The following table presents selected consolidated financial data at December 31, 1996, 1995, 1994, 1993, and 1992, and for the years ended December 31, 1996, 1995, 1994, 1993, and 1992. The information presented for 1996 and 1995 was derived from the consolidated financial statements of the Company included elsewhere in this report. Information presented for 1994, 1993, and 1992 was derived from consolidated financial statements previously filed by the Company.
1994: On September 1, 1994, the Company completed a private offering to offshore investors of 2,369,999 shares of UMC Common Stock at a price of $.15 per share. The offering generated net proceeds of $348,011 after deducting legal fees and other expenses of the offering.
On September 30, 1994, the Company signed a promissory note to borrow $200,000 from an offshore bank. The funds borrowed were used to purchase claims under an Advance Funding Service contract provided to a new hospital customer. At December 31, 1994, the Company had outstanding advances to a customer, against the purchase price of claims, of $17,163.
During 1995, the Company signed three contracts with domestic healthcare providers. A contract was signed to deliver "patient balance" collection services to a major hospital in the midwest. A contract was signed to provide third party billing and patient balance collection services to selected clinics to be opened by a national operator of clinics. A third contract was signed to deliver claims repricing services to a managed care provider network.
The Company's UMClaimPros interim staffing service, which was introduced to the marketplace in late December, 1994, generated $116,489 in fees during 1995. The gross margin on UMClaimPros services is considerably lower than the gross margin on UMC's other services.
1996: Late in the first quarter of 1996, the Company was notified by its third largest customer, Mimbres Memorial Hospital ("MMH"), that it had accepted an offer to be acquired by a hospital chain. The chain has the
resources necessary to perform all of the billing and collection functions which had been outsourced to UMC. Effective April 12, 1996, MMH discontinued transmitting new claims to UMC for processing. MMH contributed $119,351 in fees during 1996 and $364,365 in fees during 1995.
Effective September 1, 1996, the Washington Hospital Center ("WHC") executed an amendment to its existing agreement with UMC whereby WHC authorized UMC to begin providing patient billing and collection services. UMC's responsibilities under this amendment include billing and collecting balances due from the guarantors of certain classes of patient accounts following collection of medical insurance payments. UMC management believes that revenues from this amendment will average $5K to $10K per month during 1997.
A contract to provide interim staffing services to a major hospital in Texas was signed on September 18, 1996. Under this contract UMC provided UMClaimPros personnel to assist the hospital with various tasks associated with a major system conversion. This project is expected to continue through April, 1997.
On May 23, 1994, HAS signed a contract with the Municipio De Humacao ("Humacao") to provide the Company's services to a municipally funded clinic in Humacao. Revenue of $2,003 was generated from the Humacao clinic during 1994.
On September 19, 1994, HAS signed a contract with the Administracion De Facilidades Y Servicios De Salud ("AFASS"), the health department for the Commonwealth of Puerto Rico, to provide claims processing services for four clinics and one hospital which are funded by AFASS. No revenues were generated from the AFASS contract during 1994. During 1994, the Company incurred start up costs for operations in Puerto Rico of $155,978. These expenses consisted of the HAS retainer of $72,000, travel of $22,613, payroll costs of $37,285, and general office expenses of $24,080, all of which were expensed as incurred in 1994. In addition, the Company purchased fixed assets with an original cost of $25,828 for Puerto Rican operations.
Effective June 30, 1996, the Company completed a Settlement and Termination gAreement (the "Agreement") with HAS. Under the Agreement, on August 2, 1996 HAS paid to UMC a total of $172,000 representing the sum of $46,000 to purchase UMC's interest in the claims inventory in process for the AFASS clinics located at Coamo, Juana Diaz, Adjuntas,
Jayuya, Villalba, and Santa Isabel; $72,000 to purchase UMC's interest in the claims inventory in process for the AFASS hospital located at Yauco; and $54,000 as additional consideration for the Agreement. Following receipt of these cash payments, the Company reported Fee Income of $118,000 and Other Income of $54,000. The Agreement included a mutual release by UMC and HAS of any claims either party may have against the other, and an indemnification of UMC by HAS against any claim by AFASS for a refund of fees paid.
The Agreement also provided for the continuation of UMC's services to the remaining three AFASS clinics and the AFASS hospital in Yauco for so long as HAS contract with AFASS remained in force. HAS contract with AFASS was terminated effective September 30, 1996.
Following the termination of HAS contract with AFASS, UMC gave notice to terminate the lease on its office in Ponce, Puerto Rico. The office was closed on January 3, 1997, and shortly after that date the last of UMC's employees in Puerto Rico resigned to pursue other employment.
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 services. In general, collections on most healthcare providers' new claims ("Ongoing") tend to average about 25 to 80 percent of the gross claim amount. Backlog collection ratios range from 0 to about 40 percent of the aggregate gross claim amount because many backlog claims have already been paid or denied by the insurance carriers prior to submission of the claims to UMC. For these previously paid claims, UMC often charges an administrative fee which is less than a collection fee.
