10-Q 1 united10q63004.txt ================================================================================ 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, 2004 [ ] 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.) 200 N. Cuyler Street Pampa, Texas 79065 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (806) 669-9223 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- As of August 9, 2004, there were outstanding 30,713,550 shares of Common Stock, $0.01 par value. ================================================================================ UNITED MEDICORP, INC. FORM 10-Q For the quarterly period ended June 30, 2004 TABLE OF CONTENTS Page ---- PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets at June 30, 2004 and December 31, 2003........................................... 1 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003........... 2 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003......................... 3 Notes to the Condensed Consolidated Financial Statements......... 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 6 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk........................................... 16 ITEM 4. Controls and Procedures.......................................... 16 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................................. 18 Signatures ............................................................. 18

The accompanying notes are an integral part of these condensed consolidated financial statements 1

The accompanying notes are an integral part of these condensed consolidated financial statements 2

The accompanying notes are an integral part of these condensed consolidated financial statements 3 UNITED MEDICORP, INC. AND SUBSIDIARY Notes to the Condensed Consolidated Financial Statements Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements of United Medicorp, Inc. ("UMC" or the "Company" or the "registrant") include its wholly owned subsidiary, United Moneycorp. Inc. ("UMY"). All material intercompany transactions and balances have been eliminated. Certain prior year balances have been reclassified to conform with current year presentation. The financial information presented should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2003 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The results for interim periods are not necessarily indicative of results to be expected for the year. ACCOUNTS RECEIVABLE CONCENTRATION The following table shows the concentration of total net accounts receivable at June 30, 2004 and December 31, 2003. There was a significant change in the concentration of the Company's accounts receivable due to the cancellation of a significant contract as of March 31, 2004 and the addition of two new significant contracts in March and May of 2004. As of the date of the filing of this form 10Q, management does not anticipate any problems in collecting its accounts receivable. 06/30/04 12/31/03 ---------- ---------- Customer A............................... 7% 63% Customer B............................... 1 3 Customer C............................... 44 -- Customer D............................... 23 -- Other customers.......................... 25 34 ---------- ---------- 100% 100% ========== =========== SOFTWARE DEVELOPMENT COSTS The cost of software that is developed or purchased for internal use is accounted for pursuant to AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). Pursuant to SOP 98-1, the Company capitalizes costs incurred during the application development stage of software developed for internal use, and expenses costs incurred during the preliminary project and the post-implementation stages of development. During the first six months of 2004, the Company capitalized $11,300 in costs incurred for new internal software development that was in the application development stage. 4

5 UNITED MEDICORP, INC. AND SUBSIDIARY Management's Discussion and Analysis Of Financial Condition and Results of Operations ITEM 2 - 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, legal issues, 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 claims management services and accounts receivable management services. A substantial portion of UMC and UMY revenues are derived from recurring monthly charges to their customers under service contracts that typically are cancelable with a 30 to 60 day notice. LOSS OF SIGNIFICANT CUSTOMERS On October 22, 2003 UMC announced the resignation of its key contact at Presbyterian Healthcare Services of New Mexico ("PHS"). On February 20, 2004 UMC announced that it had been informed by new management at PHS that most of the business outsourced to UMC would be re-bid, and that the remaining business would be brought back in house in mid 2004. On March 15, 2004 PHS informed UMC that it was not selected as one of the vendors to provide ongoing services for PHS. PHS management stated that the reason UMC was not selected was because other vendors had submitted proposals with fee percentages lower than those proposed by UMC. UMC continued to receive placements of accounts from PHS through March 31, 2004, and revenues ramped down rapidly through the second quarter. This contract provided revenues of $788,757, $2,434,000, $2,246,000 and $1,744,000, which represented 34%, 62%, 65%, and 63% of total revenue for the first six months of 2004 and for the years 2003, 2002, and 2001 respectively. On May 4, 2004, the Company received notification from management of Hamilton