<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, 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 August 12, 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 JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at June 30, 1999 and December 31, 1998.......................... 1
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998................................................................. 2
Consolidated Statements of Cash Flows for the Six Months Ended
June 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........................................................................... 17
ITEM 2. Changes in Securities....................................................................... 17
ITEM 3. Defaults Upon Senior Securities............................................................. 17
ITEM 4. Submission of Matters to a Vote of Security Holders......................................... 17
ITEM 5. Other Information........................................................................... 17
ITEM 6. Exhibits and Reports on Form 8-K............................................................ 17
Signatures ............................................................................................ 18
</TABLE>
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 42,201 $ 88,693
Restricted cash.................................................. 3,753 1,064
Accounts receivable, net of allowance for doubtful accounts
of $0 and $17,973, respectively............................... 463,611 408,458
Notes receivable, net of allowance of $0......................... 168,000 --
Prepaid expenses and other current assets........................ 36,283 30,399
----------- -----------
Total current assets................................................... 713,848 528,614
Other non-current assets............................................... 4,816 13,142
Property and equipment, net of accumulated depreciation of $804,994
and $770,827, respectively....................................... 135,293 161,580
Assets under capital leases, net of accumulated amortization of
$40,892 and $142,789, respectively............................... 164,220 49,918
Net assets of disontinued operations -- AHO -- 1,251,119
----------- -----------
Total assets........................................................... 1,018,177 2,004,373
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable........................................... 103,813 81,188
Payable to clients............................................... 2,148 1,064
Accrued liabilities.............................................. 212,721 193,329
Current portion of capital lease obligations..................... 75,068 67,614
Current portion of long term debt................................ 50,000 --
Short term borrowings............................................ 295,000 200,000
Deferred income.................................................. 168,000 --
Net liabilities of discontinued operations - AHO................. 880,380 733,403
----------- -----------
Total current liabilities.............................................. 1,787,130 1,276,598
Long term capital lease obligations, excluding current portion......... 149,447 44,973
Long term debt......................................................... 25,000 --
Net liabilities of discontinued operations - AHO....................... 203,725 --
----------- -----------
Total liabilities...................................................... 2,165,302 1,321,571
----------- -----------
Stockholders' equity:
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................................................. (19,968,655) (18,138,728)
----------- -----------
Total stockholders' equity.................................... (1,147,125) 682,802
----------- -----------
Total liabilities and stockholders' equity.................... $ 1,018,177 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ----------------------------
1999 1998 1999 1998
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Billing and collection services............ $ 797,338 $ 1,049,854 $ 1,667,699 $ 2,303,898
Other revenues............................. - - 70,424 11,389 84,961
------------- -------------- ------------ ------------
Total revenues.......................... 797,338 1,120,278 1,679,088 2,388,859
Expenses:
Wages and benefits......................... 607,172 710,742 1,117,842 1,487,389
Selling, general and administrative........ 160,784 239,740 316,280 468,610
Office, vehicle and equipment rental....... 37,824 33,821 70,235 62,106
Depreciation and amortization.............. 25,350 25,225 50,750 43,100
Provision for doubtful accounts............ (14,018) -- 23,756 26,914
Interest, net ............................. 10,908 1,121 22,210 3,275
Professional fees.......................... 9,126 13,982 17,696 29,354
Loss on capital lease rollover financing... 7,883 -- 7,883 --
------------- -------------- ------------ ------------
Total expenses.......................... 845,029 1,024,631 1,626,652 2,120,748
------------- -------------- ------------ ------------
Net income (loss) from continuing operations..... (47,691) 95,647 52,436 268,111
Loss from discontinued operations - AHO.......... (1,748,738) -- (1,882,363) --
------------- -------------- ------------ ------------
Net income (loss)................................ $ (1,796,429) $ 95,647 $ (1,829,927) $ 268,111
------------- -------------- ------------ ------------
------------- -------------- ------------ ------------
Basic earnings (loss) per common share:
Continuing operations...................... $ (0.0016) $ 0.0034 $ (0.0018) $ 0.0096
Discontinued operations - AHO.............. (0.0605) -- (0.0658) --
