<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 JUNE 30, 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 August 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 JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
PAGE
PART I - FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets at June 30, 1998 and
December 31, 1997 1
Consolidated Statements of Operations for the Six Months
and the Three Months Ended June 30, 1998 and 1997 2
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 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 14
ITEM 2. Changes in Securities 14
ITEM 3. Defaults Upon Senior Securities 14
ITEM 4. Submission of Matters to a Vote of Security Holders 14
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
(UNAUDITED) (Audited)
JUNE 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 527,717 $ 275,948
Restricted cash 59,347 154,096
Purchased claims 82,180 -
Accounts receivable, net of allowance for doubtful
accounts of $37,071 and $11,674, respectively 389,736 430,069
Notes receivable 2,000 4,000
Prepaid expenses and other current assets 22,682 20,201
------------ ------------
Total current assets 1,083,662 884,314
Property and equipment, net 220,216 188,248
Other non-current assets 13,392 11,999
------------ ------------
Total assets 1,317,270 1,084,561
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 63,886 68,270
Payable to clients 2,798 75,135
Accrued liabilities 342,074 268,423
Deferred credit 1,257 8,802
Payable to funding source 56,549 78,961
Current portion of capital lease obligations 65,376 53,171
------------ ------------
Total current liabilities 531,940 552,762
Long term portion of capital lease obligations 69,788 84,368
------------ ------------
Total liabilities 601,728 637,130
------------ ------------
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 (18,038,563) (18,306,674)
------------ ------------
Total stockholders' equity 715,542 447,431
------------ ------------
Total liabilities and stockholders' equity $ 1,317.270 $ 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>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------
1998 1997 1998 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Billing and collection services $ 1,049,854 $ 587,962 $ 2,303,898 $ 1,036,339
Other revenues 70,424 4,550 84,961 6,460
----------- ----------- ----------- ------------
Total revenues 1,120,278 592,512 2,388,859 1,042,799
Expenses:
Wages and benefits 710,742 408,220 1,487,389 729,420
Selling, general and administrative 239,740 111,923 468,610 186,809
Office, vehicle and equipment rental 33,821 19,577 62,106 39,160
Depreciation and amortization 25,225 23,234 43,100 45,778
Professional fees 13,982 13,534 29,354 29,432
Provision for doubtful accounts - 6,603 26,914 1,191
Interest, net 1,121 2,382 3,275 3,527
Other income, net - (38) - (316)
----------- ----------- ----------- ------------
Total expenses 1,024,631 585,435 2,120,748 1,035,001
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Net income (loss) $ 95,647 $ 7,077 $ 268,111 $ 7,798
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Basic earnings (loss) per common share $ 0.0034 $ 0.0003 $ 0.0096 $ 0.0003
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Diluted earnings (loss) per common share $ 0.0034 $ 0.0003 $ 0.0096 $ 0.0003
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Weighted Average Common Shares
Outstanding 27,910,217 26,310,217 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>
Six Months Ended
June 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 268,111 $ 7,798
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 43,100 45,778
(Gain) on sales of assets - (316)
Changes in assets and liabilities:
(Increase) decrease in restricted cash 94,749 (117,824)
(Increase) in purchased claims (82,180) (7,633)
(Increase) decrease in accounts receivable, net 40,333 (96,959)
(Increase) decrease in notes receivable 2,000 (8,000)
(Increase) decrease in prepaid expenses and other assets (3,874) 8,839
Increase (decrease) in accounts payable (4,384) 32,887
Increase (decrease) in payable to clients (72,337) 64,455
Increase (decrease) in accrued liabilities 73,651 (2,338)
Increase (decrease) in payable to funding source (22,412) 63,171
(Decrease) in deferred credits (7,545) (7,545)
----------- -----------
Net cash provided (used in) operating activities 329,212 (17,687)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (42,530) (81,090)
----------- -----------
Net cash used in investing activities (42,530) (81,090)
----------- -----------
Cash flows from financing activities:
Principal payments on capital lease obligations (34,913) (18,112)
----------- -----------
Net cash (used in) financing activities (34,913) (18,112)
----------- -----------
Increase (decrease) in cash and cash equivalents 251,769 (116,889)
Cash and cash equivalents at beginning of period 275,948 188,868
----------- -----------
Cash and cash equivalents at end of period $ 527,717 $ 71,979
----------- -----------
----------- -----------
Supplemental disclosures:
Cash paid for:
Interest $ 5,019 $ 4,497
Non-cash investing activities:
Cash received from receivables funding sources $ - $ 127,327
Additions to capital lease obligations $ 32,538 $ 10,122
</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 retain the two major customer
contracts upon which the current earnings of UMC and UMY are primarily
dependent, 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, prospective changes in laws, regulations, or
policies affecting the healthcare industry and or operations of the Company,
and Year 2000 compliance of the Company's and significant third parties'
computer systems. 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,
electronic claim clearinghouse services, financing and other valuable
services specifically designed to meet the needs of health care provider.
