<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 SEPTEMBER 30, 1999
[ ] 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 NO X
--- ---
As of November 10, 1999, there were outstanding 28,910,217 shares of Common
Stock, $0.01 par value.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNITED MEDICORP, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets at September 30, 1999 and December 31, 1998..................... 1
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and 1998............................................................ 2
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998........................................................... 3
Notes to the Consolidated Financial Statements.............................................. 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................................... 7
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings........................................................................... 18
ITEM 2. Changes in Securities....................................................................... 18
ITEM 3. Defaults 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
</TABLE>
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 26,851 $ 88,693
Restricted cash .......................................................... 9,457 1,064
Accounts receivable, net of allowance for doubtful accounts
of $0 and $17,973, respectively ....................................... 355,976 408,458
Prepaid expenses and other current assets ................................ 37,917 30,399
------------ ------------
Total current assets ........................................................... 430,201 528,614
Other non-current assets ....................................................... 4,816 13,142
Property and equipment, net of accumulated depreciation of $825,175
and $770,827, respectively ............................................... 118,531 161,580
Assets under capital leases, net of accumulated amortization of
$48,626 and $142,789, respectively ....................................... 156,486 49,918
Net assets of discontinued operations - AHO .................................... -- 1,251,119
------------ ------------
Total assets ................................................................... 710,034 2,004,373
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable ................................................... 32,170 81,188
Payable to clients ....................................................... 9,457 1,064
Accrued liabilities ...................................................... 243,003 193,329
Current portion of capital lease obligations ............................. 76,728 67,614
Current portion of long term debt ........................................ 50,000 --
Short term borrowings .................................................... 180,000 200,000
Net liabilities of discontinued operations - AHO ......................... 976,542 733,403
------------ ------------
Total current liabilities ...................................................... 1,567,900 1,276,598
Long term capital lease obligations, excluding current portion ................. 129,284 44,973
Long term debt ................................................................. 12,500 --
Net liabilities of discontinued operations - AHO ............................... 192,784 --
------------ ------------
Total liabilities .............................................................. 1,902,468 1,321,571
------------ ------------
Stockholders' equity (Deficit):
Common stock; $0.01 par value; 50,000,000 shares authorized; 29,015,764
shares and 28,015,764 shares outstanding,
respectively .......................................................... 290,157 280,157
Common Stock Subscribed; $0.01 par value; 1,000,000 shares ............... -- 60,000
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 ............................................... 18,753,254 18,703,254
Retained deficit ......................................................... (20,013,964) (18,138,728)
------------ ------------
Total stockholders' equity (Deficit)................................... (1,192,434) 682,802
------------ ------------
Total liabilities and stockholders' equity (Deficit)................... $ 710,034 $ 2,004,373
============ ============
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Billing and collection services ........ $ 780,757 $ 947,273 $ 2,448,456 $ 3,251,460
Other revenues ......................... -- 23,219 11,389 107,891
------------ ------------ ------------ ------------
Total revenues ...................... 780,757 970,492 2,459,845 3,359,351
Expenses:
Wages and benefits ..................... 474,395 663,679 1,592,237 2,151,070
Selling, general and administrative .... 108,556 198,714 424,836 667,021
Office, vehicle and equipment rental ... 47,779 36,267 118,014 98,374
Depreciation and amortization .......... 27,915 22,604 78,665 65,733
Interest, net .......................... 16,716 (967) 38,926 2,308
Professional fees ...................... 20,141 19,219 37,837 48,574
Provision for doubtful accounts ........ -- -- 23,756 26,914
Other expenses ......................... 15,743 -- 15,743 --
Loss on capital lease rollover financing -- -- 7,883 --
------------ ------------ ------------ ------------
Total expenses ...................... 711,245 939,516 2,337,897 3,059,994
------------ ------------ ------------ ------------
Net income from continuing operations ........ 69,512 30,976 121,948 299,357
Loss from discontinued operations - AHO ...... (114,821) (97,550) (1,997,184) (97,550)
------------ ------------ ------------ ------------
Net income (loss) ............................ $ (45,309) $ (66,574) $ (1,875,236) $ 201,807
============ ============ ============ ============
Basic earnings (loss) per common share:
Continuing operations .................. $ .0024 $ .0011 $ .0042 $ .0107
Discontinued operations - AHO .......... (.0039) (.0035) (.0695) (.0035)
------------ ------------ ------------ ------------
Net income (loss) ...................... $ (.0015) $ (.0024) $ (.0653) $ .0072
============ ============ ============ ============
Weighted average shares outstanding .......... 28,910,217 27,910,217 28,690,517 27,910,217
Diluted earnings (loss) per common share:
Continuing operations .................. $ .0024 $ .0011 $ .0042 $ .0107
Discontinued operations - AHO .......... (.0039) (.0035) (.0695) (.0035)
------------ ------------ ------------ ------------
Net income (loss) ...................... $ (.0015) $ (.0024) $ (.0653) $ .0072
============ ============ ============ ============
Weighted average shares outstanding .......... 28,910,217 27,910,217 28,690,517 27,910,217
</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>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................ $(1,875,236) $ 201,807
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Loss from discontinued operations - AHO .......................... 1,997,184 97,550
Depreciation of fixed assets ..................................... 54,348 54,676
Provision for doubtful accounts .................................. 23,756 26,914
Amortization of assets under capital leases ...................... 24,317 11,057
Loss on capital lease roll over financing ........................ 7,883 --
Changes in assets and liabilities:
(Increase) decrease in restricted cash ........................... (8,393) 67,538
Decrease in accounts receivable, gross ........................... 28,726 22,027
Decrease in notes receivable ..................................... -- 2,000
Decrease in prepaid expenses and other assets .................... 12,760 736
Increase (decrease) in accounts payable .......................... (49,018) 4,303
Increase (decrease) in payable to clients ........................ 8,393 (67,538)
Increase in accrued liabilities .................................. 49,674 31,076
Decrease in deferred credits ..................................... -- (8,802)
----------- -----------
Net cash provided by continuing operations ............................... 274,394 443,344
Net cash used in discontinued operations - AHO ........................... (310,088) (398,899)
----------- -----------
Net cash provided by (used in) operating activities ............................ (35,694) 44,345
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment ...................................... (11,353) (54,306)
----------- -----------
Net cash used in investing activities .......................................... (11,353) (54,306)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment of credit facility ......................................... (20,000) --
Proceeds from issuance of long term debt ................................. 100,000 --
Repayment of long term debt .............................................. (37,500) --
Repayment of capital lease obligations ................................... (57,295) (50,593)
----------- -----------
Net cash used in financing activities .......................................... (14,795) (50,593)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS .......................................... (61,842) (60,554)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................... 88,693 275,948
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................................... $ 26,851 $ 215,394
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest:
Continuing operations .................................................... $ 44,366 $ 8,229
Discontinued operations .................................................. 6,769 7,600
----------- -----------
51,135 15,829
Non-cash investing and financing activities:
Additions to capital lease obligations ................................... $ 150,720 $ 32,538
</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)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of United
Medicorp, Inc. ("UMC" or the "Company") include its wholly owned
subsidiaries, United MoneyCorp. Inc. ("UMY"), and Allied Health Options,
Inc. ("AHO"). All material intercompany transactions and balances have been
eliminated. Certain prior year balances have been reclassified to conform
with current year presentation. The Company has discontinued the operations
of AHO. As such, AHO's results are classified as discontinued operations for
all periods presented. See Note 2 for further discussion of the Company's
discontinued operations. The financial information presented should be read
in conjunction with the audited financial statements of the Company for the
year ended December 31, 1998 included in the Company's Form 10-K.