------------- -------------- ------------ ------------
Net income (loss).......................... $ (0.0621) $ 0.0034 $ (0.0640) $ 0.0096
------------- -------------- ------------ ------------
------------- -------------- ------------ ------------
Weighted average shares outstanding.............. 28,910,217 27,910,217 28,578,717 27,910,217
Diluted earnings (loss) per common share:
Continuing operations...................... $ (0.0016) $ 0.0034 $ (0.0018) $ 0.0096
Discontinued operations - AHO.............. (0.0605) -- (0.0658) --
------------- -------------- ------------ ------------
Net income (loss).......................... $ (0.0621) $ 0.0034 $ (0.0640) $ 0.0096
------------- -------------- ------------ ------------
------------- -------------- ------------ ------------
Weighted average shares outstanding.............. 28,910,217 27,910,217 28,578,717 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>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1999 1998
--------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................................... $ (1,829,927) $ 268,111
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Loss from discontinued operations - AHO........................ 1,882,363 --
Depreciation of fixed assets................................... 34,167 36,093
Provision for doubtful accounts................................ 23,756 26,914
Amortization of assets under capital leases.................... 16,583 7,007
Loss on capital lease roll over financing...................... 7,883 --
Changes in assets and liabilities:
(Increase) decrease in restricted cash......................... (2,689) 72,337
(Increase) decrease in purchased claims........................ -- (82,180)
(Increase) decrease in accounts receivable, gross.............. (78,909) 13,419
(Increase) decrease in notes receivable........................ (168,000) 2,000
(Increase) decrease in prepaid expenses and other assets....... 14,394 (3,874)
Increase (decrease) in accounts payable........................ 22,625 (4,384)
Increase (decrease) in payable to clients...................... 1,084 (72,337)
Increase (decrease) in accrued liabilities..................... 19,392 73,651
Increase (decrease) in deferred credits........................ 168,000 (7,545)
------------- -----------
Net cash provided by (used in) continuing operations................... 110,722 329,212
Net cash provided by (used in) discontinued operations - AHO........... (280,542) --
------------- -----------
Net cash provided by (used in) operating activities.......................... (169,820) 329,212
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment.................................... (7,880) (52,486)
------------- -----------
Net cash used in investing activities........................................ (7,880) (52,486)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from credit facility.................................... 95,000 --
Proceeds from issuance of long term debt............................... 100,000 --
Repayment of long term debt............................................ (25,000) --
Repayment of capital lease obligations................................. (38,792) (24,957)
------------- -----------
Net cash provided by (used in) financing activities.......................... 131,208 (24,957)
------------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (46,492) 251,769
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 88,693 275,948
------------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................... $ 42,201 $ 527,717
------------- -----------
------------- -----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest:
Continuing operations.................................................. $ 30,457 $ 5,019
Discontinued operations................................................ 6,769 --
------------- -----------
37,226 5,019
Non-cash investing and financing activities:
Additions to capital lease obligations................................. $ 150,720 $ 22,582
</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 formalized its plan to
discontinue operations at Behavioral Health of Mobile ("BHM") and Calhoun
County Behavioral Health ("CCBH") and is currently negotiating the possible
sale of Pensacola Center for Behavioral Health ("PCBH"). 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 $109,000 allowance for bad debt with
respect to AHO accounts receivable, AHO's $841,000 accrued Medicare
settlement reserve and AHO's $148,000 contractual adjustment related to
Medicare claims under appeal. Additionally, as a result of the write-off of
goodwill, future earnings will be affected by the ultimate settlement of
assets and liabilities which existed prior to the acquisition of AHO by UMC.
Actual results could differ from those estimates. The results for interim
periods are not necessarily indicative of results to be expected for the
year.
NOTE 2. DISCONTINUED OPERATIONS AND DIVESTITURES
During the second quarter of 1999, the Company finalized its plans to
discontinue operations of BHM and CCBH due to those reasons explained in
Note 3. Additionally, the Company concluded that the sale of PCBH would
generate the greatest return to stockholders and currently is negotiating
the sale of this facility. Should the Company not be able to execute the
sale of PCBH on a timely basis, PCBH will most likely be closed due to those
reasons explained in Note 3. Pursuant to APB No. 30, the consolidated
financial statements of the Company have been presented to reflect AHO's
discontinued operations for all periods presented using a measurement date
of June 30, 1999.
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 provided by (used in)
discontinued operations."