Management believes these
5
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 and receivables management
services that will significantly improve its customers' cash flow.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculation causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send and receive electronic data, or engage in similar normal
business activities.
Based on a recent assessment, the Company determined that it will be
required to modify its proprietary claims processing and follow-up software,
its purchased collection agency software package, and certain other general
business use software applications in order to be Year 2000 compliant. The
Company presently believes that with modifications to the existing
proprietary and purchased claims processing and collection agency software as
well as replacement of certain general business use software, the Year 2000
issue can be mitigated. However, if such modifications and replacements are
not made, or completed timely, the Year 2000 issue would more likely than not
have a material adverse effect on the Company.
The Company has considered its interdependence of computer systems with
its significant customers and third party payors including the Healthcare
Financing Administration ("HCFA") (collectively the "Significant Third
Parties") to determine the extent to which the Company is vulnerable to those
Significant Third Parties' failure to remediate their own Year 2000 issues.
Management considers the vulnerability of the failure of Significant Third
Parties to remediate their own Year 2000 issues to be the greatest Year 2000
risk facing the Company. There can be no guarantee that the systems of
Significant Third Parties which the Company's customers rely upon for a
portion of their claim payments and which the Company relies upon for the
transmission of claims and account data will be timely converted. Failure of
a Significant Third Party to convert its computer systems, or a conversion
that is incompatible with the Company's systems, would more likely than not,
have a material adverse effect on the Company. Currently, the Company has not
developed a contingency plan to address this scenario. Should management
become aware of information that indicates that a Significant Third Party
more likely than not will not be Year 2000 compliant, a contingency plan will
be developed.
The Company's current remediation plan calls primarily for the use of
existing internal resources to reprogram, replace, and test Year 2000
compliance. The total incremental costs associated with this project are
currently estimated to be about $30,000 intended to be funded through
operating cash flows.
To date, the Company has purchased and installed Year 2000 remediation
software. This software has identified all date fields that require
conversion to be Year 2000 compliant and all source code has been converted
to the eight byte date field. In addition, the Year 2000 test environment
has been created.
6
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Compliance testing will begin in August, 1998 and continue throughout the
remainder of the year. Management currently plans to complete the Year 2000
project by December 31, 1998.
ACQUISITION OF ALLIED HEALTH OPTIONS, INC.
On August 7, 1998, UMC acquired 100% of the common stock of Allied
Health Options, Inc, an Alabama corporation, ("AHO") engaged in the business
described below. AHO, formed in February 1996, provides partial
hospitalization programs as well as outpatient programs from three community
mental health centers, two of which are located in Alabama and one of which
is located in Florida. AHO currently has unaudited 1998 annualized net
revenues of approximately $3 million and an employee base of 17. A
substantial portion of AHO's revenues are derived from cost based Medicare
reimbursement supplemented by commercial insurance payments. At the date of
acquisition, UMC provided to AHO ongoing accounts receivable management
services, funding and consulting services. In connection with the
acquisition, the former president and founder of AHO will continue to provide
his services to AHO under a two year consulting agreement, and he has also
entered into a three-year covenant not to compete agreement. The purchase
price for the common stock was $1. The acquisition will be accounted for as a
purchase. The unaudited estimated value of the assets acquired is
approximately $700,000 and the liabilities assumed is approximately $950,000.
All financial information provided herein is subject to change based on the
financial statement audit which is expected to be completed on or before
October 19, 1998. This acquisition is currently considered to be a
Significant Subsidiary requiring the provision of certain audited financial
statements and pro forma financial information. Form 8-K is expected to be
filed with the Securities and Exchange Commission on or before August 21,
1998 exclusive of audited financial statements and pro forma information as
it is impractical to provide the required financial information by such date.