The unaudited consolidated financial information has been prepared in
accordance with the Company's customary accounting policies and practices.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments necessary for a fair presentation of results for the
interim period, have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Significant estimates included in the accompanying
financial statements include the net liabilities of AHO's discontinued
operations. 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 column heading "Three Months Ended September 30, 1998" includes
continuing operations for the three months ended September 30, 1998 and AHO
discontinued operations for the two months ended September 30, 1998. The
column heading "Nine Months Ended September 30, 1998" includes continuing
operations for the nine months ended September 30, 1998 and AHO discontinued
operations for the two months ended September 30, 1998.
NOTE 2. DISCONTINUED OPERATIONS
Effective June 30, 1999 (the "Measurement Date" per APB Opinion No. 30
REPORTING THE RESULTS OF OPERATIONS REPORTING THE EFFECTS OF DISPOSAL OF A
SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING
EVENTS AND TRANSACTIONS), the Company discontinued the operations of AHO for
those reasons explained in Note 3. At the Measurement Date, management was
negotiating the sale of Pensacola Center for Behavioral Health ("PCBH") and
had terminated the operations of Behavioral Health of Mobile ("BHM") and
Calhoun County Behavioral Health ("CCBH"). As such, due to the uncertainty
of the timing of the potential sale of PCBH, the loss from discontinued
operations of $1,748,738 and $1,882,363 for the three and six months ended
June 30, 1999, respectively, did not include an estimate of results of
discontinued operations from PCBH subsequent to the Measurement Date. The
revised estimate includes an estimate of results of discontinued operations
from PCBH subsequent to the Measurement Date through the termination of its
operations on August 31, 1999. The Disposal Date is October 14, 1999, at
which time AHO filed a voluntary petition under chapter 7 of the United
States Bankruptcy Code as further explained in Note 4 below.
Pursuant to APB Opinion No. 30, the Company's consolidated financial
statements have been presented to reflect AHO's discontinued operations for
all periods presented. The net operating results of AHO have been reported
in the Consolidated Statements of Operations as "Loss from discontinued
operations"; the net liabilities and assets have been reported in the
Consolidated Balance Sheets as "Net liabilities of discontinued operations"
and "Net assets of discontinued operations"; and the net cash flows have
been reported in the Consolidated Statements of Cash Flows as "Net cash
used in discontinued operations."
4
<PAGE>
NOTE 2. DISCONTINUED OPERATIONS (CONTINUED)
Summarized financial information for discontinued operations of AHO is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1999 1998 1999 1998
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net patient services revenue........... $ 47,613 $ 403,823 $ 420,188 $ 403,823
Loss from discontinued operations,
before income taxes................. (114,821) (97,550) (1,997,184) (97,550)
Income tax benefit..................... -- -- -- --
------------- ------------- ------------ ------------
Loss from discontinued operations,
net of tax.......................... $ (114,821) $ (97,550) $ (1,997,184) $ (97,550)
============= ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets ......................................................................... $ 30,724 $ 589,396
Goodwill, net of accumulated amortization of $1,465,260
and $25,779, respectively ............................................................ -- 1,439,481
Total assets ........................................................................... 47,884 2,057,857
Current liabilities:
Accrued Medicare settlement .......................................................... 587,329 878,805
Current installments on long term debt ............................................... 52,818 126,773
Other ................................................................................ 367,119 317,221
----------- -----------
Total current liabilities .............................................................. 1,007,266 1,322,799
Accrued Medicare settlement ............................................................ 209,944 217,342
----------- -----------
Total liabilities ...................................................................... 1,217,210 1,540,141
Net liabilities of discontinued operations - current ................................... 976,542 733,403
Net liabilities (assets) of discontinued operations - long term ........................ $ 192,784 $(1,251,119)
</TABLE>
NOTE 3. GOODWILL WRITE-OFF
At June 30, 1999, the Company recorded a non-cash charge totaling
$1,402,728, as required by SFAS 121, for the write-off of all unamortized
goodwill related to the acquisition of AHO. The SFAS 121 charge had no
impact on the Company's year-to-date cash flow or its ability to generate
future cash flow. As a result of the SFAS 121 charge, future amortization
expense related to goodwill will decrease by approximately $73,500 per year.
As previously discussed, management monitors its results of operations and
other developments within the industry to adjust its cash flow forecast, as
necessary, to determine if an adjustment is necessary to the carrying value
of goodwill.
5
<PAGE>
NOTE 3. GOODWILL WRITE-OFF (CONTINUED)
During the second quarter of 1999, management believed there were events
and changes in circumstances that warranted the write-off of goodwill as it
was determined that the carry value of goodwill was not recoverable. These
events included:
BHM:
- Medicare's continuing one hundred percent medical records' review and
denial of Medicare claims
- termination of essentially all employees and cessation of patient care
by April 30, 1999
- continuing cash flow shortages as a result of the one hundred percent
medical records review
- processing delays in appealing denied 1998 Medicare claims
- unexpected delays in the completion of reimbursable bad debt logs for
prior years
- deterioration of the patient referral base
- AHO's cancellation of BHM's Medicare provider number effective June 8,
1999
CCBH:
- termination of all employees and cessation of patient care by July 2,
1999 due to continuing Company-wide cash flow shortages
- unexpected delays in the completion of reimbursable bad debt logs for
prior years
PCBH:
- continuing suspension of all Medicare payments due to AHO's inability to
repay in full its 1998 Medicare overpayment
- processing delays in appealing denied 1998 Medicare claims
- unexpected delays in the completion of reimbursable bad debt logs for
prior years
- deterioration of patient referral base
NOTE 4. SUBSEQUENT EVENTS
On October 14, 1999, AHO filed a voluntary petition in the United States
Bankruptcy Court for the Northern District of Texas to liquidate pursuant to
Chapter 7 of Title 11 of the United States Bankruptcy Code. The filing was
made primarily due to the insolvency of AHO. At October 14, 1999, the net
liabilities of AHO totaled approximately $1.9 million of which approximately
$700,000 represents unsecured intercompany loans from UMC. AHO's accounts
had not been adjusted to liquidation value at September 30, 1999. Management
currently anticipates liquidating the book net liabilities of AHO in the
fourth quarter of 1999 which will result in a consolidated gain on disposal
of approximately $1.2 million.