4
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2. DISCONTINUED OPERATIONS AND DIVESTITURES (CONTINUED)
Summarized financial information for discontinued operations of AHO is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net patient services revenue................. $ 101,723 $ -- $ 372,575 $ --
Loss from discontinued operations,
before income taxes................. (1,748,738) -- (1,882,363) --
Income tax benefit..................... -- -- -- --
------------- ------------- ------------- -------------
Loss from discontinued operations,
net of tax.......................... $ (1,748,738) $ -- $ (1,882,363) $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
AS OF AS OF
JUNE 30, DECEMBER 31,
1999 1998
----------------- -------------
<S> <C> <C>
Current assets................................................... $ 184,877 $ 589,396
Goodwill, net of accumulated amortization of $1,465,260 and
$25,779, respectively.......................................... -- 1,439,481
Total assets..................................................... 202,037 2,057,857
Current liabilities:
Accrued Medicare settlement.................................... 620,056 878,805
Current installments on long term debt......................... 59,392 126,773
Other.......................................................... 385,809 317,221
--------------- -------------
Total current liabilities........................................ 1,065,257 1,322,799
Accrued Medicare settlement...................................... 220,885 217,342
--------------- -------------
Total liabilities................................................ 1,286,142 1,540,141
Net liabilities of discontinued operations - current............. 880,380 733,403
Net liabilities (assets) of discontinued operations - long term.. $ 203,725 $ (1,251,119)
</TABLE>
NOTE 3. GOODWILL WRITE-OFF
At June 30, 1999, the Company recorded a non-cash charge totaling
$1,402,728 for the write-off of all unamortized goodwill related to the
acquisition of AHO as required by SFAS 121. 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>
UNITED MEDICORP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
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
On July 28, 1999, the Company was notified by the Washington Hospital
Center ("WHC") that claim transmissions from the Department of Women's Services
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 June 30, 1999, and
then rapidly ramp down. Additionally, WHC management has verbally expressed that
it intends to restructure the current Hospital Billing contract. WHC Women's
Services' revenue accounted for approximately 1% and 7% of total consolidated
revenue during 1998 and during the first two quarters of 1999, respectively. The
WHC Hospital Billing contract accounted for approximately 52%, 36% and 53% of
total consolidated revenues during 1997, 1998, and during the first two quarters
of 1999, respectively.
It is management's understanding that this decision, as well as the
decision to restructure the Hospital Billing contract, were 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. Management is currently discussing various contract restructuring
options with WHC related to the Hospital Billing contract, all of which will
result in a significant revenue and profit reduction. As a result of the above,
combined with the loss of the Presbyterian Healthcare System collection service
agreement announced on May 19, 1999, the Company is facing a significant
reduction in revenues that will not be quantifiable until the terms of the
restructured WHC Hospital Billing contract are finalized.
On March 15, 1999, the Company received notice from 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 in no way did it
7
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
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. The
PHS contract accounted for approximately 23%, 20% and 9% of total consolidated
revenues during 1997, 1998, and during the first two quarters of 1999,
respectively.
Management has begun to take cost reduction steps in an attempt to
better position the Company for this significant reduction in revenues and
profit margins. Management will continue to vigorously pursue new business;
however, there can be no assurance that new business sufficient to ensure the
survival of the Company can be obtained.
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 initiated communications 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 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. 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.
8
<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:
<TABLE>
<CAPTION>
1999 1998 1997 1996
---------------- ------------------------------------ ------------------------------------ ----------------
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 47,525 45,265 48,722 48,162 49,742 89,317 72,803 76,672 42,833 28,729 37,127 40,179
Backlog -- -- -- 1 72 8,518 23,739 28,361 -- -- -- 1
------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ ------
Total 47,525 45,265 48,722 48,163 49,814 97,835 96,542 105,033 42,833 28,729 37,127 40,180
Gross $ Amount
of Claims
Accepted for
Processing
(000's):
Ongoing 29,360 28,817 33,401 30,116 30,087 40,333 33,375 35,186 20,124 20,269 18,325 18,068
Backlog -- -- -- -- 17 2,744 5,868 9,066 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ ------
Total 29,360 28,817 33,401 30,116 30,104 43,077 39,243 44,252 20,124 20,269 18,325 18,068
Collection $
(000's)
Ongoing 12,436 12,531 11,613 11,738 11,215 14,556 12,190 9,407 10,143 7,545 7,063 7,533
Backlog -- -- -- 9 156 128 626 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ ------
Total 12,436 12,531 11,613 11,747 11,371 14,684 12,816 9,407 10,143 7,545 7,063 7,533
Fees Earned $
(000's)
Ongoing 675 771 631 681 729 922 733 480 428 366 376 379
Backlog -- -- -- 1 11 9 46 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ ------
Total 675 771 631 682 740 931 778 480 428 366 376 379
Average Fee %
Ongoing 5.4% 6.2% 5.4% 5.8% 6.4% 6.3% 6.0% 5.1% 4.2% 4.9% 5.3% 5.0%
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 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.