The required financial information will be filed by amendment to Form 8-K no
later than October 19, 1998.
MANAGEMENT HIRED
Mr. David Harder joined UMC as Director of Operations for UMY. Mr. Harder
has 27 years of collection experience which includes operational and management
positions. Prior to joining UMY, Mr. Harder worked for the Chilton Corporation
and TRW for 12 years holding such positions as Director of Systems and
Procedures and Director of Agency Support. Mr. Harder also started and owned a
Dallas based collection agency which he sold in 1994 to CRW. He subsequently
served as Director of Government Contracts and Compliance for CRW from 1994
until 1998.
UNITED MONEYCORP, INC.
UMY and is a wholly owned subsidiary under which UMC operates 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.
7
<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
--------------------------------------------------------------------------------------------------------
SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UMC
- ----------------
Number of Claims
Accepted for
Processing:
Ongoing 49,742 89,317 72,803 76,672 42,833 28,729 37,127 40,179 46,860 48,280 47,249 43,161
Backlog 72 8,518 23,739 28,361 - - - 1 1 41 3,455 -
------ ------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total 49,814 97,835 96,542 105,033 42,833 28,729 37,127 40,180 46,861 48,321 50,704 43,161
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 30,087 40,333 33,375 35,186 20,124 20,269 18,325 18,068 21,055 19,923 21,660 18,791
Backlog 17 2,744 5,868 9,066 - - - - - 17 1,269 -
------ ------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total 30,104 43,077 39,243 44,252 20,124 20,269 18,325 18,068 21,055 19,940 22,929 18,791
Collection $
(000's)
Ongoing 11,215 14,556 12,190 9,407 10,143 7,545 7,063 7,533 8,257 9,019 8,694 9,613
Backlog 156 128 626 - - - - - 6 70 60 28
------ ------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total 11,371 14,684 12,816 9,407 10,143 7,545 7,063 7,533 8,263 9,089 8,754 9,641
Fees Earned $
(000's)
Ongoing 729 922 733 480 428 366 376 379 386 408 447 449
Backlog 11 9 46 - - - - - - 3 3 2
------ ------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total 740 931 778 480 428 366 376 379 386 411 450 451
Average Fee %
Ongoing 6.4% 6.3% 6.0% 5.1% 4.2% 4.9 % 5.3% 5.0% 4.7% 4.5% 5.1% 4.7%
Backlog 7.1% 7.0% 13.7% - - - - - - 4.3% 5.0% 7.1%
</TABLE>
For Ongoing claims, there is typically a time lag of approximately 5 to
45 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.
8
<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
--------------------------------------------------------------------------------------------
SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UMY
- -----------------
Number of
Accounts Accepted
for Collection: 22,130 27,399 27,177 27,801 22,209 3,916 N/A N/A N/A N/A N/A N/A
Gross $ Amount
of Accounts
Accepted for
Collection
(000's) 12,370 14,294 14,543 14,965 19,037 2,264 N/A N/A N/A N/A N/A N/A
Collection $
(000's) 2,653 2,305 1,994 784 632 96 N/A N/A N/A N/A N/A N/A
Fees Earned
(000's) 263 270 196 182 79 20 N/A N/A N/A N/A N/A N/A
Average Fee % 9.9% 11.8% 9.8% 23.2% 12.5% 20.8% 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 Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
---- ---- ---- ----
Wages and benefits 63 69 62 70
Selling, general and administrative 21 19 20 18
Office and equipment rental 3 3 3 4
Depreciation and amortization 2 4 2 4
Professional fees 1 2 1 3
Provision for doubtful accounts - 1 1 -
Interest, net, and other income 1 1 - -
---- ---- ---- ----
Total expenses 91 99 89 99
---- ---- ---- ----
Net income (loss) 9% 1% 11% 1%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
9
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF THE QUARTER ENDED JUNE 30, 1998 TO THE QUARTER ENDED JUNE 30,
1997
The following discussion of the results of operations does not include the
impact of the aforementioned acquisition of AHO.
REVENUES increased $527,766, or 89% primarily due to the following:
- - UMC ONGOING ACCOUNTS RECEIVABLE MANAGEMENT SERVICES revenue of $686,328 in
the current quarter increased by $273,889 compared to the same 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
current quarter, the WHCPBD ongoing agreement provided revenue totaling
$224,418 compared to no such revenue during the same quarter of 1997.