Hospital ("Hamilton") that they would be canceling their contract with UMC for day one claims management services effective June 24, 2004, which is the end of the initial one-year contract term. Hamilton management praised the work that UMC has done for them during the term of the contract, but cited cost considerations as the reason for termination. This contract generated revenue of $147,498 and $118,000 during the first six months of 2004 and for the year 2003 which represented 6% and 3% of each period's gross revenue respectively. On March 11, 2004, the Company executed a day one claims management agreement with Lubbock Heart Hospital ("LHH"). This contract had an original term of three months and new placements to UMC were discontinued on June 11, 6 UNITED MEDICORP, INC. AND SUBSIDIARY Management's Discussion and Analysis Of Financial Condition and Results of Operations (Continued) 2004. This contract generated revenue of $331,000 during the second quarter of 2004, which represented 27% of second quarter 2004 gross revenue. Management expects revenue from this contract to ramp down rapidly during the third quarter of 2004. MANAGEMENT'S PLAN WITH RESPECT TO LOST REVENUES During the past several years, management has taken steps to lessen the Company's concentration risk associated with its large customers. These steps include, but are not limited to: o In April 2002, the Company started up UMC's Coding Services Division. This division generated revenue of $110,000 and $183,000 during the first six months of 2004 and for the year 2003 respectively. o In March 2003, the Company began development of its Electronic Medical Records Storage service. The beta test of this product was completed in September 2003, and the Company began offering this service to its customers shortly thereafter. o From 2000 to 2004 the annual budget for UMC's sales and marketing department has increased from $0 to $299,000. In 2003 the Company's actual expenses for sales and marketing were $233,000 compared to $117,000 in 2002 and $15,000 in 2001. o From June 24, 2003 through August 6, 2004, the Company has executed the following new contracts: o On July 8, 2004 the Company executed a contract for bad debt collections with a hospital in East Texas. o On July 1, 2004 the Company executed a contract for bad debt collections with a hospital in East Texas. o On May 7, 2004 the Company executed a contract for day one medical claims billing and follow up service, early stage patient balance collection service, and bad debt patient balance collection service with a hospital located in East Texas. This contract supercedes a contract that was previously executed on February 23, 2004 for early stage and bad debt patient balance collection services. o On May 1, 2004 the Company executed a contract for bad debt second collections with a hospital in South Texas. o A collection services contract for early stage and bad debt patient balance accounts was executed on April 9, 2004, with a hospital in South Texas. o An offsite electronic medical records storage contract with a hospital in Central Texas was executed on March 17, 2004. o A medical claims management contract for day one billing and follow up was executed on March 12, 2004, with a hospital located in West Texas. The term of this contract is only two months, with an option to renegotiate the fee structure for ongoing billing at the end of the term. o A collection services contract for early stage and bad debt patient balance accounts was executed on February 23, 2004, with a hospital in East Texas. o A coding services contract with a hospital in West Texas was executed on February 16, 2004. o A medical claims management contract for day one billing and follow up was executed on January 22, 2004, with a hospital located in West Texas. o A collection services contract for early stage patient balance accounts was executed on December 18, 2003 with a hospital in South Texas. o An offsite electronic medical records storage contract with a hospital in West Texas was executed on December 18, 2003. o A coding services contract with a hospital in Central Texas was executed on December 12, 2003. 7 UNITED MEDICORP, INC. AND SUBSIDIARY Management's Discussion and Analysis Of Financial Condition and Results of Operations (Continued) o A collection services contract for bad debt patient balance accounts was executed on December 10, 2003 with a hospital in South Texas. o A coding services contract with two hospitals in Central Texas was executed on November 28, 2003. o A collection services contract for early stage patient balance accounts was executed on November 20, 2003 with a hospital in West Texas. o A coding services contract for overflow coding was executed with a hospital in East Texas was executed on November 5, 2003 o A collection services contract for bad debt patient balance accounts was executed on September 15, 2003 with a hospital in West Texas. o A medical claims management contract for claims follow up and patient balance collections was executed on August 28, 2003 with a hospital located in West Texas. o A collection services contract for early stage patient balance accounts was executed on August 6, 2003 with a hospital in West Texas. o A medical claims management contract for day one billing and follow up was executed on June 24, 2003, with a hospital located in Central Texas. UMC management has received notice of this customer's intention to cancel this contract at June 24, 2004 (the end of the initial contract term), due