9
<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:
<TABLE>
<CAPTION>
1999 1998 1997 1996
---------------- ------------------------------------ ------------------------------------ ----------------
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: 10,987 14,626 26,024 31,861 22,130 27,399 27,177 27,801 22,209 3,916 N/A N/A
Gross $ Amount
of Accounts
Accepted for
Collection
(000's) 4,513 7,281 12,282 11,664 12,370 14,294 14,543 14,965 19,037 2,264 N/A N/A
Collection $
(000's) 917 930 1,321 2,282 2,653 2,305 1,994 784 632 96 N/A N/A
Fees Earned
(000's) 110 137 150 232 263 270 196 182 79 20 N/A N/A
Average Fee % 12.0% 14.7% 11.4% 10.2% 9.9% 11.8% 9.8% 23.2% 12.5% 20.8% 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. Collection fees percentages charged to the customer
vary for the three different placement categories: bad debt, early out, and
second placements.
10
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statements of Operations expressed as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
----------- ---------- ----------- -----------
Wages and benefits 76 63 67 62
Selling, general and administrative 20 21 19 20
Office, vehicle and equipment rental 5 3 4 3
Depreciation and amortization 3 2 3 2
Professional fees 1 1 1 1
Provision for doubtful accounts (2) -- 1 1
Interest, net, and other (income) expense 2 1 2 --
----------- ----------- ----------- -----------
Total expenses 105 91 97 89
----------- ----------- ----------- -----------
Net income (loss) from continuing operations (6) 9 3 11
Loss from discontinued operations (219) -- (112) --
----------- ----------- ----------- -----------
Net income (loss) (224%) 9% (109%) 11%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
COMPARISON OF THE QUARTER ENDED JUNE 30, 1999 TO THE QUARTER ENDED JUNE 30, 1998
REVENUES decreased $323,000, or 29% primarily due to the following:
- - ONGOING ACCOUNTS RECEIVABLE MANAGEMENT SERVICES revenue of $640,000 in the
current quarter decreased by $46,000 compared to the second quarter of
1998. During the current quarter, Washington Hospital Center Hospital
Billing Department ("WHCHBD") claims provided revenue of $526,000 compared
to $330,000 during the same quarter of 1998 due to an increase in claims
placed under existing contracts. Washington Hospital Center Physician
Billing Department ("WHCPBD") claims provided revenue of $104,000 compared
to $224,000 during the same quarter of 1998 due to a decrease in claims
submitted as a result of the Washington Hospital Center's model office
project. On July 28, 1999, the Company was notified by the Washington
Hospital Center ("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 June 30, 1999, and then
rapidly ramp down. Additionally, WHC management has verbally expressed that
it intends to restructure the current WHCHBD contract. WHC Women's
Services' revenue accounted for approximately 1% and 7% of total
consolidated revenue during 1998 and during the first two quarters of 1999,
respectively. The WHC Hospital Billing contract accounted for approximately
52%, 36% and 53% of total consolidated revenues during 1997, 1998, and
during the first two quarters of 1999, respectively. Other customer claims
provided revenue of $10,000 compared to $132,000 during the same quarter of
1998 due to the loss of customers and the acquisition of AHO which
accounted for $27,000 of 1998's second quarter other customer revenue.
11
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
- - COLLECTION AGENCY SERVICES revenue of $109,000 in the current quarter
decreased by $156,000 compared to the second quarter of 1998. During the
current quarter, PHS accounts provided revenue of $58,000 compared to
$254,000 during the same quarter of 1998 due to termination of account
placements. On March 15, 1999, the Company received notice from
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 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 expects to generate revenue
through august 20, 1999. The PHS contract accounted for approximately 23%,
20% and 9% of total consolidated revenues during 1997, 1998, and during the
first two quarters of 1999, respectively.
