On August 21, 2000, United Medicorp, Inc. completed the purchase of a 20,000 square foot building that serves as its new operations center in Pampa, Texas. The purchase price of the building was $100,000. In addition, the first mortgage includes an additional $37,000 allowance for transaction costs and building improvements. The term of the first mortgage is 20 years, with monthly payments of principal and interest at a floating rate of prime plus one half percent (currently 9.0 percent per annum). Consistent with the terms of the previously disclosed Economic Development and Incentive Agreement with the Pampa Economic Development Corporation ("PEDC"), the full amount of the $137,000 mortgage is guaranteed by the PEDC. The Company has made numerous repairs and improvements to the building including the construction of two executive offices, a computer room, and a lavatory, and has refurbished the two previously existing lavatories. The total investment in the building and improvements at December 31, 2001 was $167,000. The company began moving its operations to Pampa in September of 2000 and completed the relocation of all operations functions in February 2001.
During 2000, 76% of revenue was earned from three customers: The Washington Hospital Center ("WHC"), PHS, and Inova. WHC provided revenue totaling $657,426 or 28% of total revenue. Of this, 96% was from the Ongoing Accounts Receivable Management Services, and 4% was from Physician Billing Services. PHS provided revenue totaling $710,893 or 31% of total revenue. Of this, 52% was from Backlog Accounts Receivable Management Services, 32% was from Collection Agency Services, and 16% was from Ongoing Accounts receivable Management Services. Inova provided revenue totaling $373,724 or 16% of total revenue. All of the Inova revenue was from Ongoing Accounts receivable Management Services.
During 1999, $2,486,000 or 79% of revenue was earned from one customer, Washington Hospital Center "WHC". Of this WHC revenue, 63% was provided as a result of an Ongoing Accounts Receivable Management services contract, as amended, entered into in 1992, and 16% related to a physician billing contract amendment entered into in May, 1997.
(d) an incentive payment of $500 per calendar year (with no cap or limit) for each FTEE from the 51st and over employed in its Pampa operations center during each of the eight calendar years of the Agreement commencing with the year ending December 31, 2001. UMC recognized $5,875 in revenue from this incentive for 2001.
o Ongoing Accounts Receivable Management Services revenue of $1,147,000 in 2001 decreased by $172,321 compared to 2000 primarily due to the effect of the aforementioned loss of the WHC contract, which was partially offset by increased placements from new and existing customers during 2001. Management believes that such increased placements will continue in 2002. One of the Company's customers, which accounted for approximately 22% of Ongoing Accounts Receivable Management Services revenue during 2001, has been experiencing cash flow problems over the past year. This has caused the customer to be slow in paying the Company's invoices. Although these problems have not resulted in the need to reserve any of the customer's outstanding invoices at 12/31/01, such problems could affect revenues for 2002, if the customer is not able to successfully find a solution for them. Assuming that these problems do not affect 2002 revenues, and that there are no other significant changes in the existing volume and mix of claims placed by the Company's customers as of December 31, 2001, Ongoing Accounts Receivable Management Services will generate revenues from such customers of approximately $1.4 million in 2002.
o UMClaimPros revenue of $2,000 in 2001 decreased by $56,000 compared to 2000 due to the discontinuation of UMClaimPro services in February of 2001.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense decreased $77,000 or 79% primarily due to the move of the Companies operations center from Dallas to Pampa in September of 2000, and the movement of its corporate offices to a 937 square foot space in Garland, Texas in November of 2000. This allowed the Company to negotiate the early termination of its lease agreement for 6,836 square feet of office space in Dallas, resulting in a monthly expense reduction of approximately $6,800. The company also had two leased automobiles, which reached the end of their lease terms in March and April of 2001. Both vehicles were purchased at the end of the lease terms. Assuming no significant changes in office space and equipment leased at 12/31/01, management expects lease and rental expense to be less than 1% of revenues in 2002.
DEPRECIATION AND AMORTIZATION expense decreased $15,000 or 13% in 2001. Management expects depreciation and amortization expense to remain at approximately 4% of revenues in 2002.
PROFESSIONAL FEES expense increased $17,000 or 40% primarily due to increased tax preparation fees and costs associated with business licenses in Louisiana and New Mexico.
Cash flow from operations in 2001 provided cash of $181,000, compared to $162,000 cash used in operating activities from continuing operations in 2000. This increase is primarily due to the 2001 net operating income of $266,000 increased by depreciation ($51,000) and amortization ($49,000) offset by increases in accounts receivable ($112,000), and decreases in accounts payable ($62,000). In 2001, cash flow from continuing operations was supplemented by incentives received from the Pampa Economic Development Commission to cover working capital and liquidity requirements for continuing operations.
Investing activities in 2001 consisted of the purchases of furniture, fixtures, equipment, building improvements, and two company automobiles, which had previously been leased. Total cash used for investments was $90,000, of which $61,000 was used for the purchase of furniture, fixtures and equipment, $20,000 was used to purchase the two company automobiles, and $8,000 was for the purchase of building improvements. Total cash used in investing activities during 2000 was $213,000. The Company's fixed assets are in good working order and sufficient to support continuing operations.
o Backlog Accounts Receivable Management Services revenue of $415,000 in 2000 increased by $415,000 compared to 1999 of which $370,000 was due to a medical claims management contract executed on March 22, 2000 with a major hospital system located in New Mexico.
o UMClaimPros revenue of $58,000 in 2000 decreased by $35,000 compared to 1999 primarily due to the discontinuation of UMClaimPro service utilization by two customers in 1999.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense decreased $94,000 or 15% primarily due to expense reductions in conjunction with the aforementioned revenue reductions.
PROFESSIONAL FEES expense decreased $26,000 or 38% primarily due to decreased audit fees allocated to UMC in 2000 as compared to 1999 and $10,000 in expense related to capital raising efforts throughout 1999.