[OTC Journal] Bill before we get started on the numbers can you please give us a brief description of what MedGrup is and what you guys do?

[Bill] Certainly, MedGrup provides medical records work with the health care industry.  We provide assistance to hospitals that insures they will receive all the legitimate revenue.  And we assign the codes on the medical records so they can input those codes into their billing system and they can send to Medicare, Medicaid, and all the commercial insurance companies.  This is sometimes not done very well by hospitals throughout the country and actually throughout the world.  We also have a consulting business and a rapidly growing consulting division, where we do hospital back office work and HIM work with the medical records department, HIM is Health Information Management consulting.

[OTC Journal] So in other words hospitals outsource the coding of their charts to MedGrup, is that correct?

[Bill] Correct.

[OTC Journal] Can you give people a little bit about the background as to what happened during the Clinton administration to make your service so valuable to hospitals?

[Bill] During the Clinton administration, there were several bills that came into law or were enacted.  One was the balance budget act, in 1996, the other was HIPA, Health Information Patient Availability Act.  Both of those acts forced the hospitals to actually put a much greater effort into the coding of their charts.  One of the acts, the balanced budget act, in fact, reduced the payments to hospitals by a substantial amount and other items that were associated with this act were the implementation of APC’s on the outpatient side, which is a specific type of mechanism where we reimburse the hospital, but it was never around before.  And HIPA actually mandates how the hospitals treat and want all the information from the patients, which makes it increasingly difficult for the hospitals to do all internal work.  Both those together, along with a million other laws, rules, and regulations that come every quarter has increased our business tremendously.

[OTC Journal] And what about the illegal activities that were going on in fraudulent practices with regard to Medicare billing, wasn’t that something that helped enhance your market?

[Bill] That in fact, has made the hospitals so scared because some of them were overcoding.  What we call overcoding, they were signing the codes that were in fact not applicable and some were paid for work they never did.  There was a massive fine levied and the most famous is the Columbia HCA fine, which I believe now is in excess of a billion dollars.  It was $775 million, and then it went up from there.  So now hospitals throughout the company are actually running scared, they are afraid to assign the correct codes, so they are undercoding, which means they are getting paid less money than they should be, which means they are losing money.  Hospitals were making 15% profit not too many years ago, now they are lucky to be making 1% or ½ % profit.

[OTC Journal] And it all relates to how much they are able to bill the insurance companies for services and your company offers an out service that signs a code by which they can be reimbursed by the insurance company, is that correct?

[Bill] That is absolutely correct.  That is exactly how it works.

[OTC Journal] What is the potential size of the market Bill?

[Bill] The potential size of the market, I’ll give you this in specific numbers.  There were in excess of one billion patient visits last year in the U.S.  Each of these charts must be shouldered.  Now our average revenue per chart at MedGrup is close to $8 a chart for an average of all our charts.  If you look at those two numbers, that means our potential market size is $8 billion.

[OTC Journal] Bill, give us an idea of where you see the company at MedGrup, where do you feel you can take this company over the next year and then give us a longer range view of where you feel you will be five years from now.

[Bill] The future is very bright at this point. Our market has barely been scratched and industry experts have said that no more than a $100 million has been taken out of the $8 billion market.  Now we are the largest pure coding company in our niche industry, which is $8 billion large and there has only been a $100 million taken out of it.  We have an unlimited potential to grow.  We’ve been doubling growth every year for the last several years.   We’ve been making our revenue projections, we’ve been making profit projections, and we expect this to keep going.  We’ll be coming very attractive at both an acquirer and an acquiree in mergers and acquisitions. 

[OTC Journal] So there are potential candidates out there that could be merger and/or acquisition type candidates now that you are growing and getting up to critical mass where you are coming up on the radar screens in your industry group right?

[Bill] Absolutely, we get several phone calls from multiple companies wanting to do really good deals with us, in one form or another. 

[OTC Journal] Are you starting to consider any of those ideas?

[Bill] Absolutely, we are looking at some of them very seriously. 

[OTC Journal] So in other words, even though you’ve doubled in size every year for the past four years, you could, whether through a merger or acquisition, you could grow much more dramatically than even that correct?

[Bill] It could go on an exponential, absolutely.

[OTC Journal] Bill I’m looking at the numbers you guys released this morning.  Through the first six months of 2001, your revenues were up 57%, which is keeping with your past track record, but net earnings were down 31% from just over $200,000.  Can you give the members of the OTC Journal some insight as to what the reason for that is?

[Bill] Absolutely.  The largest single reason for the shortfall in net earnings is that we have to take a substantial one-time charge of a $147,000 to reflect the cost of exercising stock options of an employee who separated from the company during the last quarter.  This is a non-cash expense recognized under GAP.  However we do anticipate our rate of growth in both revenue and profit will improve during the balance of the fiscal year based on our new planned contract implemented in the first half of the fiscal year.

[OTC Journal] So in other words the reason for the shortfall was just a one-time non-cash event, which will not be returned correct?

[Bill] That is correct.  That was actually the bulk of it, we also hired an additional 22 coders in the second quarter alone.  They are not even working anywhere close to full capacity yet.  They were hired and trained in anticipation of new contracts that we were signing in the second quarter and pending contracts we expect to close over the next quarter.  And just as a matter of interest, these 22 coders that we hired in the second quarter represent an additional $3 million plus in business to us as they become fully productive.