to cost considerations. Management continues to vigorously pursue new business while rigorously managing expenses without negatively impacting service levels. However, there can be no assurance that UMC will be successful in obtaining enough new business to replace the lost business from PHS. REVENUE AND EARNINGS GUIDANCE FOR 2004 As of the date of this report, management's projection of annualized revenues from the new contracts listed above falls within a range between 60% and 98 % of the 2003 total revenues from PHS. With the remaining revenue to be received during 2004 from PHS during the ramp down phase, the new contracts described above along with other existing customers are projected to place the Company's 2004 revenues between 86% and 115% of 2003 revenues. In addition, management believes it will acquire additional new contracts in 2004 that will make up most if not the entire amount of revenue lost from PHS. Due to uncertainties regarding the profitability of new customer contracts, UMC management is not able to provide guidance with regard to net income. Net income as a percentage of revenue may deviate from historical norms. If management is unable to successfully develop and implement new profitable customer contracts and new service lines, payroll expense will be scaled down to the level required to service existing contracts, without sacrificing quality of service. If this adjustment in headcount is not sufficient to bring expenses in line with revenue and future cash requirements, management will be required to adopt other alternative strategies, which may include but are not limited to, actions such as further reducing management and line employee headcount and compensation, restructuring existing financial obligations, seeking a strategic merger or acquisition, seeking the sale of the Company or the Company's public shell, and/or seeking additional debt or equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms. 8

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 depending on the service provided, the age and average balance of accounts. 10

Comparison of the Quarter Ended June 30, 2004 to the Quarter Ended June 30, 2003 Revenues increased $376,000 or 43% primarily due to the following: o Ongoing Claims Management Services revenue of $830,000 in the current quarter increased by $382,000 compared to the same quarter in 2003 as a result of multiple changes to the Company's claims inventory mix. The increase was due primarily to revenue from six ongoing accounts receivable management services contracts that were executed after the second quarter of 2003. These contracts provided revenue of $574,000 during the second quarter of 2004. The Company also received $14,000 in increased revenue from an ongoing accounts receivable management contract that was signed October 31, 2000. This revenue increase was partially offset by reduced revenue from an ongoing accounts receivable management services contract that was signed March 22, 2000 and was cancelled effective March 31, 2004. This contract provided revenues of $109,000 and $315,000 during the second quarter of 2004 and 2003 respectively Of the $574,000 received during the second quarter of 2004 from new contracts, $426,000 was from contracts for which the term was completed during the second quarter. Management is currently seeking renewal of these contracts. If management is not successful in negotiating a renewal, it expects revenue from these contracts to ramp down rapidly during the third quarter of 2004. o Collection Agency Services revenue of $334,000 in the current quarter was $24,000 less than the amount of collection agency services revenue recognized in the same quarter of 2003, primarily due to loss of the PHS contract in March 2004. This contract provided combined revenue of $131,000 and $305,000 during the second quarter of 2004 and 2003 respectively. This decrease in revenue was partially offset by revenue from four contracts that were signed after the second quarter of 2003. These contracts provided combined revenue of $122,000 during the first six months of 2004. The Company also received increased revenue from an early stage self pay collections agreement signed April 15, 2003. This contract provided revenue of $41,000 and $5,000 during the second quarter of 2004 and 2003 respectively. Net revenues from other customers decreased by 11

o Other revenue of $17,000 increased by $2,000 compared to the same quarter of 2003 due to $1,000 in consulting revenue and medical records storage fees recognized during the second quarter of 2004 and incentive income from the Pampa Economic Development Corporation ("PEDC") of $16,000 compared to PEDC incentive income of $15,000 during the previous year quarter. Wages and benefits expense increased $97,000 or 16% as a result of multiple factors. Salary and wage expense increased $43,000 as result of the addition of a Director of Claims Operations in September of 2003, a slight increase in headcount and normal merit raises. UMC averaged 91 full time and 11 part time employees during the second quarter of 2004 compared to 89 full time and 10 part time during the second quarter of 2003. Employee benefit cost increased $16,000 as a result more employees being eligible for the Company's benefit plans. During the second quarter of 2004 there was an average of 82 employees enrolled in the Company's group health insurance plan compared to 69 during the second quarter of 2003. Bonus expense increased by $38,000 due to higher