- - OTHER revenue decreased $70,000 compared to the second quarter of 1998. The
1998 revenue was comprised of advance funding fees and consulting fees. Of
the 1998 revenue, approximately $56,000 was generated from AHO prior to its
acquisition. Thereafter, no such fees were charged.
- - UMCLAIMPROS revenue of $37,000 in the current quarter decreased by $10,000
compared to the second quarter of 1998 primarily due to decreased
utilization from PHS. 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 $104,000 or 15% primarily due to
reduced headcount, reduced management bonuses, and reduced collector bonuses for
UMY collectors related to decreased UMY revenues. During the current quarter,
total monthly employee headcount averaged 56 compared to 81 during the same
quarter of 1998.
SELLING, GENERAL AND ADMINISTRATIVE expense decreased $79,000 or 33%
primarily due to decreased travel; decreased recruiting; decreased postage,
print and telephone expense as a result of the decline in customer accounts and
claims.
PROFESSIONAL FEES expense decreased $5,000 or 35% primarily due to
decreased general legal fees.
PROVISION FOR DOUBTFUL ACCOUNTS expense decreased $14,000 or 100%
primarily due to reversal of note receivable reserves upon payment in full.
INTEREST, NET increased $10,000 or 800% due to credit facility
borrowings and a bank promissory note required to provide working capital loans
to AHO.
LOSS FROM DISCONTINUED OPERATIONS increased $1,748,738 or 100% due
to the August 7, 1998 acquisition of AHO. The primary nature of the current
quarter loss is the result of increases in contractual adjustments on
Medicare claims in appeal, expense recorded in the quarter related to the
resolution of disputes over prior year management agreements, additional
audit fees related to 1998, over and above the initial accrual, which were
paid in the current quarter, goodwill amortization of $18,377 and goodwill
write-off of $1,402,728. 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
12
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
- - 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
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED JUNE
30, 1998
REVENUES decreased $710,000 or 30% primarily due to the following:
- - ONGOING ACCOUNTS RECEIVABLE MANAGEMENT SERVICES revenue of $1,360,000 in
the current six-month period decreased by $215,000 compared to the same
period of 1998. During the current six-month period, WHCHBD claims provided
revenue of $1,071,000 compared to $772,000 during the same period of 1998
due to an increase in claims placed under existing contracts. WHCPBD claims
provided revenue of $242,000 compared to $632,000 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 $47,000 compared to $171,000 during the same period of 1998 due
to the loss of customers and the acquisition of AHO which accounted for
$54,000 of 1998's same period other customer revenue.
- - COLLECTION AGENCY SERVICES revenue of $248,000 in the current six-month
period decreased by $286,000 compared to the same period of 1998. During
the current six-month period, PHS accounts provided revenue of $156,000
compared to $512,000 during the same period of 1998 due to termination of
account placements on May 4, 1999 in conjunction with the previously
disclosed contract termination. Contrary to managements' initial
understanding, PHS has recalled all accounts in active inventory. As such,
no future revenue is expected from PHS.
- - OTHER revenue of $11,389 in the current six-month period decreased by
$74,000 compared to the same period of 1998. The 1998 revenue was comprised
of advance funding fees and consulting fees. Of the 1998 revenue,
approximately $67,000 was generated from AHO prior to its acquisition.
Thereafter, no such fees were charged.
13
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
- - UMCLAIMPROS revenue of $60,000 in the current six-month period decreased by
$38,000 compared to the same period of 1998 primarily due to decreased
utilization from PHS.
WAGES AND BENEFITS expense decreased $370,000 or 25% primarily due to
reduced headcount, reduced management bonuses, and reduced collector bonuses for
UMY collectors related to decreased UMY revenues. During the current six month
period, total monthly employee headcount averaged 59 compared to 82 during the
same period of 1998.
SELLING, GENERAL AND ADMINISTRATIVE expense decreased $152,000 or 33%
primarily due to decreased travel; decreased recruiting; decreased postage,
print and telephone expense as a result of the decline in customer accounts and
claims.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense increased $8,000 or 13%
due to the six-month effect of two company vehicles leased in the beginning of
the second quarter of 1998 and the February 1, 1999 scheduled increase in base
rent of UMC's office space. On August 2, 1999, management exercised its space
reduction option whereby 3,300 square feet of office space will be vacated on
September 2, 1999 resulting in a monthly savings of approximately $3,500.
