<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] 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.)
10210 NORTH CENTRAL EXPRESSWAY
SUITE 400
DALLAS, TEXAS 75231
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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 May 14, 1998, there were outstanding 27,910,217 shares of Common
Stock, $0.01 par value.
===============================================================================
<PAGE>
UNITED MEDICORP, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . 3
Notes to the Consolidated Financial Statements . . . . . . . . . . . 4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . 5
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . 12
ITEM 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . 12
ITEM 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
(UNAUDITED) (Audited)
MARCH 31, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 219,505 $ 275,948
Restricted cash . . . . . . . . . . . . . . . . . . . . . 188,206 154,096
Purchased claims. . . . . . . . . . . . . . . . . . . . . 41,946 -
Accounts receivable, net of allowance for doubtful
accounts of $38,588 and $11,674, respectively. . . . . . 750,267 430,069
Notes receivable. . . . . . . . . . . . . . . . . . . . . 2,000 4,000
Prepaid expenses and other current assets . . . . . . . . 18,862 20,201
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . 1,220,786 884,314
Property and equipment, net . . . . . . . . . . . . . . . . 202,374 188,248
Other non-current assets. . . . . . . . . . . . . . . . . . 11,999 11,999
------------ ------------
Total assets. . . . . . . . . . . . . . . . . . . . . $ 1,435,159 $ 1,084,561
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable. . . . . . . . . . . . . . . . . . $ 89,914 $ 68,270
Payable to clients. . . . . . . . . . . . . . . . . . . . 143,142 75,135
Accrued liabilities . . . . . . . . . . . . . . . . . . . 416,263 268,423
Deferred credit . . . . . . . . . . . . . . . . . . . . . 5,030 8,802
Payable to funding source . . . . . . . . . . . . . . . . 45,064 78,961
Current portion of capital lease obligations. . . . . . . 54,412 53,171
------------ ------------
Total current liabilities . . . . . . . . . . . . . . 753,825 552,762
Long term portion of capital lease obligations. . . . . . . 61,439 84,368
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . 815,264 637,130
------------ ------------
Stockholders' equity:
Common stock; $0.01 par value; 50,000,000 shares
authorized; 28,015,764 shares and 28,015,764 shares
outstanding, respectively . . . . . . . . . . . . . . . 280,157 280,157
10% Cumulative convertible preferred stock; $0.01 par
value; 5,000,000 shares authorized; none issued . . . . - -
Less treasury stock at cost, 105,547 shares . . . . . . . (221,881) (221,881)
Additional paid-in capital. . . . . . . . . . . . . . . . 18,695,829 18,695,829
Retained deficit. . . . . . . . . . . . . . . . . . . . . (18,134,210) (18,306,674)
------------ ------------
Total stockholders' equity. . . . . . . . . . . . . . 619,895 447,431
------------ ------------
Total liabilities and stockholders' equity. . . . . . $ 1,435,159 $ 1,084,561
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenues:
Billing and collection services . . . . . . . . . $ 1,254,044 $ 448,377
Other revenues. . . . . . . . . . . . . . . . . . 14,537 1,910
------------ ------------
Total revenues. . . . . . . . . . . . . . . . 1,268,581 450,287
Expenses:
Wages and benefits. . . . . . . . . . . . . . . . 776,647 321,200
Selling, general and administrative . . . . . . . 228,870 74,887
Office and equipment rental . . . . . . . . . . . 28,285 19,583
Provision for doubtful accounts . . . . . . . . . 26,914 (5,412)
Depreciation and amortization . . . . . . . . . . 17,875 22,544
Professional fees . . . . . . . . . . . . . . . . 15,372 15,898
Interest, net . . . . . . . . . . . . . . . . . . 2,154 1,144
Other income, net . . . . . . . . . . . . . . . . - (278)
------------ ------------
Total expenses. . . . . . . . . . . . . . . . 1,096,117 449,566
------------ ------------
Net income (loss) . . . . . . . . . . . . $ 172,464 $ 721
------------ ------------
------------ ------------
Basic earnings (loss) per common share. . . . . . . $ 0.0062 $ 0.0000
------------ ------------
------------ ------------
Diluted earnings (loss) per common share. . . . . . $ 0.0062 $ 0.0000
------------ ------------
------------ ------------
Weighted Average Common Shares Outstanding. . . . . 27,910,217 26,310,217
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 172,464 $ 721
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . 17,875 22,544