6
<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 are set forth in the safe harbor compliance statement for
forward-looking statements included as Exhibit 99.1 to this Form 10-Q and are
hereby incorporated herein by reference. The Company undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.
UMC and UMY derive their primary revenues from medical claims processing
and accounts receivable management services. A substantial portion of UMC and
UMY revenues are derived from recurring monthly charges to its customers under
service contracts that typically are cancelable with a 30 to 60 day notice.
LOSS OF SIGNIFICANT CUSTOMERS
In September, 1999, the Company was informally notified by Washington
Hospital Center ("WHC") that claim transmissions from the Department of
Emergency Medicine ("WHCDEM") will terminate effective November 1, 1999. Formal
notification was subsequently received on November 4, 1999. Management estimates
that UMC will continue to generate revenue from this contract through November
30, 1999 consistent with revenues generated on a monthly basis through September
30, 1999, and thereafter ramp down through and terminate on or about April 30,
2000. Revenue from this contract accounted for approximately 3% and 7% of total
consolidated revenue during 1998 and during the first three quarters of 1999,
respectively. It is management's understanding that this decision was related to
changes in the outsourcing strategy of WHCDEM that included combining the
outsourced claims management services with coding services not offered by UMC
and other factors.
On July 28, 1999, the Company was formally notified by WHC that claim
transmissions from the Department of Women's Services ("WHCDWS") will terminate
effective October 1, 1999. Management estimates that UMC will continue to
generate revenue from this contract through November 1, 1999 consistent with
revenues generated on a monthly basis through September 30, 1999, and thereafter
ramp down through and terminate on or about December 31, 1999. Revenue from this
contract accounted for approximately 1% and 9% of total consolidated revenue
during 1998 and during the first three quarters of 1999, respectively. It is
management's understanding that this decision was related to cost reduction
measures being taken throughout the hospital industry in response to declining
reimbursement attributable to the Balanced Budget Act of 1997 and other factors.
7
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
On March 15, 1999, the Company was formally notified by Presbyterian
Healthcare System ("PHS") that it had not been selected to provide continuing
collection agency services. The Company was informed that this decision was the
result of the merger of PHS with another health care system and was in no way
related to the quality of the services provided by the Company to PHS. The
Company continued to receive weekly account placements through May 4, 1999, and
generated its last revenue from PHS in August, 1999. Revenue from this contract
accounted for approximately 23%, 20%, and 7% of total consolidated revenue
during 1997, 1998, and during the first three quarters of 1999, respectively.
CONTRACT RESTRUCTURING WITH SIGNIFICANT CUSTOMER
On July 28, 1999, WHC management verbally expressed its intent to
restructure the current Hospital Billing contract for those reasons explained
above. Pending final approval of a contract amendment, WHC and UMC have verbally
agreed that UMC would continue to provide a majority of its current services to
WHC under a fifty percent fee reduction to be effective for claims with dates of
service on and after October 1, 1999. Management estimates that UMC will
continue to generate revenue from this contract through November 1, 1999
consistent with revenues generated on a monthly basis through September 30,
1999, and thereafter ramp down through and stabilize at the new rate on or about
December 15, 1999. Revenue from this contract accounted for approximately 52%,
36%, and 65% of total consolidated revenue during 1997, 1998, and during the
first three quarters of 1999, respectively.
MANAGEMENT'S PLAN WITH RESPECT TO LOST REVENUES
As a result of the aforementioned changes within its customer base, the
Company is facing a potentially significant reduction in revenues, profit margin
and cash flow. Management has taken certain actions in an attempt to better
position the Company. These actions include, but are not limited to:
- Headcount at November 10, 1999, as compared to December 31, 1998, has
been reduced by twenty six employees to forty eight employees resulting
in a monthly gross salary expense reduction of approximately $45,000. To
the extent necessary, further headcount reductions will be made.
- On October 14, 1999, AHO filed a voluntary petition in the United States
Bankruptcy Court for the Northern District of Texas to liquidate
pursuant to Chapter 7 of Title 11 of the United States Bankruptcy Code.
As such, no additional cash will be expended on AHO.
- On August 2, 1999, management exercised its office space reduction
option whereby 3,300 square feet of office space was vacated on
September 2, 1999 resulting in a monthly expense reduction of
approximately $3,500.
- On June 16, 1999, management executed a medical claims management and
collection agreement with a Virginia health system. Revenue was first
recognized in August, 1999 from this customer. In the current quarter,
this customer provided revenue of $61,000. Management estimates that
this customer will provide fourth quarter revenue of approximately
$160,000 and quarterly revenue thereafter of approximately $120,000
assuming no significant changes in monthly claim placement volume, payor
mix and/or average claim amount. Management has reallocated existing
employees to this customer and does not anticipate the need to hire
additional employees to service this customer.
8
<PAGE>
- During the nine months ended September 30, 1999, UMY signed eleven new
collection agency agreements which provided revenues of $45,000 and
$20,000 during the nine months ended September 30, 1999 and the current
quarter, respectively. Management estimates that these agreements will
provide quarterly revenue of approximately $20,000 assuming no
significant changes in monthly account placement volume and/or average
account amount.
- Management continues to vigorously pursue new business and currently has
numerous significant sales prospects in various stages of the sales
cycle; however, there can be no assurance that UMC will be successful in
obtaining new business and producing incremental profits and cash flow.
EMPLOYEE TRANSITION TO PROFESSIONAL EMPLOYER ORGANIZATION
Effective, August 26, 1999, UMC executed an agreement with Administaff,
Inc., a professional employer organization ("PEO") whereby Administaff became
the employer of record for all UMC employees. Adminstaff will serve as an
off-site, full service human resources department providing employment
administration, regulatory and statutory compliance, employer liability
management, benefit management, and various other human resources related
services. Fees for this service are approximately 24% of gross salary expense
and are subject to change from time to time. Of this 24%, approximately 17%
represents pass through payroll taxes and benefits, approximately 4% represents
salaries for human resource specialists no longer employed by the Company and
approximately 3% represents the incremental cost of the value added services
provided.
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.
The Company has communicated with significant customers to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 Issue. The Company has considered its
interdependence of computer systems with its significant customers and third
party payors (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. To date, the Company has not encountered any Year 2000
failures with respect to customers and payors (i.e. Medicare) already in their
fiscal year 2000.
The Company has completed all of its Year 2000 project. The incremental
costs associated with this project totaled approximately $30,000.