DEPRECIATION AND AMORTIZATION expense increased $7,000 or 18% primarily
due to an increase of $79,000 in fixed assets and assets under capital leases at
June 39, 1999 compared to June 30, 1998.
PROFESSIONAL FEES expense decreased $12,000 or 40% primarily due to
decreased general legal fees.
INTEREST, NET increased $19,000 or 578% due to credit facility
borrowings and a bank promissory note required to provide working capital loans
to AHO.
14
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
LOSS FROM DISCONTINUED OPERATIONS increased $1,882,313 or 100% due
to the August 7, 1998 acquisition of AHO. The primary nature of the current
six-month period loss is the result of increases in contractual adjustments
on Medicare claims in appeal, expense recorded in this six-month period
related to the resolution of disputes over prior year management agreements,
expenses in excess of revenues during the ramp down and ultimate closure of
BHM, additional audit fees related to 1998, over and above the initial
accrual, which were paid in this six-month period, goodwill amortization of
$36,753 and goodwill write-off of $1,402,728.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company's liquid assets, consisting of cash and cash
equivalents, totaled $42,000 compared to $89,000 at December 31, 1998. The
working capital deficit was $1,073,000 and $748,000 at June 30, 1999 and
December 31, 1998, respectively.
Operating activities from continuing operations through June 30,
1999 provided cash of $111,000, compared to $329,000 cash provided by
operating activities during the same period of 1998. This decline is
primarily due to increased receivables and decreased accrued liabilities.
Operating activities from discontinued operations through June 30, 1999 used
cash of $281,000 primarily due to those reasons explained below.
Through June 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 $703,000 and $507,000 at June 30, 1999 and December 31, 1998,
respectively. These loans were required as a result of AHO cash shortages as
explained below. Although it is UMC's intent to recover these loans, there can
be no assurance that AHO will be able to repay these loans.
Investing activities through June 30, 1999 consisted of the purchase of
furniture, fixtures and equipment which used cash of $8,000 compared to $52,000
used during the same period of 1998.
Financing activities through June 30, 1999 provided cash of $131,000
and consisted primarily of net borrowings of $95,000 from the Company's Credit
Facility and $100,000 provided from a bank note payable which were partially
offset by principal payments on capital lease obligations and the note payable
which used cash of $64,000. Cash of $131,000 provided from financing activities
through June 30, 1999 compares favorably to the cash of $25,000 used in the same
period of 1998 which consisted of principal payments on capital lease
obligations only.
Effective December 31, 1998, UMC unconditionally and irrevocably
guaranteed to a sublessor, certain AHO sublease payments totaling $55,377 and
performance of all other terms, covenants and conditions contained in three
furniture leases. At that time, management determined that exposure to UMC
for payment of this guarantee was not reasonably possible. As such, pursuant
to SFAS 5, the guarantee was not recorded or disclosed. Due to the events and
changes in circumstances as more fully discussed in Notes 2 and 3, management
determined that exposure to UMC for payment of this guarantee is now
probable; however, funds, if any, provided by UMC will be transferred to AHO
for lease payment. These payments will be charged against existing AHO lease
payment accruals resulting in no additional expense to UMC. At June 30, 1999,
the remaining guaranteed balance totaled $39,743.
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 July 1, 1999, the interest rate
was increased to 9.0%.
15
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
During the period from December 31, 1998 to June 30, 1999, the
available Borrowing Base under the Company's Credit Facility has averaged
approximately $307,000. At June 30, 1999, borrowings under the Credit Facility
totaled $295,000. The maximum borrowing base is the lesser of $400,000 or 80% of
trade account receivables aged less than 90 days. Effective July 1, 1999, the
interest rate was increased to 9.0%.
During various periods of time for the twelve months ending December
31, 1999, 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. These periods of possible liquid
deficiency are attributed to the working capital deficiency of AHO at June 30,
1999 and to AHO's current cost based reimbursement methodology which eliminates
the ability of AHO as a stand alone entity to generate positive cash flow. More
specifically, the possible periods of liquid deficiency are attributed to the
following factors:
1.) The Alabama Medicare cost reports have not yet been audited by the Medicare
fiscal intermediaries for the years ended December 31, 1998, 1997 or 1996. An
audit of the 1997 and 1996 Alabama cost reports is currently in process. The
1996 Florida cost report has been audited resulting in a minor balance payable
to AHO. The 1997 and 1996 cost reports were prepared with unaudited financial
information. The 1998 cost reports were prepared using information obtained from
audited financial statements and were filed on June 30, 1999, as required. AHO
has recorded certain Medicare settlement reserves based on assumptions that may
or may not ultimately prove to be correct. The accuracy of these assumptions
will not be known until completion of the aforementioned audits. At June 30,
1999, the current portion of the Medicare settlement reserve totaled $620,000.