performance and annual bonus accruals as a result of increased collection fees and profitability. Selling, general and administrative expense increased $84,000 or 51% due primarily to increases in postage $6,000 and office supplies $4,000 as the result of an increase in the number of collection letters sent during the second quarter of 2004; sales commissions $23,000 as a result of increased sales; employee relocation $25,000 as a result of moving UMC's Vice President of Sales from Midland, Texas to Garland Texas; software maintenance $12,000 due to increased claims billing start up projects; Taxes and Insurance $9,000 due to accruals for state franchise tax; and contract labor $5,000 due to reimbursement to a customer for the use of one of its employees for on-site labor. Depreciation and amortization expense increased $19,000 or 85% as a result of the addition of approximately $404,000 in leased and purchased fixed assets during 2003, and additions of approximately $22,000 during the first six months of 2004. Office, vehicle and equipment rental expense decreased $800 or 20% primarily due to the completion of the lease term on a 2000 Toyota Avalon in April of 2003. 12 UNITED MEDICORP, INC. AND SUBSIDIARY Management's Discussion and Analysis Of Financial Condition and Results of Operations (Continued) Professional fees decreased $5,000 or 22% due to primarily to legal fees of $11,000 incurred during the second quarter of 2003 compared to legal fees of $2,000 incurred during the first quarter of 2004. This decrease in legal fees was partially offset by an increase in audit and accounting fees of $3,000 and an increase in other professional fees of $1,000. Interest expense increased $3,400 due to interest incurred on a capital lease, three auto loans, and two unsecured lines of credit that were added after the second quarter of 2003. Comparison of the Six Months Ended June 30, 2004 to the Six Months Ended June 30, 2003 Revenues increased $583,000 or 33% primarily due to the following: o Ongoing Claims Management Services revenue of $1,390,000 in the current six-month period increased by $482,000 compared to the first six months of 2003 as a result of multiple changes to the Company's claims inventory mix. The increase was due primarily to revenue from seven ongoing accounts receivable management services contracts that were executed after the second quarter of 2003. These contracts provided revenue of $718,000 during the second quarter of 2004. The Company also received $22,000 in increased revenue from an ongoing accounts receivable management contract that was signed October 31, 2000. This revenue increase was partially offset by reduced revenue from an ongoing accounts receivable management services contract that was signed March 22, 2000 and was cancelled effective March 31, 2004. This contract provided revenues of $382,000 and $611,000 during the first six months of 2004 and 2003 respectively. During the first six months of 2003, the Company also recognized revenue of $29,000 from a contract dated August 1, 2002, that was terminated in December 2002. This contract did not generate any revenue during the first six months of 2004 Of the $718,000 received during the first six months of 2004 from new contracts, $481,000 was from contracts for which the term was completed during the second quarter. Management is currently seeking renewal of these contracts. If management is not successful in negotiating a renewal, it expects revenue from these contracts to ramp down rapidly during the third quarter of 2004. o Collection Agency Services revenue of $797,000 in the current six-month period increased by $75,000 compared to the same period of 2003, primarily due to revenue from seventeen contracts that were signed after the second quarter of 2003. These contracts provided combined revenue of $192,000 during the first six months of 2004. The Company also received increased revenue from an early stage self pay collections agreement signed April 15, 2003. This contract provided revenue of $86,000 and $5,000 during the fist six months of 2004 and 2003 respectively. This increased revenue was partially offset by reduced revenue from an early stage self-pay collections and bad debt collection agreement signed March 13, 2000 and cancelled March 31, 2004. This contract provided combined revenue of $407,000 and $610,000 during the second quarter of 2004 and 2003 respectively. Net revenues from other customers increased by $5,000 during the first six months of 2004 as compared to the first six months of 2003. o Coding Services revenue - In April of 2002, Janice K. Neal joined UMC as Vice President of Coding Services, and the Company began providing such services to various hospitals. Total revenues from coding services were $110,000 and $92,000 during the first six months of 2004 and 2003 respectively. 