanced by the Funding Sources. Funds are remitted upon
mutual agreement or termination of the underlying agreement between UMC and
the Funding Sources.
7
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UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains statements which constitute "forward-looking statements"
within the meaning of the Securities Act of 1993 and the Securities Exchange
Act of 1934, as amended by the Private Securities Litigation Reform Act of
1995, 15 U.S.C.A. Sections 77z-2 and 78u-5 (Supp. 1996). Those 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. Stockholders and 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 include, but are
not limited to, the ability to sustain earnings from Company's wholly owned
collection agency subsidiary, United MoneyCorp, Inc., the efficiency of the
Company's billing and accounts receivable management services operations,
continued availability of credit on terms and conditions acceptable to the
Company, continued service of existing employees and availability of qualified
new hires to staff the Company's operations, on-going management initiatives
designed to reduce costs and enhance efficiencies, the Company's pending
outstanding litigation, and prospective changes in law, regulations or policies
affecting the Company's business and/or operations. Additional factors that
could cause actual results to differ materially from those contemplated by the
forward-looking statements in this report may be found in the Company's
previous public filings with the Securities & Exchange Commission, which are
incorporated by reference herein. 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.
GENERAL
United Medicorp Texas, Inc., was incorporated in the State of Texas on March
13, 1989 ("UMC-Texas"). On July 10, 1989, in an exchange of stock, UMC-Texas
was acquired by Gamma Resources, Inc., a publicly-owned Delaware shell
corporation, which simultaneously changed its name to UMC. All references
herein to the Company include UMC-Texas, unless the context requires otherwise.
The Company provides medical insurance claims processing and accounts
receivable management services to health care providers. The Company employs
proprietary and purchased software to provide claims processing, management and
collection services to its customers, which are primarily hospitals and medical
clinics. The Company's basic service is designed to provide an electronic
claims processing, management and collection service that expedites payment of
claims from private insurance carriers or government payors such as Medicare
and Medicaid. The Company also offers to its customers processing and
collection services for uncollected "backlog" (aged) claims that were not
originally submitted through the Company's system. The Company began providing
bad debt collection services during 1996. In addition, from time to time the
Company also provides advance funding services where the Company purchases and
then funds a portion of an eligible customer's claims in advance of payment of
such claims by a private insurance carrier. A service called UMClaimPros was
introduced by the Company in December 1994. UMClaimPros are experienced claims
processors available for customers' interim staffing needs.
8
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UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Management believes that it has developed a computer hardware and proprietary
software system and a line of services which, together with its experienced
claims management personnel, are capable of effectively addressing the claims
management needs of health care providers. The Company has also worked with
several other companies that provide enhanced software, computer hardware and
maintenance, electronic claim clearinghouse services, financing and other
valuable services specifically designed to meet the needs of health care
providers. Management believes these efforts have produced a system that
provides the Company's customers with enhanced claims editing, error detection
and management capabilities.
Management further believes its application and refinement of electronic and
computer technologies in the health care claims management industry will enable
the Company to provide claims processing services that will significantly
improve its customers' cash flow.
NEW CONTRACTS SIGNED BY UMC:
During the third quarter of 1997, UMC signed two contracts to rebill and
collect backlogs of aged third party receivables owned by two bankrupt
physician practice management companies in Texas. Approximately $5.3 million
in receivables were accepted for processing pursuant to these two backlog
contracts. UMC management believes that additional non-recurring fees will be
derived from these two contracts, but due to the uncertainties associated with
the collectibility of aged receivables, no specific estimate of such fees has
been developed.
NEW MANAGEMENT HIRED:
On September 25, 1997, UMC hired R. Kenyon Culver as Vice President and Chief
Financial Officer responsible for managing financial accounting and reporting,
treasury, tax, and cash application. Mr. Culver formerly held the position of
Controller with Affiliated Computer Services, Inc., responsible for overall
financial accounting for the Professional Services Division. Prior to that,
Mr. Culver was employed by Price Waterhouse LLP.
UNITED MONEYCORP OPERATIONS:
United MoneyCorp, Inc. ("UMY") has been designated as the legal entity, and is
a wholly owned subsidiary of UMC, under which UMC will operate a collection
agency. UMC management believes that there is a large and growing market for
bad debt collections and other collection agency services, and that offering
these services to healthcare providers will complement the medical claims
processing and billing services already offered by UMC. In addition, given that
United MoneyCorp is a generic name, this entity will be positioned to offer
collection services to customers outside of the healthcare market.