Interest and other income decreased by 75%, from $14,819 in 1994 to $3,632 in 1995. This was due to a lower level of investable cash upon which to earn interest during 1995.
Salaries and benefits expense increased by 29%, from $1,157,518 in 1994 to $1,499,038 in 1995, which can be attributed to several factors. The UMClaimPros service produced incremental salaries of $76,782 in 1995. Puerto Rico salaries and benefits increased by $95,756 in 1995 over 1994, due to the fact that the Company completed its first full year of operations in Puerto Rico in 1995. Total headcount increased from 45 at December 31, 1994 to 49 at December 31, 1995.
Selling, general and administrative expenses decreased by 36%, from $731,274 in 1994 to $467,397 in 1995 due to decreased expenses for claims purchase, contract professional fees, contract clerical, employee recruitment, property taxes, repair and maintenance, sales taxes, dealer commissions, system usage fees and software maintenance, telephone service, Puerto Rican operations, travel and marketing expenses offset by increased expenses for bad debt, insurance, and office supplies.
Professional fees decreased by 25%, from $110,580 in 1994 to $82,794 in 1995 due to lower audit fees and professional fees to enhance software. This decrease was partially offset by an increase in legal fees.
Interest expense increased by 2% from $18,744 in 1994 to $19,169 in 1995.
Other expenses decreased by 103%, from $42,223 in 1994 to ($1,243) in 1995, due primarily to the loss on retirement and write off of fixed assets, primarily computer equipment, in 1994.
Fee income from "Ongoing" claims processing, management and collection services decreased by 9% from $1,620,868 in 1995 to $1,474,252 in 1996 due to the loss of the MMH contract in 1996. Backlog collection fees decreased by 93% from $56,754 in 1995 to $4,132 in 1996 due to the completion of the Backlog project for MMH during 1995. No new Backlog contracts have been acquired since 1995. Fees from UMC's UMClaimPros interim staffing service increased by 34% from $116,489 in 1995 to $155,910 in 1996 due primarily to staffing services provided to a major hospital in the Dallas area. Patient billing fees increased from $90 in 1995 to $50,484 in 1996 due to collection services provided to Methodist Medical Center of Illinois. Repricing fees increased significantly from $694 in 1995 to $13,036 in 1996 due to fees generated from Integrated Medical Systems. Installation and Training fees increased from $0 in 1995 to $6,900 in 1996 due to training and development charges assessed to customers.
Fee income from Puerto Rican operations increased by 69% from $176,635 in 1995 to $298,555 in 1996 due to increased collections for the Yauco Hospital, the AFASS clinics, and the settlement agreement reached between the Company and HAS.
Salaries and benefits expense decreased by 22% from $1,499,038 in 1995 to $1,171,721 in 1996 due to several factors. Puerto Rico headcount went down from seven full-time and two part-time employees in 1995, to one full-time employee at December 31, 1996. Also the Company's MIS, Sales, Finance, Operations, and Operations Management departments' salaries expense decreased from 1995 to 1996 due primarily to reduced headcount.
Professional fees decreased by 5% from $82,794 in 1995 to $78,813 in 1996 due primarily to lower legal fees.
Office and equipment rental increased by 23% from $81,648 in 1995 to $100,575 in 1996 due to increased rent expense on the office space in Dallas, Texas and also twelve months of rent expense for the Ponce, Puerto Rico office versus only six and a half months for that space in 1995.
Depreciation and amortization expense decreased by 17% from $126,807 in 1995 to $105,638 in 1996 due to assets becoming fully depreciated.
principal owed on the IBM AS/400 computer system currently leased by the Company.
On January 30, 1995, the Company repaid $100,000 in principal plus interest on a promissory note due to an offshore bank. The remaining $100,000 plus interest due on this promissory note was repaid on February 24, 1995.
proceeds after expenses of $348,011, which were used to provide working capital for operations.
On September 23, 1994, the Company reentered the advance funding services market by signing a contract to purchase claims with an anticipated realizable value of $145,643. As of December 31, 1994, $37,720 of these purchased claims remained to be collected from commercial insurance companies. The Company secured a short term bank loan to provide funds to advance against the purchased claims.
The Company's Certificate of Incorporation provides for 50,000,000 authorized shares of Common Stock, of which 26,310,217 shares were issued and outstanding (excluding shares held in treasury) at December 31, 1996. The Company's Certificate of Incorporation also provides for 5,000,000 authorized shares of Preferred Stock, of which none were outstanding at December 31, 1996. The voting rights, designation, liquidation preference, redemption rights, dividends and other rights of the Preferred Stock may be designated from time to time by resolution of the Board of Directors.