Should the results of the audited 1997 and 1996 Alabama cost reports
confirm all of the assumptions underlying the Medicare settlement reserve and if
AHO is required to liquidate this reserve within thirty days of receipt of the
Notice of Program Reimbursement (the formal notification of settlement after the
audit is complete), AHO currently projects that it is likely that it will not
have sufficient cash or sources of cash to liquidate this liability and will be
forced to file for bankruptcy protection.
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. Therefore, management believes UMC will continue as a going concern
regardless of the status of AHO.
To the extent that the results of the aforementioned audits do not
confirm all of the assumptions underlying the Medicare settlement reserve, the
extent of the possible cash requirement to liquidate this reserve falls within
the range of $0 to $620,000. Until such time as the assumptions underlying the
Medicare settlement reserve are confirmed or denied, AHO cannot project the 1999
cash requirements with respect to this reserve.
2.) On November 12, 1998, all interim payments to PCBH were suspended due to an
interim reimbursement overpayment. Since this suspension, the working capital
deficiencies of AHO have been funded by UMC. At August 12, 1999, the remaining
overpayment based on the submitted 1998 cost report totals approximately
$10,000. AHO continues to vigorously pursue the appeal of denied 1998 Medicare
claims totaling approximately $78,000 as a possible source of cash to liquidate
this overpayment.
16
<PAGE>
UNITED MEDICORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
As a result of the foregoing circumstances, AHO has taken the following
actions:
a.) BHM was closed on April 30, 1999.
b.) The operations of CCBH were suspended on July 2, 1999.
c.) AHO has entered into discussions with a potential buyer of PCBH.
There can be no assurances that a sales transaction will be
executed.
d.) UMC has ceased providing working capital to AHO.
If AHO is unable to service the forgoing financial obligations as they
become due, it will be required to adopt alternative strategies, which may
include actions such as selling assets, discontinuing the operations of one or
more of the AHO CMHCs, seeking additional equity capital or delaying capital
expenditures, or filing for bankruptcy protection.
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
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
--------- -----------------------
99.1 Safe Harbor Compliance Statement for Forward-Looking Statements
(B) Reports on Form 8-K
None
<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 12, 1999
--------------------------------------------- -----------------
R. Kenyon Culver
Vice President and Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 42,201
<SECURITIES> 0
<RECEIVABLES> 631,611
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 713,848
<PP&E> 1,145,399
<DEPRECIATION> (845,886)
<TOTAL-ASSETS> 1,018,177
<CURRENT-LIABILITIES> 1,787,130
<BONDS> 0
0
0
<COMMON> 290,157
<OTHER-SE> (1,437,282)
<TOTAL-LIABILITY-AND-EQUITY> 1,018,177
<SALES> 1,679,088
<TOTAL-REVENUES> 1,679,088
<CGS> 0
<TOTAL-COSTS> 1,580,686
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23,756
<INTEREST-EXPENSE> 22,210
<INCOME-PRETAX> 52,436
<INCOME-TAX> 0
<INCOME-CONTINUING> 52,436
<DISCONTINUED> (1,882,368)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,829,927)
<EPS-BASIC> (0.064)
<EPS-DILUTED> (0.064)
</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 are generated from numerous services provided to various
departments of two major customers. The PHS collection agency services contract
was terminated effective May 4, 1999. The Washington Hospital Center's ("WHC")
Department of Womens' Services contract will terminate effective October 1,
1999. WHC's Hospital Billing contract is currently be nogotiated, and it is
anticipated that the revised contract will result in a significant reduction in
revenues and profits. These contracts accounted for 75%, 57% and 69% of total
consolidated revenues during 1997, 1998 and during the first two quarters of
1999, respectively. If the Company is unable to retain its remaining contract
with WHC, or if there is a significant decrease in the amount of claims and
accounts placed with the Company, the Company will be required to adopt
substantially different strategies than those in the existing business plan or
could possibly become insolvent. These strategies may include, but are not
limited to, actions such as reducing management and line employee headcount,
selling assets, restructuring existing financial obligations 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.