During the third quarter of 1997, UMY received placements of accounts totaling
approximately $19.9 million. Of these accounts, $2.9 million are classified as
"second placement" bad debts and are thus of questionable collectibility, and
about $17 million of the accounts were ongoing "early out" or bad debt
accounts. Total Headcount for UMY increased from 10 employees at July 1, 1997,
to 20 at September 30, 1997.
9
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UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NEW CONTRACTS SIGNED BY UMY:
During the third quarter of 1997, UMY signed contracts to provide ongoing bad
debt collection and other related services to four small hospitals in Texas.
UMY management estimates that fees of $4K to $6K per month will be realized
from these contracts once full ramp up is attained.
PUERTO RICAN OPERATIONS:
Following the termination of the Company's contract with HAS in mid-1996 and
the closure of the Company's office in Ponce, Puerto Rico late in the fourth
quarter of 1996, the Company has made numerous sales calls on hospitals and
governmental authorities in Puerto Rico in attempts to establish a customer
base for its services in that market. To date one contract has been signed.
There can be no assurance that UMC will be successful in obtaining new business
or producing profitable revenues as a result of these sales efforts.
10
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UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THIRD PARTY CLAIMS PROCESSING VOLUME AND FEES
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 services. In general, collections on most healthcare
providers' new claims ("Ongoing") tend to average about 25 to 80 percent of the
gross claim amount. Backlog collection ratios range from 0 to about 40 percent
of the aggregate gross claim amount because many backlog claims have already
been paid or denied by the insurance carriers prior to submission of the claims
to UMC. For these previously paid claims, UMC often charges an administrative
fee which is less than a collection fee.
<TABLE>
1995 1996 1997
---- ---- ----
FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF CLAIMS
ACCEPTED FOR
PROCESSING
ONGOING 47,249 48,280 46,860 40,179 37,127 28,729 42,833 76,672
BACKLOG 3,455 41 1 1 0 0 0 28,361
------ ------ ------ ------ ------ ------ ------ -------
TOTAL 50,704 48,321 46,861 40,180 37,127 28,729 42,833 105,033
GROSS AMOUNT OF
CLAIMS ACCEPTED FOR
PROCESSING ($000)
ONGOING 21,660 19,923 21,055 18,068 18,325 20,269 20,124 35,186
BACKLOG 1,269 17 0 0 0 0 0 9,066
------ ------ ------ ------ ------ ------ ------ -------
TOTAL 22,929 19,940 21,055 18,068 18,325 20,269 20,124 44,252
COLLECTIONS ($000)
ONGOING 8,694 9,019 8,257 7,533 7,063 7,545 10,143 9,407
BACKLOG 60 70 6 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------ -------
TOTAL 8,754 9,089 8,263 7,533 7,063 7,545 10,143 9,407
FEES EARNED ($000)
ONGOING 447 408 386 379 376 366 428 480
BACKLOG 3 3 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------ -------
TOTAL 450 411 386 379 376 366 428 480
</TABLE>
For Ongoing claims, there is typically a time lag of approximately 15 to 45
days from contract execution to computer hardware installation and training
of personnel. During this period, Company personnel survey the customer's
existing operations and prepare for implementation. Following training of
personnel, the customer
11
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UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
begins transmitting claims to the Company. There is usually a time lag of 30 to
90 days between transmission of a claim to a third party payor and collection
of a claim from that payor.
UNITED MONEYCORP, INC.
COLLECTION ACCOUNTS PROCESSING VOLUME AND FEES
The following table sets forth for each period indicated the volume and gross
dollar amount of collection accounts received and fees recognized for UMY. In
general, collections on most new placements range from about 0 to 27 percent of
the gross placement amount.
1997
----
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
------- ------- -------
NUMBER OF
ACCOUNTS ACCEPTED
FOR COLLECTION 3,916 22,209 27,801
GROSS DOLLAR
AMOUNT OF
ACCOUNTS ACCEPTED 2,264 19,037 14,965
FOR COLLECTION
($000)
COLLECTIONS ($000) 96 632 784
FEES EARNED ($000) 20 79 182
For Placements of collection accounts, there is typically a time lag of
approximately 15 to 45 days from contract execution to computer download of
accounts.