13 UNITED MEDICORP, INC. AND SUBSIDIARY Management's Discussion and Analysis Of Financial Condition and Results of Operations (Continued) o Other revenue of $40,000 during the current six-month period increased by $9,000 compared to the same six-month period of 2003. For the first six months of 2004, other income consisted of $33,600 of PEDC incentive income, $700 in consulting fee income, $4,000 of interest income, and $1,700 in installation and service fees for medical records storage. Other income consisted of PEDC incentive income of $31,000 during the first six months of 2003. Wages and benefits expense increased $251,000 or 11% due primarily to increased headcount. The Company averaged 98 full time and 11 part time employees during the first six months of 2004 compared to 87 full time and 9 part time during the first 6 months of 2003. Salary and wage expense increased by $153,000, payroll tax expense $12,000, and employee benefit cost increased $46,000 during the first six months of 2004 as compared to the first six months of 2003. Bonus expense increased $40,000 during the current six-month period due to higher performance bonuses paid and higher annual bonus accruals as a result of increased fees and profitability. Selling, general and administrative expense increased $112,000 or 34% primarily due to increases in postage $17,000 and office supplies $7,000 due to an increase in the number of collection letters sent during the first six months of 2004; sales commissions $24,000 and telephone expense $3,000 as a result of increased business and sales; employee relocation $25,000 as a result of moving UMC's Vice President of Sales from Midland, Texas to Garland Texas; software maintenance and system usage fees $14,000 due to increased claims billing start up projects and an increase in day one claims billed; Taxes and Insurance $16,000 due to accruals for Texas state franchise tax (Texas state franchise tax was not accrued during the previous year due to the availability of net operating loss carryforwards to offset taxable income); contract labor $5,000 due to reimbursement to a customer for the use of one of its employees for on-site labor; travel and entertainment $6,000 as a result of increased travel required by a larger customer base, and increased activity in the sales and marketing department. These increased expenses were partially offset by a decrease in factoring fees of $12,000 during the current six-month period. The Company factored invoices during the first two weeks of 2004, but factored invoices for the entire first six months of 2003. All other SG&A expenses increased by a net $7,000 during the first six months of 2004 as compared to the first six months of 2003. Depreciation and amortization expense increased $41,000 or 99% as a result of the addition of approximately $404,000 in leased and purchased fixed assets during 2003, and additions of approximately $22,000 during the first six months of 2004. Office, vehicle and equipment rental expense decreased $2,000 or 190% primarily due to the completion of the lease term on a 2000 Toyota Avalon in April of 2003. Professional fees decreased $8,000 or 17% due to primarily to legal fees of $15,000 incurred during the first six months of 2003 compared to legal fees of $2,000 incurred during the first six months of 2004. This decrease in legal fees was partially offset by an increase in audit and accounting fees of $6,000. Other professional fees decreased by $1,000 during the current six-month period. Interest, net increased $8,000 or 103% due to interest incurred on a capital lease, three auto loans, and two unsecured lines of credit that were added after the second quarter of 2003. Liquidity and Capital Resources At June 30, 2004, the Company's liquid assets, consisting of cash, totaled $471,441 plus unencumbered cash due from the factoring company of $2,044, compared to cash of $62,851 and unencumbered cash due from the factoring company 14 UNITED MEDICORP, INC. AND SUBSIDIARY Management's Discussion and Analysis Of Financial Condition and Results of Operations (Continued) of $ 1,313 at December 31, 2003. The cash due from the factoring company is available to be wired to UMC by the factoring company upon UMC's request. Working capital was $739,000 at March 31, 2004 compared to working capital of $324,000 at December 31, 2003. Operating activities during the current six-month period provided cash of $366,000, compared to cash of $89,000 provided by operating activities during the same period of 2003. Cash of $21,000 was expended on investing activities during the current six-month period. $10,000 was expended for the purchase of equipment, software and building improvements, and $11,000 was expended for new software development. The Company expended $64,000 on investing activities during the same six-month period of 2003 for the purchase of automobiles, equipment, software and building improvements, and $33,000 was expended for new software development. The Company also received proceeds from the sale of a computer and other office equipment in the amount of $1,500 during the prior year period. Financing activities during the current six-month period provided cash of $64,000 and consisted of $102,000 in net loan proceeds from the Company's two unsecured lines of credit, offset by principal payments totaling $16,000 for notes payable, and $20,000 on capital lease obligations. The Company also expended $2,000 for the purchase of treasury stock during the current six-month period. Financing activities during the same six-month period of 2003 used cash of $3,000 and consisted of $27,000 in loan proceeds for the purchase of three used automobiles and $50 in proceeds from the exercise of employee stock options, offset by principal payments totaling $9,000 for notes payable, and $21,000 on capital lease obligations. During the current quarter, cash flow from operations was adequate to cover all working capital and liquidity requirements. Despite the loss of the contract with PHS as described in the Company's Form 10-K for the year ended December 31, 2003, management believes that current cash and cash equivalents and projected cash flows