9
<PAGE>
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 claims management services:
CLAIMS MANAGEMENT SERVICES - PROCESSING VOLUMES
<TABLE>
<CAPTION>
1999 1998 1997 1996
-------------------------- ------------------------------------- ----------------------------------- -------
QUARTER
-------------------------------------------------------------------------------------------------------------------
THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UMC
- -----------------
Number of Claims
Accepted for
Processing:
Ongoing 53,655 47,525 45,265 48,722 48,162 49,742 89,317 72,803 76,672 42,833 28,729 37,127
Backlog -- -- -- -- 1 72 8,518 23,739 28,361 -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total 53,655 47,525 45,265 48,722 48,163 49,814 97,835 96,542 105,033 42,833 28,729 37,127
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 33,947 29,360 28,817 33,401 30,116 30,087 40,333 33,375 35,186 20,124 20,269 18,325
Backlog -- -- -- -- -- 17 2,744 5,868 9,066 -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total 33,947 29,360 28,817 33,401 30,116 30,104 43,077 39,243 44,252 20,124 20,269 18,325
Collection $
(000's)
Ongoing 13,503 12,436 12,531 11,613 11,738 11,215 14,556 12,190 9,407 10,143 7,545 7,063
Backlog -- -- -- -- 9 156 128 626 -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total 13,503 12,436 12,531 11,613 11,747 11,371 14,684 12,816 9,407 10,143 7,545 7,063
Fees Earned $
(000's)
Ongoing 721 675 771 631 681 729 922 733 480 428 366 376
Backlog -- -- -- -- 1 11 9 46 -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total 721 675 771 631 682 740 931 778 480 428 366 376
Average Fee %
Ongoing 5.3% 5.4% 6.2% 5.4% 5.8% 6.4% 6.3% 6.0% 5.1% 4.2% 4.9% 5.3%
Backlog -- -- -- 11.0% 7.1% 7.0% 13.7% -- -- -- -- --
</TABLE>
For Ongoing claims, there is typically a time lag of approximately 5 to 45
days from contract execution to complete development of system interfaces and
definition of procedural responsibilities with customer personnel. During this
period, Company personnel survey the customer's existing operations and prepare
for implementation. Once the customer begins transmitting claims to the Company,
there is usually a time lag of 30 to 90 days between transmission of claims to
third party payors and collection of those claims from payors.
10
<PAGE>
The following table sets forth for each period indicated the volume and
gross dollar amount of collection accounts received and fees recognized for UMY:
COLLECTION AGENCY SERVICES - PROCESSING VOLUME
<TABLE>
<CAPTION>
1999 1998 1997 1996
------------------------ -------------------------------------- -------------------------------- ----------
QUARTER
------------------------------------------------------------------------------------------------------------
THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH
------- ------ ------ --------- ------- -------- -------- ------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UMY
- ------------------
Number of
Accounts Accepted
for Collection: 3,315 10,987 14,626 26,024 31,861 22,130 27,399 27,177 27,801 22,209 3,916 N/A
Gross $ Amount
of Accounts
Accepted for
Collection
(000's) 1,465 4,513 7,281 12,282 11,664 12,370 14,294 14,543 14,965 19,037 2,264 N/A
Collection $
(000's) 264 917 930 1,321 2,282 2,653 2,305 1,994 784 632 96 N/A
Fees Earned
(000's) 45 110 137 150 232 263 270 196 182 79 20 N/A
Average Fee % 17.0% 12.0% 14.7% 11.4% 10.2% 9.9% 11.8% 9.8% 23.2% 12.5% 20.8% 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. In many cases, collection accounts are transferred
to UMY via hard copy media, which requires UMY employees to manually enter
collection account data into the UMY system. Collection fee percentages charged
to the customer vary for the three different placement categories: bad debt,
early out, and second placements.
11
<PAGE>
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>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------- -------- -------- --------
1999 1998 1999 1998
-------- -------- -------- --------
Revenue 100% 100% 100% 100%
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Wages and benefits 61 68 65 64
Selling, general and administrative 14 21 17 20
Office, vehicle and equipment rental 7 4 4 3
Depreciation and amortization 3 2 3 2
Interest, net, and other expense 4 -- 3 --
Professional fees 2 2 2 1
Provision for doubtful accounts -- -- 1 1
-------- -------- -------- --------
Total expenses 91 97 95 91
-------- -------- -------- --------
Net income from continuing operations 9 3 5 9
Loss from discontinued operations (15) (10) (81) (3)
-------- -------- -------- --------
Net income (loss) (6%) (7%) (76%) 6%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1999 TO THE QUARTER ENDED
SEPTEMBER 30, 1998
REVENUES decreased $190,000, or 20% primarily due to the following:
- - ONGOING ACCOUNTS RECEIVABLE MANAGEMENT SERVICES revenue of $719,000 in the
current quarter increased by $61,000 compared to the same quarter of 1998.
During the current quarter, WHC Hospital Billing Department ("WHCHBD") claims
provided revenue of $518,000 compared to $445,000 during the same quarter of
1998 due to an increase in collections on relatively stable claim volume and
dollar amounts within the two quarters. WHC Physician Billing Department
("WHCPBD") claims provided revenue of $139,000 compared to $186,000 during
the same quarter of 1998 due to a decrease in claims submitted as a result of
the WHC's model office project. Other customer claims provided revenue of
$62,000 compared to $27,000 during the same quarter of 1998 primarily due to
implementation of a new customer in the current quarter which provided
revenue of $61,000.
In September, 1999, the Company was informally notified by WHC that claim
transmissions from the Department of Emergency Medicine ("WHCDEM"), one
contract within WHCPBD, will terminate effective November 1, 1999. Formal
notification was subsequently received on November 4, 1999. Management
estimates that UMC will continue to generate revenue from this contract
through November 30, 1999 consistent with revenues generated on a monthly
basis through September 30, 1999, and thereafter ramp down through and
terminate on or about April 30, 2000. Revenue from the this contract
accounted for approximately 3% and 7% of total consolidated revenue during
1998 and during the first three quarters of 1999, respectively.
On July 28, 1999, the Company was notified by WHC that claim transmissions
from the Department of Women's Services, one contract within WHCPBD, will
terminate effective October 1, 1999. Management estimates that UMC will
continue to generate revenue from this contract through November 1, 1999
consistent with revenues generated on a monthly basis through September 30,
1999, and thereafter rapidly
12
<PAGE>
ramp down through and terminate on or about December 31, 1999. Revenue from
this contract accounted for approximately 1% and 9% of total consolidated
revenue during 1998 and during the first three quarters of 1999,
respectively.
On July 28, 1999, WHC management verbally expressed its intent to restructure
the current WHCHBD contract. Pending final approval of a contract amendment,
WHC and UMC have verbally agreed that UMC will continue to provide a majority
of its current services to WHC under a fifty percent fee reduction to be
effective for claims with dates of service on and after October 1, 1999.