(Gain) on sales of assets . . . . . . . . . . . . . - (278)
Changes in assets and liabilities:
(Increase) in restricted cash . . . . . . . . . . . (34,110) (189,038)
(Increase) in purchased claims. . . . . . . . . . . (41,946) (20,072)
(Increase) in accounts receivable, net. . . . . . . (320,198) (33,522)
Decrease in notes receivable. . . . . . . . . . . . 2,000 -
Decrease in prepaid expenses and other assets . . . 1,339 5,496
Increase in accounts payable. . . . . . . . . . . . 21,644 12,064
Increase in payable to clients. . . . . . . . . . . 68,007 117,090
Increase (decrease) in accrued liabilities. . . . . 147,840 (376)
Increase (decrease) in payable to funding source. . (33,900) 77,417
(Decrease) in deferred credits. . . . . . . . . . . (3,772) (3,773)
----------- -----------
Net cash (used in) operating activities . . . . . . . . . (2,757) (11,727)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment. . . . . . . . . . . (31,998) (10,756)
----------- -----------
Net cash used in investing activities . . . . . . . . . . (31,998) (10,756)
----------- -----------
Cash flows from financing activities:
Principal payments on capital lease obligations . . (21,688) (9,345)
----------- -----------
Net cash (used in) financing activities . . . . . . . . . (21,688) (9,345)
----------- -----------
(Decrease) in cash and cash equivalents . . . . . . . . . (56,443) (31,828)
Cash and cash equivalents at beginning of year. . . . . . 275,948 188,868
----------- -----------
Cash and cash equivalents at end of year. . . . . . . . . $ 219,505 $ 157,040
----------- -----------
----------- -----------
Supplemental disclosures:
Cash paid for:
Interest. . . . . . . . . . . . . . . . . . . . . . . $ 2,713 $ 2,237
Non-cash investing activities:
Cash received from receivables funding sources. . . . $ - $ 127,327
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of United
Medicorp, Inc. ("UMC" or the "Company") include its wholly owned
subsidiary, United MoneyCorp. Inc. ("UMY"). All material intercompany
transactions and balances have been eliminated. The financial information
presented should be read in conjunction with the audited financial
statements of the Company for the year ended December 31, 1997 included in
the Company's Annual Report on Form 10-K.
The unaudited consolidated financial information has been prepared in
accordance with the Company's customary accounting policies and practices.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments necessary for a fair presentation of results for the
interim period, have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
The results for interim periods are not necessarily indicative of results
to be expected for the year.
2. PURCHASED CLAIMS
Purchased claims represent claims purchased from a customer under a
medical claims purchase contract.
3. OTHER REVENUES
Other revenues consists primarily of consulting and advance funding
fees. Consulting fees are recognized as services are rendered. Advance
funding fees are recognized upon receipt of payment of funded claims from a
third party payor.
4. RECLASSIFICATION
Certain prior year balances have been reclassified to conform with
current year presentation.
4
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
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, 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
include, but are not limited to, the ability to sustain earnings from UMY,
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 services of existing key employees and
Directors, availability of qualified new employees to staff the Company's
operations, on-going management initiatives designed to reduce costs and
enhance efficiencies, retaining existing significant customers, and
prospective changes in laws, regulations, or policies affecting the
healthcare industry and or operations of the Company. 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.
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. During 1997 the Company began providing
consulting services to two operators of Community Mental Health Centers
located in Alabama, Florida and Tennessee. Consulting services are for the
most part related to billing and collection services provided by the Company,
and are focused primarily on compliance with regulations promulgated by the
Healthcare Financing Administration.
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.
5
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 first quarter of 1998, UMC signed regulatory consulting
agreements with two community mental health centers ("CMHC's"). One of these
CMHC's is a current ongoing accounts receivable management services customer.