During the current quarter, 17,702 physician claims totaling $6,595,000
were placed compared to no such claims placed during the same quarter of
1997. Revenue generated from the WHCPBD agreement exceeded management's
original estimation of approximately $150,000 for the current quarter
primarily due to a larger claim volume than was originally anticipated
and trailing fees earned as the claim inventory is worked. Assuming that
there are no significant changes in the volume and mix of claims placed
by WHCPBD, management believes that the WHCPBD agreement will continue
to generate revenues of approximately $160,000 in the third quarter and
$120,000 per quarter thereafter for the remainder of the year.
During the current quarter, the WHC Hospital Billing Department
("WHCHBD") agreement provided revenue totaling $329,993 compared to
$355,972 during the same quarter of 1997. During the current quarter,
31,473 claims totaling $21,257,000 were placed compared to 28,938 claims
totaling $16,478,000 placed during the same quarter of 1997. Assuming
that there are no significant changes in the volume and mix of claims
placed by WHC, management believes that the WHCHBD agreement will
generate revenues of approximately $420,000 in the third quarter and
$390,000 per quarter thereafter for the remainder of the year.
During the current quarter, other ONGOING ACCOUNTS RECEIVABLE MANAGEMENT
SERVICES customers provided revenue totaling $131,917 compared to
$56,467 during the same quarter of 1997 primarily due to the full
quarter effect of two customers signed in September, 1997. Assuming that
there are no significant changes in the volume and mix of accounts
placed from other customers, and no gain or loss of exiting customers,
management believes that other customers will generate revenues of
approximately $35,000 in the third quarter and $10,000 per quarter
thereafter for the remainder of the year.
- - UMY COLLECTION AGENCY SERVICES revenue of $264,653 in the current quarter
increased by $185,344 compared to the same quarter of 1997 primarily due
to an increase in UMY collectors to an average of 13 in the current
quarter compared to 7 in the same quarter of 1997. During the current
quarter, PHS provided revenue from the collection of bad debt, early out
and secondary placements totaling $253,490 compared to $64,192 during
the same quarter of 1997. During the current quarter, 22,130 accounts
totaling $12,370,000 were placed with UMY compared to 22,209 accounts
totaling $19,037,000 placed during the same quarter of 1997. Assuming
that there are no significant changes in the volume and mix of accounts
placed with UMY and no gain or loss of exiting customers, management
believes that UMY will
10
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
continue to generate revenues of approximately $300,000 per quarter for
the remainder of the year. 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 produce significant new
revenues during the remainder of the year. UMY serviced an average of 8
active customers during the current quarter compared to 6 during the
same quarter of 1997.
- - OTHER revenue of $70,424 in the current quarter increased by $65,874
compared to the same quarter of 1997 primarily due to ADVANCE FUNDING
SERVICES revenues earned from a single customer and CONSULTING SERVICES
revenues earned from two customers. During the current quarter, ADVANCE
FUNDING SERVICES provided revenue totaling $24,669 compared to $2,355
during the same quarter of 1997 due to increased funding and repayment
of funded claims from third party payors. Management believes that
funding revenues will decrease to approximately $5,000 in the third
quarter with no such revenue anticipated in the fourth quarter. During
the current quarter, CONSULTING SERVICES provided revenue totaling
$45,755 compared to $4,550 during the same quarter of 1997 due to
increased services related primarily to compliance with regulations
promulgated by HCFA, as well as financial and human resources management
services. Management believes that consulting services will generate
revenues of approximately $20,000 in the third quarter and $10,000 per
quarter thereafter.