Management estimates that UMC will continue to generate revenue from this
contract through November 1, 1999 consistent with revenues generated on a
monthly basis through September 30, 1999, and thereafter ramp down through
and stabilize at the new revenue rate on or about December 15, 1999. Revenue
form this contract accounted for approximately 52%, 36% and 65% of total
consolidated revenues during 1997, 1998, and during the first three quarters
of 1999, respectively.
- - COLLECTION AGENCY SERVICES revenue of $44,000 in the current quarter
decreased by $190,000 compared to the same quarter of 1998. During the
current quarter, PHS accounts provided revenue of $14,000 compared to
$219,000 during the same quarter of 1998 due to termination of account
placements. On March 15, 1999, the Company received notice from PHS that it
had not been selected to provide continuing collection agency services. The
Company was informed that this decision was the result of the merger of PHS
with another health care system and in no way did it reflect the on the
quality of the services provided by the Company to PHS. The Company continued
to receive weekly account placements through May 4, 1999, and generated its
last revenue from PHS in August, 1999. Revenue form this contract accounted
for approximately 23%, 20% and 7% of total consolidated revenues during 1997,
1998, and during the first three quarters of 1999, respectively.
- - OTHER revenue decreased $23,000 compared to the same quarter of 1998. The
1998 Other revenue was comprised of advance funding fees and consulting fees.
Of the 1998 Other revenue, approximately $12,000 was generated from AHO prior
to its acquisition by the Company. Thereafter, no such fees were charged.
- - UMCLAIMPROS revenue of $18,000 in the current quarter decreased by $38,000
compared to the same quarter of 1998 primarily due to decreased utilization
from PHS and one additional customer. Management continues to refine its
strategies related to UMClaimPros and continues to believe that this service
provides a competitive advantage for the Company as well as providing a
viable entree' to new customers.
WAGES AND BENEFITS expense decreased $189,000 or 29% primarily due to
reduced headcount and reduced collector bonuses for UMY collectors related to
decreased UMY revenues, partially offset by increased management bonus expense
due to a reversal of such expense totaling $40,000 during the same quarter of
1998. During the current quarter, total monthly employee headcount averaged 47
compared to 83 during the same quarter of 1998.
SELLING, GENERAL AND ADMINISTRATIVE expense decreased $90,000 or 45%
primarily due to decreased travel, decreased recruiting, decreased postage,
print and telephone expense as a result of the decline in customer accounts and
claims and reduced headcount.
13
<PAGE>
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense increased $12,000 or 32%
primarily due to the $14,000 payment required in conjunction with the August 2,
1999 office space reduction option whereby 3,300 square feet of office space was
vacated on September 2, 1999 resulting in a monthly expense reduction of
approximately $3,500. Under the current arrangement, monthly office rent through
January 31, 2000 and 2001 will be $7,200 and 7,400, respectively. Monthly
vehicle and other rental expenses will total approximately $1,000 and $500,
respectively.
DEPRECIATION AND AMORTIZATION expense increased $5,000 or 23% primarily
due to quarterly amortization expense of $8,200 related to the new $131,000 IBM
AS/400 recorded in June 1999, as an asset under a thirty six month capital lease
partially offset by a reduction of depreciation and amortization expense from
third quarter 1998 assets which became fully depreciated before the current
quarter.
INTEREST, NET increased $18,000 or 1,838% due to credit facility
borrowings and a bank promissory note required to provide working capital loans
to AHO.
OTHER EXPENSES increased $16,000 or 100% due to a one-time accrual of
$26,000 related certain AHO obligations partially offset by one-time income
related a note receivable and corresponding deferred income as reported on the
June 30, 1999 balance sheet.
LOSS FROM DISCONTINUED OPERATIONS - AHO increased $17,000 or 18% primarily
due to decreased revenue of $356,000 and decreased expenses of $339,000 due to
the discontinuance of AHO's operations effective June 30, 1999. No additional
loss from discontinued operations is expected. On October 14, 1999, AHO filed a
voluntary petition in the United States Bankruptcy Court for the Northern
District of Texas to liquidate pursuant to Chapter 7 of Title 11 of the United
States Bankruptcy Code. The filing was made primarily due to the insolvency of
AHO. At October 14, 1999, the net liabilities of AHO totaled approximately $1.9
million of which approximately $700,000 represents unsecured intercompany loans
from UMC. AHO's accounts had not been adjusted to liquidation value at September
30, 1999. Management currently anticipates liquidating the book net liabilities
of AHO in the fourth quarter of 1999 which will result in a consolidated gain on
disposal of approximately $1.2 million.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES decreased $900,000 or 27% primarily due to the following:
- - ONGOING ACCOUNTS RECEIVABLE MANAGEMENT SERVICES revenue of $2,079,000 in the
current nine-month period decreased by $230,000 compared to the same period
of 1998. During the current nine-month period, WHCHBD claims provided revenue
of $1,589,000 compared to $1,294,000 during the same period of 1998 due to an
increase in collections on relatively stable claim volume and dollar amounts
within the two nine-month periods. WHCPBD claims provided revenue of $402,000
compared to $817,000 during the same period of 1998 due to a decrease in
claims submitted as a result of the Washington Hospital Center's model office
project. Other customer claims provided revenue of $88,000 compared to
$198,000 during the same period of 1998 due to a net loss of customers
including AHO which accounted for $63,000 of 1998's same period other
customer revenue.
- - COLLECTION AGENCY SERVICES revenue of $291,000 in the current nine-month
period decreased by $476,000 compared to the same period of 1998. Revenue of
$170,000 from PHS in the current nine-month period declined by $556,000
compared to the same period of 1998 due to termination of account placements
on
14
<PAGE>
May 4, 1999 in conjunction with the previously disclosed contract
termination. No future revenue is expected from PHS. Revenue of $121,000 from
all other customers in the current nine-month period increased by $80,000
compared to the same period of 1998 due to an increase in customers. Of this
revenue, approximately 80% was provided from two customers with the balance
provided by approximately 25 customers.
- - OTHER revenue of $11,389 in the current nine-month period decreased by
$97,000 compared to the same period of 1998. The 1998 revenue was comprised
of advance funding fees and consulting fees. Of the 1998 revenue,
approximately $79,000 was generated from AHO prior to its acquisition.
Thereafter, no such fees were charged.
- - UMCLAIMPROS revenue of $78,000 in the current nine-month period decreased by
$75,000 compared to the same period of 1998 primarily due to decreased
utilization from PHS.
WAGES AND BENEFITS expense decreased $559,000 or 26% primarily due to
reduced headcount, reduced management bonuses, and reduced collector bonuses for
UMY collectors related to decreased UMY revenues. During the current nine month
period, total monthly employee headcount averaged 55 compared to 83 during the
same period of 1998.