12
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UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1997 TO THE QUARTER ENDED
SEPTEMBER 30 ,1996
Fee income increased $158,051, or 26%, from $597,775 for the quarter ended
September 30, 1996 to $755,826 for the quarter ended September 30, 1997 due to
increased fees from domestic operations generated by new customers and growth
from existing customers.
For domestic operations, fee income from "Ongoing" claims processing,
management and collection services increased by 20% from $359,633 for the
quarter ended September 30, 1996 to $432,781 for the quarter ended September
30, 1997 due to increased claim volume from new and existing customers. Fees
earned from UMY increased from $0 for the quarter ended September 30, 1996 to
$182,030 for the quarter ended September 30, 1997 due to the implementation and
continuing volume ramp up of contracts signed during the first half of 1997.
Ongoing Physician Billing Fees increased from $0 for the quarter ended
September 30, 1996 to $24,401 for the quarter ended September 30, 1997 due to
completion of the initial volume ramp up related to contracts signed in earlier
periods. Fees from UMC's UMClaimPros interim staffing service increased by
119% from $32,659 for the quarter ended September 30, 1996 to $71,399 for the
quarter ended September 30, 1997 due to increased interim staffing requirements
of a major hospital system in the Dallas area. Patient billing fees increased
by 48% from $15,191 for the quarter ended September 30, 1996 to $22,505 for the
quarter ended September 30, 1997 due to the ramp up of the contract signed in
September, 1996 with the Company's largest customer. Funding Fees increased
from $0 for the quarter ended September 30, 1996 to $4,599 for the quarter
ended September 30, 1997 due to the implementation of new customer funding
agreements during the first quarter of 1997. Other trade income increased from
$0 for the quarter ended September 30, 1996, to $16,513 for the quarter ended
September 30, 1997 due to consulting services provided to a new customer.
The Company closed its Puerto Rican office on January 3, 1997, after completing
a settlement and termination agreement with HAS in August of 1996. Therefore,
no fees were recognized for the quarter ended September 30, 1997 as compared to
fees of $185,148 for the quarter ended September 30, 1996 which primarily
consisted of a payment of $172,000 from HAS related to the aforementioned
settlement and termination agreement.
Salaries and benefits expense increased by $277,061 or 102%, from $271,011 in
the third quarter of 1996 to $548,072 in the third quarter of 1997. As a
percent of revenue, salaries and benefits increased to 73% in the third quarter
of 1997 compared to 45% for the same period of 1996. The increase in salaries
and benefits as a percentage of revenue is primarily due to a headcount
increase of 29 employees including a Chief Financial Officer, Director of
Physician Operations, Director of Operations for UMY, Regional Sales Manager,
and additional full-time employees.
Selling, general and administrative expenses increased by $33,961, or 31%, from
$110,700 in the third quarter of 1996 to $144,661 in the third quarter of 1997
primarily due to increased travel associated with supporting existing customers
and developing new business, increased printing and postage expense related to
the ramp up of UMY and the physician billing department, as well as increased
office supplies to support additional headcount. As a percent of revenue, SG&A
expense remained at 19% in the third quarter of 1997 and 1996.
13
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UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Professional fees decreased by $22,287, or 134%, from $16,600 in the third
quarter of 1996 to a credit of $5,687 in the third quarter of 1997 due to a
change in estimated accrued legal fees associated with pending litigation. The
revised legal fee accrual balance was based on estimates provided by the
Company's legal counsel. Management believes that the legal accrual as revised
is adequate with respect to existing pending litigation.
Office and equipment rental expense increased by $1,026, or 5%, from $22,668 in
the third quarter of 1996 to $23,694 in the third quarter of 1997 primarily due
to the signing of a new lease agreement in August, 1997 for additional office
space for UMY. As a percent of revenue, rental expense decreased to 3% in the
third quarter of 1997 compared to 4% for the same period of 1996. The decrease
in rental expense as a percent of revenue is primarily due to revenue growth
from existing and new customers.
Depreciation and amortization expense increased by $2,860 or 10%, from $28,192
in the third quarter of 1996 to $31,052 in the third quarter of 1997 due to the
write off of the remaining net book value of certain fixed assets located in
Puerto Rico in conjunction with the settlement and termination agreement with
HAS and fully amortizing the remaining goodwill associated with the Company's
August 1993, acquisition of Sterling Hospital Systems ("Sterling") due to the
termination of business with the final Sterling customer. As a percent of
revenue, depreciation and amortization expense decreased to 4% in the third
quarter of 1997 compared to 5% for the same period of 1996. The decrease in
depreciation and amortization expense as a percent of revenue is primarily due
to revenue growth from existing and new customers.