from operations together with the Company's lines of credit, factoring agreement, incentives under the Economic Development and Incentive Agreement, capital leases and other potential financing should be sufficient to support the Company's cash requirements. CRITICAL ACCOUNTING POLICIES Accounting principles generally accepted in the United States of America require the use of management's judgments and estimates in addition to the rules and requirements imposed by the accounting pronouncements. More detailed information about UMC's accounting policies is contained in Note B, Summary of Significant Accounting Policies, to our Consolidated Financial Statements included in our 2003 Form 10-K. Other accounting policies not discussed here are described there, and readers should review that information carefully. We have summarized below the accounting policies that we believe are most critical to understanding UMC's interim financial statements. The Company reports financial information on a consolidated basis. Therefore, unless there is an indication to the contrary, financial information is provided for the parent company, United Medicorp, Inc., and its subsidiaries as a whole. Transactions between the parent company and any subsidiaries are eliminated for this purpose. UMC owns all of the capital stock of its subsidiaries, and does not have any subsidiaries that are not consolidated. None of UMC's subsidiaries are "off balance sheet", UMC has not entered into any "off balance sheet" transactions, and UMC has no "special purpose entities". 15 UNITED MEDICORP, INC. AND SUBSIDIARY Management's Discussion and Analysis Of Financial Condition and Results of Operations (Continued) The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from these estimates. The Company's billing and collection services revenue is recognized upon receipt by the customer of payment from a third party payor or guarantor of a patient's account and upon notification by the customer to the Company that such payment has been received, or upon receipt of such payment by UMC. Coding service revenue and fees for medical record storage services are recognized when the services are performed. Factored accounts receivable are accounted for pursuant to SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"). Pursuant to SFAS No. 140, the Company treats its factored accounts receivable as a sales transaction, and as such, no liability is recognized for the amount of the proceeds received from the transfer of the accounts receivable. UMC has a contingent liability to repurchase any invoices that remain unpaid after 90 days. At June 30, 2004 there were no factored invoices outstanding. The cost of software that is developed or purchased for internal use is accounted for pursuant to AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). Pursuant to SOP 98-1, the Company capitalizes costs incurred during the application development stage of software developed for internal use, and expenses costs incurred during the preliminary project and the post-implementation operation stage's of development. During the first six months of 2004, the Company capitalized $11,300 in costs incurred for new internal software development that was in the application development stage. Item 3 - Quantitative and Qualitative Disclosures About Market Risk The Company qualifies as a small business issuer as defined in Rule 12b-2 of the Securities Exchange Act of 1934. As such, the Company is not required to provide information related to the quantitative and qualitative disclosures about market risk. Item 4 - Controls and Procedures. In order to ensure that the information that we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis, we have adopted disclosure controls and procedures. Our Chief Executive Officer, Peter W. Seaman, and our Chief Financial Officer, Nathan E. Bailey, have reviewed and evaluated our disclosure controls and procedures as of August 6, 2004, and concluded that our disclosure controls and procedures are appropriate and that no changes are required at this time. There have been no significant changes in our internal controls, or in other factors that could affect our internal controls, since August 6, 2004. 16 UNITED MEDICORP, INC. AND SUBSIDIARY Management's Discussion and Analysis Of Financial Condition and Results of Operations (Continued) 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 17 UNITED MEDICORP, INC. AND SUBSIDIARY Management's Discussion and Analysis Of Financial Condition and Results of Operations (Continued) Item 6. Exhibits and Reports on Form 8-K (A) Exhibits EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 31-1 Section 302 - Certification of Chief Executive Officer 31-2 Section 302 - Certification of Chief Financial Officer 32-1 Section 906 - Certification of Chief Executive Officer 32-2 Section 906 - Certification of Chief Financial Officer 99.1 Safe Harbor Compliance Statement for Forward-Looking Statements (B) Reports on Form 8-K: The Company filed the following reports on Form 8-K during the quarter ended March 31, 2004: 1) On May 17, 2004 the Company furnished a Current Report on Form 8-K attaching a press release reporting the Company's financial results for the first quarter ended March 31, 2004. 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/ Nathan E. Bailey Date: August 11, 2004 ------------------------------- ---------------- Nathan E. Bailey Vice President and Controller (Principal Accounting Officer) 18

UNITED MEDICORP INC 10-Q