SELLING, GENERAL AND ADMINISTRATIVE expense decreased $242,000 or 36%
primarily due to decreased travel, decreased recruiting, decreased postage,
print and telephone expense as a result of the decline in customer accounts and
claims and reduced headcount as well as decreased Year 2000 remediation
expenses.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense increased $20,000 or 20% due
to the nine-month effect of two company vehicles leased in the beginning of the
second quarter of 1998 and due to the $14,000 payment required in conjunction
with the August 2, 1999 office space reduction option whereby 3,300 square feet
of office space was vacated on September 2, 1999 resulting in a monthly expense
reduction of approximately $3,500.
DEPRECIATION AND AMORTIZATION expense increased $13,000 or 20% primarily
due to amortization expense on the aforementioned June 1999, IBM AS/400 capital
lease totaling $131,000.
INTEREST, NET increased $37,000 or 1,587% due to credit facility
borrowings and a bank promissory note required to provide working capital loans
to AHO.
PROFESSIONAL FEES expense decreased $11,000 or 22% primarily due to
decreased general legal fees.
LOSS FROM DISCONTINUED OPERATIONS - AHO increased $1,900,000 or 1,928%
primarily due to increased revenue of $16,000 and increased expenses of
$1,916,000 due to the discontinuance of AHO's operations effective June 30, 1999
and the write off of all remaining goodwill totaling $1,403,000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company's liquid assets, consisting of cash and
cash equivalents, totaled $27,000 compared to $89,000 at December 31, 1998. For
continuing operations, the working capital deficit was $161,000 and $15,000 at
September 30, 1999 and December 31, 1998, respectively.
Operating activities from continuing operations through September 30, 1999
provided cash of $274,000, compared to cash of $443,000 provided by operating
activities during the same period of 1998.
15
<PAGE>
This decline is primarily due to decreased net income in the current nine-month
period as compared to the same period of 1998.
Operating activities from the discontinued operations of AHO through
September 30, 1999 used cash of $310,000. On October 14, 1999, AHO filed a
voluntary petition in the United States Bankruptcy Court for the Northern
District of Texas to liquidate pursuant to Chapter 7 of Title 11 of the United
States Bankruptcy Code. As such, no additional cash will be used by the
discontinued operations of AHO. The filing was made primarily due to the
insolvency of AHO. At October 14, 1999, the net liabilities of AHO totaled
approximately $1.9 million of which approximately $700,000 represents unsecured
intercompany loans from UMC. It is UMC's opinion, supported by the opinion of
legal counsel, that the liabilities of AHO do not ascend to UMC. At September
30, 1999, UMC accrued certain AHO liabilities totaling approximately $26,000.
Management does not anticipate using any additional cash in support of AHO and
further believes that UMC will continue as a going concern regardless of the
status of AHO.
Investing activities through September 30, 1999 consisted of the purchase
of furniture, fixtures and equipment which used cash of $11,000 compared to
$54,000 used during the same period of 1998.
Financing activities through September 30, 1999 used cash of $15,000 and
consisted primarily of net repayment of $20,000 on the Company's Credit Facility
and $100,000 provided from a bank note payable of which $38,000 was repaid in
the current nine-month period. In addition, principal payments on capital lease
obligations used cash of $57,000. Cash of $15,000 used in financing activities
through September 30, 1999 compares favorably to the cash of $51,000 used in the
same period of 1998 which consisted of principal payments on capital lease
obligations only.
Through September 30, 1999, cash flow from total operations was not
adequate to cover all working capital and liquidity requirements. Additional
financing from the Company's Credit Facility and execution of a $100,000, two
year bank promissory note was required. UMC provided working capital loans to
AHO totaling approximately $700,000 and $507,000 at September 30, 1999 and
December 31, 1998, respectively. These loans were required as a result of AHO
cash shortages. As a result of AHO's bankruptcy, UMC does not expect to
recover these loans.
During various periods of time for the twelve months ending September 30,
2000, management anticipates the possibility that cash requirements could exceed
cash on hand, cash to be generated from operating activities, if any, and cash
available from UMC's Credit Facility, if any. These possible periods of liquid
deficiency are attributed to the current cash shortage due to the use of cash to
support AHO prior to its discontinuance of operations as well as the reduction
of revenues from current customers UMC is anticipating due to those factors
previously explained.
UMC has taken the following actions to address the possible periods of
liquid deficiency:
- Headcount at November 10, 1999, as compared to December 31, 1998, has been
reduced by twenty six employees to forty eight employees resulting in a
monthly gross salary expense reduction of approximately $45,000. To the
extent necessary, further headcount reductions will be made.
- On October 14, 1999, AHO filed a voluntary petition in the United States
Bankruptcy Court for the Northern District of Texas to liquidate pursuant
to Chapter 7 of Title 11 of the United States Bankruptcy Code. As such, no
additional cash will be expended on AHO.
16
<PAGE>
- On August 2, 1999, management exercised its office space reduction option
whereby 3,300 square feet of office space was vacated on September 2, 1999
resulting in a monthly expense reduction of approximately $3,500.
- On June 16, 1999, management executed a medical claims management and
collection agreement with a Virginia health system. Revenue was first
recognized in August, 1999 from this customer. In the current quarter,
this customer provided revenue of $61,000. Management estimates that this
customer will provide fourth quarter revenue of approximately $160,000 and
quarterly revenue thereafter of approximately $120,000 assuming no
significant changes in monthly claim placement volume, payor mix and/or
average claim amount. Management has reallocated existing employees to
this customer and does not anticipate the need to hire additional
employees to service this customer.
- During the nine months ended September 30, 1999, UMY signed eleven new
collection agency agreements which provided revenues of $45,000 and
$20,000 during the nine months ended September 30, 1999 and the current
quarter, respectively. Management estimates that these agreements will
provide quarterly revenue of approximately $20,000 assuming no significant
changes in monthly account placement volume and/or average account amount.
- Management continues to vigorously pursue new business and currently has
numerous significant sales prospects in various stages of the sales cycle;
however, there can be no assurance that UMC will be successful in
obtaining new business and producing incremental profits and cash flow.
If UMC is unable to service its financial obligations as they become due,
it will be required to adopt alternative strategies, which may include but is
not limited to limited to, actions such as reducing management and line employee
headcount and compensation, restructuring existing financial obligations,
seeking a strategic merger or acquisition, seeking the sale of the company,
and/or seeking additional debt or equity capital. There can be no assurance that
any of these strategies could be effected on satisfactory terms.
Effective January 4, 1999, the Company executed a promissory note (the
"Note") with the Credit Facility lender, for $100,000 bearing interest of 8.75%.
The Note matures on January 4, 2001 and requires monthly principal payments of
$4,167. Simple interest is computed and paid on a monthly basis. The Note is
secured by the fixed assets of UMC. Effective August 25, 1999, the interest rate
was increased to 9.25%.