Management estimates fees of approximately $6K per month will be generated
from these customers.
NEW MANAGEMENT HIRED:
Mr. Donald Chase joined UMC as Director of Claims Operations. Mr. Chase
brings twenty years of experience in healthcare accounts receivable and
operations management in hospital business offices and physician practices.
Prior to joining UMC, Mr. Chase managed patient financial services for 19
years at a 700 bed Columbia Healthcare Corporation facility in Dallas. Mr.
Chase also worked for Physician Reliance Network as Director of Business
Services in a twenty three physician oncology practice at Baylor University
Medical Center in Dallas. He later served as the Manager of that company's
corporate accounts receivable department where he was responsible for
management of a staff of over 100 employees engaged in receivables management
for physician clients nationwide.
Mr. Kenneth Moody joined UMC as Administrative Director. Mr. Moody
brings fifteen years of experience in physician practice management and
medical insurance claims administration. Prior to joining UMC, Mr. Moody
worked in claims administration for Mutual of Omaha for a period of 10 years.
More recently, he has served as the Administrator of physician practices
ranging in size from four to seventeen providers.
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.
6
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ACCOUNTS RECEIVABLE MANAGEMENT SERVICES - PROCESSING VOLUMES
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. In
general, collections on most healthcare providers' new claims ("Ongoing")
tend to average about 27 to 51 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:
<TABLE>
1998 1997 1996 1995
----- -------------------------------- ------------------------------- -----------------------
QUARTER
------------------------------------------------------------------------------------------------------
FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND
----- ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UMC
- ----------------
Number of Claims
Accepted for
Processing:
Ongoing 89,317 72,803 76,672 42,833 28,729 37,127 40,179 46,860 48,280 47,249 43,161 46,021
Backlog 8,518 23,739 28,361 - - - 1 1 41 3,455
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 97,835 96,542 105,033 42,833 28,729 37,127 40,180 46,861 48,321 50,704 43,161 46,021
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 40,333 33,375 35,186 20,124 20,269 18,325 18,068 21,055 19,923 21,660 18,791 19,999
Backlog 2,744 5,868 9,066 - - - - - 17 1,269 - -
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 43,077 39,243 44,252 20,124 20,269 18,325 18,068 21,055 19,940 22,929 18,791 19,999
Collection $
(000's)
Ongoing 14,556 12,190 9,407 10,143 7,545 7,063 7,533 8,257 9,019 8,694 9,613 9,883
Backlog 128 626 - - - - - 6 70 60 28 159
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 14,684 12,816 9,407 10,143 7,545 7,063 7,533 8,263 9,089 8,754 9,641 10,042
Fees Earned $
(000's)
Ongoing 922 733 480 428 366 376 379 386 408 447 449 482
Backlog 9 46 - - - - - - 3 3 2 15
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 931 778 480 428 366 376 379 386 411 450 451 497
Average Fee %
Ongoing 6.3% 6.0% 5.1% 4.2% 4.9% 5.3% 5.0% 4.7% 4.5% 5.1% 4.7% 4.8%
Backlog 7.0% 13.7% - - - - - - 4.3% 5.0% 7.1% 9.4%
</TABLE>
For Ongoing claims, there is typically a time lag of approximately 5 to
30 days from contract execution to computer hardware installation and
training of customer personnel. During this period, Company personnel survey
the customer's existing operations and prepare for installation. Following
installation and training of the customer's personnel, the customer begins
entering claims and transmitting them 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.
7
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COLLECTION AGENCY SERVICES - PROCESSING VOLUME
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. Collection fees percentages charged
to the customer vary for the three different placement categories: bad debt,
early out, and second placements.