[OTC Journal] Based on conversations earlier in the year the OTC Journal, when we covered you earlier, believed you could achieve $8 million in revenue in 2001.  Based on the first half of the year you are not quite on track to achieve that.  Is that revenue target still viable for this year?

[Bill] Yes, the $8 million revenue target is still viable, however I will be honest, the way business is going at the moment; we are looking at revenue of just over $7 million.  Having said that, do not be surprised if we reach and exceed the $8 million mark because our third and fourth quarters are looking very profitable.  And don’t be surprised if we meet and exceed that mark.

[OTC Journal] As I understand it Bill you currently have 71 coders trained and prepared to handle business for you, is that correct?

[Bill] That is correct.

[OTC Journal] Each coder represents about an average of $140,000 in revenue for the company on an annual basis, is that also correct?

[Bill] That is also correct.

[OTC Journal] In other words, you are currently staffed up to handle, if you do the math, approximately just under $10 million in annual revenue.

[Bill] That is actually correct too.

[OTC Journal] Then in the year 2000, if I remember correctly, to refresh my memory, weren’t you at about $4 million for 2000.

[Bill] Correct.

[OTC Journal] So currently based on your infrastructure you can handle up to $10 million in business, where will that new business come from?  Tell the listeners a little bit about your contracts and your hopes for future contracts.

[Bill] We have contracts with hospital organizations from the state of California to hospitals in northern Indiana, a big group in Texas; we have a large group of hospitals in Texas where their largest hospital has just outsourced their entire operation to us with the exception of some of the outpatient literature.  Which is a very big change for the hospital group.  That is a very large group of hospitals.  We just took over another large hospital in the Southwestern part of the United States; they outsourced their entire department of coding in the middle of the second quarter, which again is very unusual.  This is the trend that is out there now.  In the state of California, it is one of the biggest markets in the United States and we have had rave reviews from our first two hospitals, from a group of fifteen or sixteen hospitals that we have a contract for and they are saying that we are the reason why they have been able to bring their numbers down from an accounts receivable point of view and an unbilled point of view.  Both are very well for us because we spent a lot of money and a lot of time putting these large clients together in the last six months.

[OTC Journal] Would it be fair to say that you currently have enough business in your pipeline to where you can put these 71 coders that are working for you right now to work full-time or do you need to go out and find more contracts to keep them busy full-time?

[Bill] We have work in the pipeline right now that we fully expect to have our coders working on at an acceptable capacity by the end of the third quarter.

[OTC Journal] The end of the third quarter would be the end of September?

[Bill] Correct.

[OTC Journal] You’re on a calendar year correct?

[Bill] Correct.

[OTC Journal] Okay, here’s my next question, this comes from one of our readers.  Aside from the OTC Journal and friends and family of the company there really is no following for your stock.  Do you have plans and place to expand your audiences as the stock market begins to improve in the coming months?

[Bill] Yes, we certainly do, in fact we’ve discussed many ways of doing this with our investment banking advisors and over the past six months we feel we will be in a good position to do this in late third quarter or mid fourth quarter of this year.

[OTC Journal] In other words you expect to start to tell the story of MedGrup to the financial community in the fourth quarter of this year?

[Bill] Absolutely.

[OTC Journal] Also another question from one of our subscribers, do you have any plans to upgrade your stock exchange.  In other words, you’re on the bulletin board right now, any thoughts of how you can upgrade to the Nasdaq Small Cap or the American Stock Exchange and in what time frame?

[Bill] We fully expect that we could meet minimum Nasdaq or AMEX requirements as early as the fourth quarter and once as this happens we will be applying for listing.  That is as factual as we can say.

[OTC Journal] So your hope is you will be applying for an upgrade of listing sometime in the fourth quarter of this year?

[Bill] That is our hope.

[OTC Journal] One last question, MedGrup is one company that we don’t get a lot of news from, you seem to have all the contracts in place you need, you’ve built out your infrastructure, and now you are just implementing your business plan.  Our readers want to know, is there a way we can get additional news flow out of your company, kind of an up to date, blow by blow of what is happening to you?

[Bill] We’ve been asked this several times actually.  And we could put out more frequent releases explaining what is going on and what is happening with our contracts.  We have some very exciting news sometimes and we will remember to do that. 

[OTC Journal] I think that is an excellent question from one of our readers who just wanted to be more frequently updated on what is happening in the company.

[Bill] Absolutely and people can always give us a phone call.  They can get on our website and access us through the website and ask us questions.  We answer every question that we get.

[OTC Journal] MedGrup.com, am I right?

[Bill] Correct.

[OTC Journal] Well Bill thanks so much for joining us today.  Congratulations on 57% revenue increase for the first half of the year.  Let’s hope you make the $8 million by the end of the year and have an excellent profitable second half of the year.  This is a very exciting company ladies and gentlemen, deep product niche, deep market niche, doubling in size every year, profitable, EPS is not “Eyeballs Per Share” it’s Earnings Per Share in the case of this company.  Have a great day everybody, we will be back next week with the President of XML Global Technologies.