Interest expense decreased by $1,429 or 26%, from $5,590 in the third quarter
of 1996 to $4,161 in the third quarter of 1997 due to normal reduction in
capital lease obligations.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Fee income increased by $269,077, or 18%, from $1,533,100 for the nine months
ended September 30, 1996 to $1,802,177 for same period ended September 30, 1997
due to increased fees from domestic operations through internally generated
sales and growth from existing customers.
For domestic operations, fee income from "Ongoing" claims processing,
management and collection services increased by 7% from $1,109,710 for the nine
months ended September 30, 1996 to $1,187,598 for the same period ended
September 30, 1997 due to increased claim volume from new and existing
customers. Fees earned from UMY increased from $0 for the nine months ended
September 30, 1996, to $277,386 for the same period ended September 30, 1997
due to the implementation and continuing volume ramp up of contracts signed
during the first half of 1997. Ongoing Physician Billing Fees increased from $0
for the nine months ended September 30, 1996, to $24,401 for the same period
ended September 30, 1997 due to completion of the initial volume ramp up
related to contracts signed in earlier periods. Fees from UMC's UMClaimPros
interim staffing service increased by 152% from $72,742 for the nine months
ended September 30, 1996 to $183,216 for the same period ended September 30,
1997 due to increased interim staffing requirements of a major hospital system
located in the Dallas Area. Patient billing fees increased by 139% from
$34,984 for the nine months ended September 30, 1996 to $83,615 for the same
period ended September 30, 1997 due to the ramp up of the contract signed in
September 1996 with the Company's largest customer. Funding fees increased
from $0 for the nine months ended September 30, 1996, to $8,677 for the same
period ended September 30, 1997 due to the implementation of a new customer
funding agreement during the first quarter of 1997. Fees earned from
14
<PAGE>
UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
funding represent only the Company's portion of the advance funding service
provided to the new customer. Other trade income increased from $1 for the nine
months ended September 30, 1996, to $22,973 for the same period ended September
30, 1997 primarily due to consulting services provided to a new customer.
The Company closed its Puerto Rican office on January 3, 1997, after completing
a settlement and termination agreement with HAS in August of 1996. Therefore,
fees totaling $1,902 were recognized for the nine months ended September 30,
1997 as compared to fees of $283,989 for the same period ended September 30,
1996 which included a payment of $172,000 from HAS related to the
aforementioned settlement and termination agreement.
Salaries and benefits expense increased by $421,200, or 49%, from $856,292 for
the nine months ended September 30, 1996 to $1,277,492 for the same period of
1997. As a percent of revenue, salaries and benefits increased to 71% for the
nine months ended September 30, 1997 compared to 56% for the same period of
1996. The increase in salaries and benefits as a percentage of revenue is
primarily due to a headcount increase of 29 employees including a Chief
Financial Officer, Director of Physician Operations, Director of Operations for
UMY, Regional Sales Manager, and additional full-time employees.
Selling, general and administrative expenses increased by $9,020, or 3%, from
$323,642 for the nine months ended September 30, 1996 to $332,662 for the same
period of 1997 primarily due to increased travel associated with supporting
existing customers and developing new business, increased printing and postage
expense related to the ramp up of UMY and the physician billing department, as
well as increased office supplies to support additional headcount. As a
percent of revenue, SG&A expense decreased to 18% for the nine months ended
September 30, 1997 compared to 21% for the same period of 1996.
Professional fees decreased by $29,359, or 55%, from $53,104 for the nine
months ended September 30, 1996 to $23,745 for the same period of 1997
primarily due to a change in estimated accrued legal fees associated with
pending litigation. The revised legal fee accrual balance was based on
estimates provided by the Company's legal counsel. Management believes that
the legal accrual as revised is adequate with respect to existing pending
litigation.
Office and equipment rental expense decreased by $12,588, or 17%, from $75,442
for the nine months ended September 30, 1996 to $62,854 for the same period of
1997 due to closing the office located in Ponce, Puerto Rico on January 3, 1997
partially offset by increased office space rent expense associated with the
expansion for UMY. As a percent of revenue, rental expense decreased to 3% for
the nine months ended September 30, 1997 compared to 5% for the same period of
1996. The decrease in rental expense as a percent of revenue is primarily due
to revenue growth from existing and new customers and the closing of the Puerto
Rican office.