<TABLE>
1998 1997 1996 1995
----- --------------------------------- -------------------------------- -----------------------
QUARTER
---------------------------------------------------------------------------------------------------------
FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND
----- ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UMY
- ------------------
Number of
Accounts Accepted
for Collection: 27,399 27,177 27,801 22,209 3,916 N/A N/A N/A N/A N/A N/A N/A
Gross $ Amount
of Accounts
Accepted for
Collection
(000's) 14,294 14,543 14,965 19,037 2,264 N/A N/A N/A N/A N/A N/A N/A
Collection $
(000's) 2,305 1,994 784 632 96 N/A N/A N/A N/A N/A N/A N/A
Fees Earned
(000's) 270 196 182 79 20 N/A N/A N/A N/A N/A N/A N/A
Average Fee % 11.8% 9.8% 23.2% 12.5% 20.8% N/A N/A N/A N/A N/A N/A N/A
</TABLE>
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.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statements of Operations expressed as a percentage of revenues:
<TABLE>
Three Months Ended
March 31,
---------------------
1998 1997
------ ------
<S> <C> <C>
Revenue 100.0% 100.0%
----- -----
Wages and benefits 61.2 71.3
Selling, general and administrative 18.0 16.6
Office and equipment rental 2.2 4.3
Provision for doubtful accounts 2.1 (1.2)
Depreciation and amortization 1.4 5.0
Professional fees 1.2 3.5
Interest, net, and other income 0.2 0.1
----- -----
Total expenses 86.3 99.6
----- -----
Net income (loss) 13.7% 0.4%
</TABLE>
8
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF THE QUARTER ENDED MARCH 31, 1998 TO THE QUARTER ENDED MARCH 31,
1997
REVENUES increased $805,589, or 179% primarily due to the following:
- - UMC ONGOING ACCOUNTS RECEIVABLE MANAGEMENT SERVICES revenue of $888,249 in
the first quarter of 1998 increased by $516,823 compared to the first
quarter of 1997. This increase is primarily the result of the May 5, 1997
agreement with the Washington Hospital Center ("WHC") to provide ongoing
accounts receivable management services to certain physician groups served
by the WHC Physician Billing Department ("WHCPBD"). During the first
quarter of 1998, the WHCPBD agreement provided revenue totaling $407,392
compared to no revenue during the first quarter of 1997. During the first
quarter of 1998, 54,277 physician claims totaling $16,427,000 were placed
compared to no claims placed during the first quarter of 1997. Revenue
generated from the WHCPBD agreement exceeded management's original
estimation of approximately $150,000 for the first quarter primarily due
to a larger claim volume than was originally anticipated. During the first
quarter of 1998, the Company was informed by WHCPBD that a portion of the
claims volume submitted under the WHCPBD agreement would be taken back
under a WHC model office project due to no fault of UMC. Management
continues to estimate that the WHCPBD agreement will generate recurring
revenue of approximately $50,000 per month. During the first quarter of
1998, the WHC Hospital Billing Department ("WHCHBD") agreement provided
revenue totaling $441,896 compared to $337,602 during the first quarter
of 1997. During the first quarter of 1998, 31,144 hospital claims
totaling $21,275,000 were placed compared to 25,521 hospital claims
totaling $14,717,000 placed during the first quarter of 1997. The
increase in hospital claims volume is primarily due to increased WHC
patient volumes. Assuming that there are no significant changes in the
volume and mix of claims placed by WHC, management believes that the
WHCHBD agreement will continue to generate revenues of approximately
$400,000 per quarter.
- - UMY COLLECTION AGENCY SERVICES revenue of $269,506 in the first quarter
of 1998 increased by $249,794 compared to the first quarter of 1997. This
increase is primarily the result of the growth in collection placements
from Presbyterian Healthcare System ("PHS"). During the first quarter of
1998, PHS provided revenue for the collection of bad debt, early out and
secondary placements totaling $255,704 compared to $9,079 for the
collection of bad debt and secondary placements during the first quarter
of 1997. During the first quarter of 1998, 27,399 accounts totaling
$14,293,840 were placed with UMY compared to 3,916 accounts totaling
$2,264,000 placed during the first quarter of 1997. During the business
strategy implementation process of the past twelve months, UMY successfully
demonstrated that it offers an efficient and competitive collection agency
service to the marketplace. Management believes that first quarter 1998
revenues are indicative of the revenue potential for the remainder of the
year assuming no loss of existing customers. Management continues to
emphasize customer base growth in order to expand its market presence and
to reduce concentration risk. To that extent, during the first quarter of
1998, the UMY sales force expanded into central and south Texas. There
can be no assurance that the expanded sales force will result in
significant new revenues during the remainder of the year.