During the period from December 31, 1998 to September 30, 1999, the
available Borrowing Base under the Company's Credit Facility has averaged
approximately $293,000. At September 30, 1999, borrowings under the Credit
Facility totaled $180,000. The maximum borrowing base is the lesser of $400,000
or 80% of trade account receivables aged less than 90 days. Effective August 25,
1999, the interest rate was increased to 9.25% .
17
<PAGE>
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
(A) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
---------- ------------------------
27.1 Financial Data Schedule
99.1 Safe Harbor Compliance Statement for Forward-Looking Statements
(B) Reports on Form 8-K
None
18
<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: November 10, 1999
------------------------------------------- -------------------
R. Kenyon Culver
Vice President and Chief Financial Officer
(Principal Accounting Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 26,851
<SECURITIES> 0
<RECEIVABLES> 355,976
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 430,201
<PP&E> 1,148,818
<DEPRECIATION> (873,801)
<TOTAL-ASSETS> 710,034
<CURRENT-LIABILITIES> 1,567,900
<BONDS> 0
0
0
<COMMON> 290,157
<OTHER-SE> (1,000,191)
<TOTAL-LIABILITY-AND-EQUITY> 710,034
<SALES> 2,459,845
<TOTAL-REVENUES> 2,459,845
<CGS> 0
<TOTAL-COSTS> 2,259,472
<OTHER-EXPENSES> 15,743
<LOSS-PROVISION> 23,756
<INTEREST-EXPENSE> 38,926
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 121,948
<DISCONTINUED> (1,997,184)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,875,236)
<EPS-BASIC> (0.065)
<EPS-DILUTED> (0.065)
</TABLE>
<PAGE>
EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), Congress encouraged public companies to make "forward-looking
statements" by creating a safe harbor to protect companies from securities law
liability in connection with forward-looking statements. United Medicorp, Inc.,
including its wholly owned subsidiaries United MoneyCorp, Inc., ("UMY") and
Allied Health Options, Inc. ("AHO"), hereinafter collectively referred at as
"UMC" or the "Company," intends to qualify both its written and oral
forward-looking statements for protection under the Reform Act and any other
similar safe harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All forward
looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events, and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of UMC. The Company
undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements (the "Safe Harbor Statement") to
reflect future developments. In addition, UMC undertakes no obligation to update
or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.
UMC provides the following risk factor disclosure in connection with its
continuing effort to qualify its written and oral forward-looking statements for
the safe harbor protection of the Reform Act and any other similar safe harbor
provisions. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include the disclosures contained in the Annual Report on Form 10-K to which
this statement is appended as an exhibit and also include, but are not limited
to:
CUSTOMER CONCENTRATION RISK
A substantial portion of the Company's historical and current revenues and
cash flows were and are generated from numerous services provided to various
departments of two major customers. The Presbyterian Healthcare System
collection agency services contract terminated effective May 4, 1999 with
revenue generation terminating in August, 1999. Transmissions from the
Washington Hospital Center's ("WHC") Department of Womens' Services ("WHCDWS")
terminated effective October 1, 1999. Transmissions from the WHC Department of
Emergency Medicine ("WHCDEM") terminated effective October 31, 1999. WHC and UMC
have verbally agreed that UMC would continue to provide a majority of its
current services to WHC under its Hospital Billing ("WHCHBD") contract with a
fifty percent fee reduction to be effective for claims placed on and after
October 1, 1999. Management estimates that revenues will continue to be
generated from the WHCDWS and WHCDEM contracts through November 1, 1999
consistent with revenues generated on a monthly basis through September 30,
1999, and then ramp down through and terminate in December, 1999, and February,
2000, respectively. Management estimates that revenues will continue to be
generated from the WHCHBD contract through November 1, 1999 consistent with
revenues generated on a monthly basis through September 30, 1999, and then ramp
down through and stabilize at the fifty percent reduction in December, 1999.
Thereafter, management estimates that UMC's revenues will continue to be
concentrated in the remaining WHC contracts. These PHS and WHC contracts
accounted for 75%, 60% and 88% of total consolidated revenues during 1997, 1998
and during the first three quarters of 1999, respectively.
1
<PAGE>
If the Company is unable to retain its remaining contracts with WHC, or
if there is a significant decrease in the amount of claims placed with the
Company, or any other detrimental actions with respect to the WHC contracts, the
Company will be required to adopt substantially different strategies than those
in the existing business plan and could possibly become insolvent. These
strategies may include, but are not limited to, actions such as reducing
management and line employee headcount and compensation, restructuring existing
financial obligations, seeking a strategic merger or acquisition, seeking the
sale of the company, and/or seeking additional debt or equity capital. There can
be no assurance that any of these strategies could be effected on satisfactory
terms.
The Company continues to pursue new business in order to reduce the
customer concentration risk, but there can be no assurance that the Company will
be successful in these efforts.
ASCENDING LIABILITY TO A PARENT CORPORATION FOR THE OBLIGATIONS OF AHO, ITS
WHOLLY OWNED SUBSIDIARY
On October 14, 1999, AHO filed a voluntary petition in the United States
Bankruptcy Court for the Northern District of Texas to liquidate pursuant to
Chapter 7 of Title 11 of the United States Bankruptcy Code. The filing was made
primarily due to the insolvency of AHO. At October 14, 1999, the net liabilities
of AHO totaled approximately $1.9 million of which approximately $700,000
represents unsecured intercompany loans from UMC. AHO's accounts had not been
adjusted to liquidation value at September 30, 1999. Management currently
anticipates liquidating the book net liabilities of AHO in the fourth quarter of
1999 which will result in a consolidated gain on disposal of approximately $1.2
million.
It is UMC's opinion, supported by the opinion of legal counsel, that the
liabilities of AHO, including the Medicare settlement reserve, do not ascend to
UMC as the sole shareholder of AHO. This opinion is based on management's
assertion that it has maintained appropriate organizational and operational
segregation and control in order to preserve the corporate integrity and
separateness of UMC and AHO. It is management's' opinion that the corporate veil
of AHO is in tack and will provide adequate protection to UMC as the sole
shareholder of AHO. Any failure with respect to preserving or defending the
corporate veil of AHO could have a material adverse effect on UMC.
KEY MANAGEMENT AND BOARD OF DIRECTORS
The Company's success in general and its continued ability to grow its
operations and increase its shareholder value, is heavily dependent upon, among
other things, the continued contributions of the Company's senior management and
members of the Board of Directors. The loss of services of any single member of
senior management or of the Board of Directors could have a material adverse
effect on the Company's business.