WAGES AND BENEFITS expense increased $302,522 or 74% primarily due to
increased headcount and bonus expense related to the 1998 Key Management
Bonus Plan (the "Bonus Plan"). Approximately $286,000 or 94% of this
increase relates to increased headcount required to support increased
processing volume as well as to enhance the management infrastructure. During
the current quarter, monthly employee headcount averaged 81 compared to 49
during the same quarter of 1997. It is managements' current intention to
continue to add management and line employees throughout the remainder of
1998 thereby increasing wages and benefits at a rate of approximately 4% per
quarter due to anticipated headcount growth of 17 throughout the remainder of
the year. This rate of increase is subject to change based on unexpected
changes in the revenue stream. Approximately $17,000 or 6% of this increase
relates to key management bonus expense as a result of the Bonus 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 Bonus Plan to provide additional
incentive to achieve profitable recurring growth and incremental shareholder
value. The Bonus 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 Bonus 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 Bonus 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 1998 goals will be evaluated by the CEO and authorized 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 current quarter is proportionate to the ratio of pre-tax
profit in the current quarter divided by total pre-tax profit per the 1998
annual operating plan. In 1997, the Company had no formal management bonus
plan.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense increased $127,817
or 114% primarily due to increased travel associated with supporting existing
customers and developing new business, increased printing, postage and
telephone expense related to UMY and the WHCPBD agreement,
11
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
increased bonuses for UMY collectors related to increased collections and
revenues, increased contract labor to temporally fill open positions,
increased recruiting expenses to fill open positions and various other
expenses to support a larger customer base and increased headcount. SG&A
expense as a percent of revenue is expected to remain at approximately twenty
percent of revenues throughout 1998.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense increased $14,244 or 73%
primarily due to the lease of two company vehicles utilized by the sales
force at a monthly expense of approximately $1,000 per month compared to no
leased vehicles during the same quarter of 1997, as well as leasing 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 in 1995,
management believes that the rate per square foot will be approximately 50%
higher than the rate paid on the Company's current office space.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED
JUNE 30, 1997
The following discussion of the results of operations does not include
the impact of the aforementioned acquisition of AHO.
REVENUES increased $1,346,060, or 129% primarily due to the following:
- - UMC ONGOING ACCOUNTS RECEIVABLE MANAGEMENT SERVICES revenue of $1,574,577
for the current six-month period increased by $819,752 compared to the
same period of 1997 primarily due to the aforementioned May 5, 1997
agreement with WHCPBD. During the current six-month period, the WHCPBD
agreement provided revenue totaling $631,810 compared to no such revenue
during the same period of 1997. During the current six-month period,
71,979 physician claims totaling $23,022,000 were placed compared to no
such claims placed during the same period of 1997.
During the current six-month period, the WHCHBD agreement provided
revenue totaling $771,889 compared to $693,574 during the same period of
1997. During the current six-month period, 62,617 claims totaling
$42,532,000 were placed compared to 54,459 claims totaling $31,195,000
placed during the same period of 1997.
During the current six-month period, other ONGOING ACCOUNTS RECEIVABLE
MANAGEMENT SERVICES customers provided revenue totaling $170,878
compared to $61,251 during the same period of 1997 primarily due to the
full six-month effect of two customers signed in September, 1997.
- - UMY COLLECTION AGENCY SERVICES revenue of $533,589 for the current six-month
period increased by $434,569 compared to the same period of 1997
primarily due to the result of the growth in collection placements from
PHS and the increase in UMY collectors. UMY collectors increased to an
average of 11 in the current period compared to 6 in the same period of
1997. During the current six-month period, PHS provided revenue from
the collection of bad debt, early out and secondary placements totaling
$512,110 compared to $73,271 for the same period of 1997. During the
current six-month period, 49,529 accounts totaling $26,664,000 were
placed with UMY compared to 26,125 accounts totaling $21,301,000 placed
during the same period of 1997.
12
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- - OTHER revenue of $84,961 for the current six-month period increased by
$78,501 compared to the same period of 1997 primarily due to ADVANCE
FUNDING SERVICES revenues earned from a single customer and CONSULTING
SERVICES revenues earned from two customers. During the current
six-month period, ADVANCE FUNDING SERVICES provided revenue totaling
$27,410 compared to $2,355 in the same period of 1997 due to increased
funding and repayment of funded claims from third party payors. During
the current six-month period, CONSULTING SERVICES provided revenue
totaling $55,925 compared $6,460 in the same period of 1997 due to
increased services related primarily to compliance with regulations
promulgated by HCFA as well as financial and human resources management
services.
WAGES AND BENEFITS expense increased $757,969 or 104% primarily due to
increased headcount and bonus expense related to the Bonus Plan.
Approximately $656,000 or 87% of this increase relates to increased headcount
required to support increased processing volume as well as to enhance the
management infrastructure. During the current six-month period, monthly
employee headcount averaged 82 compared to 46 during the same period of 1997.