WAGES AND BENEFITS expense increased $455,447 or 142% primarily due to
increased headcount and bonus expense related to the 1998 Key Management
Bonus Plan (the "Plan"). Approximately $370,000 or 81% of this increase
relates to increased headcount required to support customer growth as well as
to enhance the management infrastructure. During the first quarter of 1998,
monthly employee headcount averaged 84 compared to 41 during the first
quarter of 1997. It is managements' current intention to continue to
9
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
add management and line employees throughout the remainder of 1998 thereby
increasing wages and benefits at a rate of approximately 1% per quarter;
however, this rate is subject to change based on unexpected changes in the
revenue stream. Approximately $85,000 or 19% of this increase relates to key
management bonus expense as a result of the Plan. Due to the Company's
ability to successfully recruit additional key executive officers as a result
of the Company's improved operating results, the Compensation Committee of
the Board of Directors (the "Committee") determined that it was appropriate
to implement the Plan to provide additional incentive to achieve profitable
recurring growth and incremental shareholder value. The Plan is designed to
motivate executives and key managers to achieve certain defined financial
goals and individual goals relative to the Company's 1998 annual operating
plan. The Plan calls for an annual target bonus of 25% of base salary with
the maximum attainable bonus not to exceed 37.5% of annual base salary for
each participant in the Plan. The bonus amount is determined on a formula
basis by application of a performance grid that measures the Company's 1998
revenue and pre-tax profit, and the achievement of defined individual goals.
Progress towards achieving stated fiscal 1998 goals will be evaluated by the
CEO and reviewed by the Committee. Bonus payments, if any, will be
distributed upon completion of the 1998 financial statement audit on or
before March 31, 1999. Bonus expense recognized in the first quarter of 1998
is proportionate to the ratio of pre-tax profit in the first quarter divided
by total pre-tax profit per the 1998 annual operating plan. In fiscal 1997,
the Company had no formal management bonus plan.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense increased $153,983
or 206% primarily due to increased travel associated with supporting existing
customers and developing new business, increased printing and postage expense
related to UMY and the WHCPBD agreement, and various other expenses to
support a larger customer base and increased headcount. Approximately
$20,000 was expensed in the first quarter of 1998 associated with Year 2000
remediation. SG&A expense as a percent of revenue is expected to remain at
approximately seventeen to twenty percent of revenues throughout 1998.
OFFICE AND EQUIPMENT RENTAL expense increased $8,432 or 43% primarily due
to the lease of an additional 1,906 square feet of office space on July 31, 1997
required for UMY. The Company's existing office space is near capacity. Should
the Company continue to grow, management believes that additional office space
will be required within the next six months. Given that current market rates
on leased office space have increased significantly from the rates that were
in effect when the Company signed its current lease agreements, management
believes that the rate per square foot will be approximately 50% higher than
the rate paid on the Company's current office space.
PROVISION FOR DOUBTFUL ACCOUNTS expense increased $32,326 or 597%
primarily due to the increase in total trade accounts receivable, as a result
of increased revenues, as well as the balance of accounts receivable aged
greater than ninety days. This expense does not represent trade receivables
written off, but rather an increase in the bad debt reserve. As a percentage
of gross trade accounts receivable, the bad debt reserve increased to 5% at
March 31, 1998 compared to 3% at March 31, 1997. The bad debt reserve at
March 31, 1998 approximates those account balances aged greater than ninety
days and will be adjusted accordingly in the future.
10
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's liquid assets, consisting of cash and
cash equivalents, totaled $219,505 compared to $275,948 at December 31, 1997.
Working capital was $466,961 and $331,552 at March 31, 1998 and December 31,
1997, respectively, and increased primarily due to increased trade accounts
receivable resulting from internally generated sales from existing and new
customers.