15
<PAGE>
UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization decreased by $3,998, or 5%, from $80,828 for the
nine months ended September 30, 1996 to $76,830 for the same period of 1997 due
to various assets becoming fully depreciated in 1997, partially offset by the
write off of the remaining net book value of certain fixed assets located in
Puerto Rico in conjunction with the settlement and termination agreement with
HAS, and fully amortizing the remaining goodwill associated with the August
1993, acquisition of Sterling Hospital Systems ("Sterling") due to the
termination of business with the final Sterling customer. As a percent of
revenue, depreciation and amortization expense decreased to 4% for the nine
months ended September 30, 1997 compared to 5% for the same period of 1996.
The decrease in depreciation and amortization expense as a percent of revenue
is primarily due to revenue growth from existing and new customers.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CAPITAL: At September 30, 1997, the Company's liquid assets,
consisting of cash and cash equivalents, totaled $137,978 compared to $188,868
at December 31, 1996. Working capital was $194,265 and $115,986 at September
30, 1997 and December 31, 1996, respectively, and increased primarily due to
increased trade accounts receivable resulting from internally generated sales
from existing and new customers.
Net cash used by operating activities was $49,580 for the first nine months of
fiscal 1997, compared with $110,563 provided by operating activities during the
first nine months of fiscal 1996. This decrease is primarily due to the HAS
sales proceeds of $172,000 received on August 2, 1996. Without the impact of
the HAS sales proceeds, net cash used by operating activities improved by
$11,857 for the first nine months of fiscal 1997 as compared to the prior year
nine month period.
Net cash used in investing activities increased by $100,198 over the prior year
nine month period primarily due to collection agency and billing software
enhancements, leasehold improvements due to office expansion, and equipment
purchases to support increased head count.
Net cash provided from financing activities increased $143,340 over the prior
nine month period primarily due to the completion on July 11, 1997 of a private
placement of 1.6 million shares of common stock at $.10 per share which yielded
net proceeds of $159,487. In addition, principal payments increased due to the
increase in total capital lease obligations.
For the nine months ended September 30, 1997, the Company had increased its
capital lease obligations by $41,133 primarily related to enhancements to the
Company's leased IBM AS/400 and additional computer terminals to support
increased head count.
FUTURE CAPITAL EXPENDITURES: In order support the existing customer base and
be positioned for future growth, management is currently evaluating the need
for substantial investment in further enhancements or replacement of the
existing leased IBM AS/400 and main telephone switch, expansion of existing
leased office space and related lease hold improvements, addition of a new
predictive dialer for UMY, as well as the purchase of various other office and
computer equipment to support increased processing volumes and head count. It
is management's intent to obtain substantially if not all of these assets under
lease obligations thereby minimizing the initial cash outflow. There can be no
assurance that the Company will be able to secure such lease financing at
acceptable terms.
16
<PAGE>
UNITED MEDICORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY OUTLOOK: Although the Company generated net income for the nine
months ended September 30, 1997, there are considerable risks, including
primarily the need to expand production capacity and the need to finance growth
in accounts receivable, that additional working capital will be needed. There
can be no assurance that such capital will be available, or of the terms upon
which such capital might be available. Additionally, UMC has incurred
cumulative losses of $18.4 million since inception. These factors raise
substantial doubt as to the Company's ability to raise additional working
capital.
17
<PAGE>
UNITED MEDICORP, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is the defendant in a lawsuit filed on March 2, 1995 by a former
employee of the Company. The lawsuit charges the Company with wrongful
discharge. The former employee seeks unspecified past and future economic
loss, damages, exemplary damages, reinstatement, attorney's fees and
interest. The plaintiff has requested a trial by jury. Management believes
this lawsuit to be without merit and intends to vigorously defend against the
claim.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
UNITED MEDICORP, INC.
(REGISTRANT)
By: /s/ R. Kenyon Culver Date: November 11, 1997
-------------------------------- ------------------
R. Kenyon Culver
Vice President and
Chief Financial Officer
(Principal Accounting Officer)
19
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 137,978
<SECURITIES> 0
<RECEIVABLES> 396,588
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<COMMON> 280,157
<OTHER-SE> 24,195
<TOTAL-LIABILITY-AND-EQUITY> 955,179
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