ON-GOING MANAGEMENT INITIATIVES
After reporting losses in each year since inception in 1989, due to
certain on-going management initiatives, the Company reported a profit in each
of the three years ended December 31, 1998. In addition to the risks associated
with any entity that has recorded substantial losses in prior periods, the
Company faces several challenges in order to continue to be profitable in the
future. These challenges include, but are not limited to: (i) developing and
implementing initiatives to reduce costs and enhance efficiencies, (ii)
executing service agreements with new customers, (iii) exploring and exploiting
fragmented market niches, and (iv) recruiting, hiring and retaining key
management employees. There can be no assurance that the Company will
2
<PAGE>
successfully meet these or other operating challenges. Any failure with respect
to the foregoing could have a material adverse effect on UMC.
CREDIT AVAILABILITY
The Company currently leases its AS/400 computer and certain other office
equipment under long-term lease agreements. Management anticipates that
additional lease financing may be required to meet the future needs of the
Company. Should the Company not be able to secure lease financing or other
similar forms of credit at terms and conditions that are acceptable to the
Company, alternative strategies to fund equipment may be required. There can be
no assurance that any of these strategies could be effected on satisfactory
terms.
The Company has 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
$400,000 or 80% of trade accounts receivable aged less than 90 days. The Credit
Facility matures on December 11, 1999. The terms of the Credit Facility are such
that the Company could be deemed, from time to time, to be in default due to a
number of factors including, but not limited to: a.) a material adverse change
in the Company's financial condition or if the lender believes the prospect of
payment or performance of the Credit Facility is impaired and, b.) the lender in
good faith deems itself insecure based on a change in the financial position of
the Company. Upon default, the lender may declare the entire outstanding balance
of the Credit Facility, plus accrued and unpaid interest, to be immediately due
and payable. There can be no assurance that the Company will be able to prevent
the aforementioned events of default from occurring. Any failure to prevent
default could have a material adverse effect on UMC.
YEAR 2000
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.
The Company has communicated with significant customers to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 Issue. The Company has considered its
interdependence of computer systems with its significant customers and third
party payors (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. To date, the Company has not encountered any Year 2000
failures with respect to customers and payors (i.e. Medicare) already in their
fiscal year 2000.
3
<PAGE>
TECHNOLOGICAL ADVANCES
Rapid technological change is inherent in the industry in which UMC
competes. UMC's success will depend in part upon its continued ability to
enhance its existing technology supporting billing, accounts receivable
management and collection agency services quickly and cost-effectively to meet
evolving customer needs and respond to emerging industry standards and other
technological changes. There can be no assurance that UMC will be able to
respond effectively to technological changes or new industry standards.
Moreover, there can be no assurance that competitors of UMC will not develop a
technological advantage, or that any such technological advantage will not have
a material adverse effect upon the operating results of UMC.
COMPETITION
The business of medical insurance claims processing, accounts receivable
management and collections agency services is highly competitive. UMC competes
with certain national and regional electronic claims processing companies,
claims collection companies, claims management companies, factoring and
financing firms, software vendors and traditional in-house claims processing and
collections departments of hospitals and other healthcare providers. Many
competitors of UMC are several times larger than the Company and could, if they
chose to enter the market for the Company's line of services, devote resources
and capital to the market that are much greater than those which the Company
currently has available or may have available in the future. There can be no
assurance that competition from current or future competitors will not have a
material adverse effect upon the Company.
INDUSTRY AND MARKET CHANGES
Potential industry and market changes that could adversely affect the
billing and collection aspects of UMC include (i) a significant increase in
managed care providers relative to conventional fee-for-service providers,
potentially resulting in substantial changes in the medical reimbursement
process, or the Company's failure to respond to such changes, (ii) new alliances
between healthcare providers and reduction of central business offices, and
(iii) continued cost containment measures employed by healthcare providers as
healthcare expenditures have grown as a percentage of the U.S. Gross National
Product. There can be no assurance that potential industry and market changes
will not have a material adverse effect on UMC.
GOVERNMENTAL INVESTIGATIVE RESOURCES AND HEALTHCARE REFORM
The federal government in recent years has placed increased scrutiny on
the billing and collection practices of healthcare providers and related
entities, and particularly on possible fraudulent billing practices. This
heightened scrutiny has resulted in a number of high profile civil and criminal
investigations, lawsuits and settlements.
In 1996, Congress enacted the Health Insurance Portability and Accounting
Act of 1996, which includes an expansion of provisions relating to fraud and
abuse, creates additional criminal offenses relating to healthcare benefit
programs, provides for forfeitures and asset-freezing orders in connection with
such healthcare offenses and contains provisions for instituting greater
coordination of federal, state and local enforcement agency resources and
actions.
4
<PAGE>
In recent years, the focus of healthcare legislation has been on budgetary
and related funding mechanism issues. Both the Congress and the Clinton
Administration have made proposals to reduce the rate of increase in projected
Medicare and Medicaid expenditures and to change the funding mechanisms and
other aspects of both programs. In late 1995, Congress passed legislation that
would substantially reduce projected expenditure increases and would make
significant changes to Medicare and Medicaid programs. The Clinton
Administration has proposed alternate measures to reduce, to a lesser extent,
projected increases in Medicare and Medicaid expenditures. Neither proposal has
become law. Should measures such as these become law, there can be no assurance
that these changes will not have a material adverse effect on UMC.
EXISTING GOVERNMENT REGULATION
Existing government regulations can adversely affect UMC's business
through, among other things, its potential to reduce the amount of reimbursement
received by UMC's customers upon which UMC's billing and collection fees are
based, as well as received directly CMHC services. UMC's billing and collections
activities are also governed by numerous federal and state civil and criminal
laws. In general, these laws provide for various fines, penalties, multiple
damages, assessments and sanctions for violations, including possible exclusion
from Medicare, Medicaid and certain other federal and state healthcare programs.
Submission of claims for services that were not provided as claimed, or
which violate the regulations, may lead to civil monetary penalties, criminal
fines, imprisonment and/or exclusion from participation in Medicare, Medicaid
and other federally funded healthcare programs. Specifically, the Federal False
Claims Act allows a private person to bring suit alleging false or fraudulent
Medicare or Medicaid claims or other violations of the statute. Such actions
have increased significantly in recent years and has increased the risk that a
company engaged in the healthcare industry, such as UMC and its customers, may
become the subject of a federal or state investigation, may ultimately be
required to defend a false claim action, may be subjected to government
investigation and possible criminal fines, may be sued by private payors and may
be excluded from Medicare, Medicaid and/or other federally funded healthcare
programs as a result of such an action. Any such proceedings or investigation
could have a material adverse effect on UMC.
Credit collection practices and activities are regulated by both federal
and state law. The Federal Fair Debt Collection Practices Act sets forth various
provisions designed to eliminate abusive, deceptive and unfair debt collection
practices by collection agencies. Various states have also promulgated laws and
regulations that govern credit collection practices.
There can be no assurance that current or future government regulations or
current or future healthcare reform measures will not have a material adverse
effect on UMC.
5