Operating activities used net cash of $2,757 during the first quarter of
1998, compared to $11,727 used in operating activities during the first quarter
of 1997. This improvement is primarily due to increased net income and
increased accrued liabilities comprised primarily of accrued key management
bonus offset by growth in trade receivables mainly from strong claim
processing and collection revenue growth quarter over quarter.
Investing activities comprised of purchases of equipment used cash of
$31,998 during the first quarter of 1998, compared to $10,756 used in
investing activities during the first quarter of 1997. This increase is
primarily related to minor AS/400 computer enhancements, telephone switch
enhancements, and office equipment for new employees. Greater levels of
capital expenditures are anticipated later in 1998 to position the Company
for continued growth in revenues in fiscal 1999.
Financing activities comprised of principal payments on capital lease
obligations used cash of $21,688 during the first quarter, compared to $9,345
used in financing activities during the first quarter of 1997. Management
anticipates that addition capital lease obligations will be necessary in 1998
primarily to upgrade the existing IBM AS/400 computer.
Effective April 29, 1998, the Company completed a $200,000 revolving
credit facility with Texas Central Bank, N.A. (the "Facility"). The Facility
is intended to provide additional liquidity in the event that the Company's
growth exceeds its 1998 operating plan and for general corporate purposes.
Borrowing under the Facility will initially bear interest of 9.5% based on
the Wall Street Journal Prime Rate plus 1%. The Facility is secured by UMC's
and UMY's trade accounts receivable. The borrowing base is the lesser of
$200,000 or 60% of trade accounts receivable aged less than 60 days. The
Facility matures on April 29, 1999. No assurance can be given that the
Facility will be renewed upon maturity. A one-time 1% commitment fee of
$2,000 was incurred. There are no additional commitment fees. At May 14,
1998, there were no borrowings under the Facility.
Management believes that available cash and cash equivalents, together
with anticipated cash generated from operations and available borrowings
under the Facility, will provide adequate funds for the Company's anticipated
needs, including working capital and capital expenditures. Management also
believes that cash provided from operations will be sufficient to satisfy
existing capital lease obligations as they come due. As the size and
financial resources of the Company increase, additional opportunities
requiring significant commitments of capital may arise. In order to pursue
such opportunities, the Company may be required to incur additional debt or
to issue additional potentially dilutive securities in the future. No
assurance can be given as to the Company's ability to obtain favorable
financing for future expansion opportunities.
11
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
12
<PAGE>
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/ R. Kenyon Culver Date: May 14, 1998
------------------------------------------- -------------
R. Kenyon Culver
Vice President and Chief Financial Officer
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 219,505
<SECURITIES> 0
<RECEIVABLES> 788,855
<ALLOWANCES> (38,588)
<INVENTORY> 0
<CURRENT-ASSETS> 1,220,786
<PP&E> 1,061,316
<DEPRECIATION> (858,942)
<TOTAL-ASSETS> 1,435,159
<CURRENT-LIABILITIES> 753,825
<BONDS> 0
0
0
<COMMON> 280,157
<OTHER-SE> 339,738
<TOTAL-LIABILITY-AND-EQUITY> 1,435,159
<SALES> 0
<TOTAL-REVENUES> 1,268,581
<CGS> 0
<TOTAL-COSTS> 1,067,049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26,914
<INTEREST-EXPENSE> 2,154
<INCOME-PRETAX> 172,464
<INCOME-TAX> 0
<INCOME-CONTINUING> 172,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,464
<EPS-PRIMARY> 0.006<F1>
<EPS-DILUTED> 0.006<F2>
<FN>
<F1>BASIC EARNINGS PER SHARE C0MPUTED PER SFAS NO. 128, SFAS NO. 128 HAD NO AFFECT
ON BASIC EPS FOR THE QUARTER ENDED MARCH 31, 1997.
<F2>DILUTED EARNINGS PER SHARES COMPUTED PER SFAS NO. 128. SFAS NO. 128 HAD NO
AFFECT ON DILUTED EPS FOR THE QUARTER ENDED MARCH 31, 1997.
</FN>
</TABLE>