Approximately $102,000 or 13% of this increase relates to key management
bonus expense as a result of the Bonus Plan.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense increased $281,801
or 151% primarily due to increased travel associated with supporting existing
customers and developing new business, increased printing, postage and
telephone expense related to UMY and the WHCPBD agreement, increased bonuses
for UMY collectors related to increased collections and revenues, increased
contract labor to temporarily fill open positions, increased recruiting
expenses to fill open positions and various other expenses to support a
larger customer base and increased headcount.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense increased $22,946 or 56%
primarily due to the lease of two company vehicles utilized by the sales
force at a monthly expense of approximately $1,000 per month compared to no
leased vehicles during the same period of 1997, as well as leasing an
additional 1,906 square feet of office space on July 31, 1997 required for
UMY.
PROVISION FOR DOUBTFUL ACCOUNTS expense increased $25,723 primarily due
to the increase in total trade accounts receivable, as a result of increased
revenues, as well as the reserve required for the balance of accounts
receivable aged greater than ninety days.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's liquid assets, consisting of cash and
cash equivalents, totaled $527,717 compared to $275,948 at December 31, 1997.
Working capital was $551,722 and $331,552 at June 30, 1998 and December 31,
1997, respectively, and increased primarily due to increased cash and
purchased claims.
Operating activities through June 30, 1998 provided net cash of $329,212,
compared to $17,687 net cash used in operating activities during the same
period of 1997. This improvement is primarily due to increased net income,
increased accrued liabilities and decreased trade accounts receivable
partially offset by increased purchased claims.
13
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Investing activities through June 30, 1998, consisted of purchases of
furniture, fixtures and equipment which used cash of $42,530, compared to
$81,090 used in investing activities during the same period of 1997. This
decrease is primarily related to the build-out of the UMY leased space in
1997 as well as other purchases of furniture and fixtures to support
headcount growth of approximately 15 employees during the first six months of
1997. Greater levels of capital expenditures are anticipated later in 1998
to position the Company for continued growth opportunities in 1999.
Financing activities through June 30, 1998, consisted of principal
payments on capital lease obligations which used cash of $34,913, compared to
$18,112 used in financing activities during the same period of 1997.
Management anticipates that addition capital lease obligations will be
necessary during the second half of 1998 or during 1999 primarily to upgrade
the existing IBM AS/400 computer.
Effective April 29, 1998, the Company has had an available line of credit
under a secured credit facility (the "Credit Facility"). The maximum amount
of borrowing available under the Credit Facility (the "Borrowing Base") is
equal to the lesser of $200,000 or 60% of trade accounts receivable aged less
than 60 days. During the current quarter, the available Borrowing Base has
averaged approximately $110,000. To date, there has been 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 the anticipated needs of AHO), 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
equity securities in the future. No assurance can be given as to the
Company's ability to obtain favorable financing for future expansion
opportunities.
PART II. 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
14
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
15
<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: August 14, 1998
------------------------------------------ ----------------
R. Kenyon Culver
Vice President and Chief Financial Officer
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 527,717
<SECURITIES> 0
<RECEIVABLES> 426,807
<ALLOWANCES> (37,071)
<INVENTORY> 0
<CURRENT-ASSETS> 1,083,662
<PP&E> 1,104,383
<DEPRECIATION> (884,167)
<TOTAL-ASSETS> 1,317,270
<CURRENT-LIABILITIES> 531,940
<BONDS> 0
0
0
<COMMON> 280,157
<OTHER-SE> 435,385
<TOTAL-LIABILITY-AND-EQUITY> 1,317,270
<SALES> 0
<TOTAL-REVENUES> 1,120,278
<CGS> 0
<TOTAL-COSTS> 1,023,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,121
<INCOME-PRETAX> 95,647
<INCOME-TAX> 0
<INCOME-CONTINUING> 95,647
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,647
<EPS-PRIMARY> 0.003<F1>
<EPS-DILUTED> 0.003<F2>
<FN>
<F1>BASIC EARNINGS PER SHARE COMPUTED PER SFAS NO. 128. SFAS NO. 128 HAD NO
AFFECT ON BASIC EPS FOR THE QUARTER ENDED MARCH 31, 1997
<F2>DILUTED EARNINGS PER SHARE COMPUTED PER SFAS NO. 128. SFAS NO. 128 HAD NO
AFFECT ON DILUTED EPS FOR THE QUARTER ENDED MARCH 31, 1997
</FN>
</TABLE>