1
<PAGE>
EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD LOOKING STATEMENTS
MEDICARE SETTLEMENT RESERVE
The Alabama Medicare cost reports have not yet been audited by the
Medicare fiscal intermediaries for the years ended December 31, 1998, 1997 or
1996. An audit of the 1997 and 1996 Alabama cost reports is currently in
process. The 1996 Florida cost report has been audited resulting in a minor
balance payable to AHO. The 1997 and 1996 cost reports were prepared with
unaudited financial information. The 1998 cost reports were prepared using
information obtained from audited financial statements and were filed on June
30, 1999, as required. AHO has recorded certain Medicare settlement reserves
based on assumptions that may or may not ultimately prove to be correct. The
accuracy of these assumptions will not be known until completion of the
aforementioned audits. At June 30, 1999, the current portion of the Medicare
settlement reserve totaled $620,000.
Should the results of the audited 1997 and 1996 Alabama cost reports
confirm all of the assumptions underlying the Medicare settlement reserve and if
AHO is required to liquidate this reserve within thirty days of receipt of the
Notice of Program Reimbursement (the formal notification of settlement after the
audit is complete), AHO currently projects that it is likely that it will not
have sufficient cash or sources of cash to liquidate this liability and will be
forced to file for bankruptcy protection.
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. Therefore, management believes UMC will continue as a going concern
regardless of the status of AHO.
To the extent that the results of the aforementioned audits do not
confirm all of the assumptions underlying the Medicare settlement reserve, the
extent of the possible cash requirement to liquidate this reserve falls within
the range of $0 to $620,000. Until such time as the assumptions underlying the
Medicare settlement reserve are confirmed or denied, AHO cannot project the 1999
cash requirements with respect to this reserve.
Additionally, as a result of the write-off of goodwill, future earnings
will be affected by the ultimate settlement of assets and liabilities which
existed prior to the acquisition of AHO by UMC.
ASCENDING LIABILITY TO A PARENT CORPORATION FOR THE OBLIGATIONS OF ITS WHOLLY
OWNED MEDICARE CERTIFIED SUBSIDIARY
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 of UMC as the sole
shareholder of AHO should it become necessary for AHO to seek bankruptcy
protection in the future. 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
2
<PAGE>
EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD LOOKING STATEMENTS
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) successfully
discontinuing operations of AHO, (ii) developing and implementing initiatives to
reduce costs and enhance efficiencies, (iii) executing service agreements with
new customers, (iv) exploring and exploiting fragmented market niches, and (v)
recruiting, hiring and retaining key management employees. There can be no
assurance that the Company will 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 initiated communications 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
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EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD LOOKING STATEMENTS
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. 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.
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.
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EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD LOOKING STATEMENTS
COMMUNITY MENTAL HEALTH CENTER ("CMHC") REGULATORY ENVIRONMENT
On September 29, 1998, The Department of Health and Human Services
("HHS") announced new actions to ensure that Medicare beneficiaries with acute
mental illness obtain quality treatment in Community Mental Health Centers
("CMHCs") such as those operated by AHO, and that Medicare pay appropriately for
such services. As part of a comprehensive action plan, The Department of Health
and Human Services' ("HHS") Health Care Financing Administration ("HCFA") has
initiated termination actions against CMHCs that appear unable to provide
Medicare's legally required core services, and will require others to come into
compliance. HCFA will demand repayment of money paid inappropriately for
non-covered services or ineligible beneficiaries. Twenty non-compliance notices
have been issued, with an estimated 80 notices to be sent by early 1999.
Management is not aware of any material non-compliance issue nor has management
received any indication from HCFA regarding the possible termination of any of
AHO's CMHCs.
In addition, HCFA plans a number of long-term reforms. These efforts
include a new payment system for partial hospitalization that encourages
efficiency and eliminates financial incentives for abuse and a joint review of
the partial hospitalization benefit with the HHS Inspector General. HCFA also
will increase its review of partial hospitalization claims from CMHCs to ensure
Medicare pays only for appropriate services to qualified beneficiaries. The
financial impact of these long-term reforms cannot currently be estimated. There
can be no assurance that long-term reforms made by HCFA to the partial
hospitalization program will not have a material adverse effect on AHO.
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.
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
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EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD LOOKING STATEMENTS
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.
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