UMC and UMY's corporate offices and operations are located in a 6,836 square feet leased office space in Dallas, Texas. During the period from August 7, 1998 to October 14, 1999, AHO's home office was jointly located in this Dallas office space. This lease expires in January, 2001. On August 2, 1999, management exercised its office space reduction option whereby 3,300 square feet of office space was vacated on September 2, 1999 resulting in a monthly expense reduction of approximately $3,500. Management believes that its facilities are well-located and are in good condition.
The following table presents selected consolidated financial data for and as of each of the five years ended December 31, 1999. The financial data presented for each of the five fiscal years has been derived from audited financial statements.
ongoing business, and accordingly exclude revenues from backlog accounts receivable management, advance funding, UMClaimPros, and consulting services.
During 1997, 86% of revenue was earned from two customers: WHC and PHS. WHC provided revenue totaling $1,775,820, or 63% of total revenue. Of this revenue, 94% was provided as a result of the Ongoing Accounts Receivable Management services contract, as amended, entered into in 1992, of which 13% related to a physician billing contract entered into in May, 1997, and 6% was provided as a result of a Patient Billing services contract dated September, 1996. PHS provided revenues, primarily under various early out and bad debt collection contacts entered into in 1997, totaling $645,697, or 23% of total revenue.
Of this revenue, 66% was provided from Collection Agency services, and 34% was provided from UMClaimPros services.
In September, 1999, the Company was informally notified by WHC that claim transmissions from the Department of Emergency Medicine ("WHCDEM") would terminate effective November 1, 1999. Formal notification was subsequently received on November 4, 1999. Revenue from this contract was generated through November 30, 1999 consistent with revenues generated on a monthly basis through September 30, 1999, and thereafter ramped down through and will terminate on or about April 30, 2000. Revenue from this contract accounted for approximately 7% and 6% of total revenue during 1999 and 1998, respectively. It is management's understanding that this decision was related to changes in the outsourcing strategy of WHCDEM that included combining the outsourced claims management services with coding services not offered by UMC, and other factors.
On July 28, 1999, WHC management verbally expressed its intent to restructure the current Hospital Billing contract due to cost reduction measurers in response to declining reimbursement attributable to the Balances Budget Act of 1997. On December 27, 1999, the Hospital Billing contract amendment was executed. This amendment called for UMC to continue to provide a majority of its current services to WHC under a fifty percent fee reduction to be effective for claims with dates of service on and after October 1, 1999. Revenue from this contract was generated through November 1, 1999 consistent with revenues generated on a monthly basis through September 30, 1999, and thereafter ramped down through and stabilized at the new rate on or about December 15, 1999. Revenue from this contract accounted for approximately 63%, 42%, and 52% of total revenue during 1999, 1998, and 1997, respectively.
o A medical claims management contract for ongoing claims was executed on June 17, 1999, with a hospital system located in Virginia. This contract is fully implemented and generated revenue of approximately $199,000 in 1999.
o A collection services contract for backlog and on-going claims was executed on February 10, 2000, with a central Texas diagnostic imaging facility.
o Management is evaluating new service lines to compliment its traditional medical claims processing and accounts receivable management services. Possible new service lines include a focus on healthcare consumerism and healthcare e-business leveraging the Company's industry experience and technological infrastructure.
If management is unable to successfully develop and implement new profitable customer contracts and new service lines or align expenses with future cash requirements, it will be required to adopt alternative strategies, which may include but are not limited to, actions such as 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.
o Collection Agency Services revenue of $332,000 in 1999 decreased by $583,000 compared to 1998 primarily due to the aforementioned loss of the PHS contact. Revenue in 1999 from PHS was $112,000 compared to $854,000 in 1998. Assuming that there are no significant changes in the existing volume and mix of accounts placed by the Company's customers as of December 31, 1999, management believes that collection agency services will generate revenues from such customers of approximately $250,000 in 2000.
WAGES AND BENEFITS expense decreased $594,000 or 22% primarily due to headcount reductions through attrition in conjunction with the aforementioned revenue reductions. During 1999, monthly employee headcount averaged 53 compared to 80 during 1998. Assuming no significant change in the Company's core services, management expects that wages and salaries should remain at approximately 65% of revenues.
At December 31, 1999, the Company's liquid assets, consisting of cash, totaled $122,000 compared to $89,000 at December 31, 1998. The working capital deficit was $(199,000) and ($748,000) at December 31, 1999 and December 31, 1998, respectively. Working capital increased due to deconsolidation of AHO effective October 14, 1999.
Operating activities from the discontinued operations of AHO through October 14, 1999 used cash of $298,000, compared to $687,000 cash used in the discontinued operations of AHO for the five months ended December 31, 1998. Cash flow from the discontinued operations of AHO was not adequate to cover all working capital and debt requirements of the discontinued operations of AHO. Financing from UMC in the form of intercompany loans totaling $704,000 and $507,000 at October 14, 1999 and December 31, 1998, respectively, was required. As a result of AHO's bankruptcy, AHO will not repay these loans to UMC.
During various periods of time for the twelve months ending March 31, 2001, 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 recourse factoring agreement, if any. These possible periods of liquid deficiency are attributed to the reduction of revenues from current and former customers as previously explained.
o Headcount at March 31, 2000, as compared to March 31, 1999, had been reduced by 16 employees to 44 employees primarily through attrition. This reduction resulted in a monthly gross salary expense reduction of approximately $33,000.
o A medical claims management contract for backlog and on-going claims was executed on March 22, 2000, with a major hospital system located in New Mexico.
o A medical claims management contract for backlog claims was executed on November 24, 1999, with a hospital located in the Caribbean.
o Collection Agency Services revenue of $915,000 in 1998 increased by $439,000 compared to 1997 primarily due to the full year effect in 1998 of the collection services agreements executed with PHS at various times in 1997.
o UMClaimPros revenue of $195,000 in 1998 decreased by $41,000 compared to 1997 primarily due to decreased utilization from existing customers.
DEPRECIATION AND AMORTIZATION expense decreased $20,000 or 18% primarily due to a $20,000 decrease in UMC depreciation expense related to the AS/400 which was fully depreciated at December 31, 1997.
PROVISION FOR DOUBTFUL ACCOUNTS expense increased $33,000 primarily due to the write-off of UMC account balances totaling $21,000 and a $6,000 increase in the provision.
INTEREST, NET increased $3,000 or 70% primarily due to the draw by the Company on its Credit Facility which first occurred in November, 1998 in order to support AHO.