The following table presents selected consolidated financial data for and as of each of the five years ended December 31, 2002. The financial data presented for each of the five fiscal years has been derived from audited financial statements.
See Notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition.
During the fourth quarter of 2001, the Company began processing secondary claims under an ongoing accounts receivable management services contract signed March 22, 2000. The Number of Claims Accepted for Processing and the Gross $ Amount of Claims Accepted for Processing shown in the preceding table include secondary claims that are subject to automatic crossover payments from certain payors. The Company does not take credit for, nor report as collections, such crossover payments that are received by the customer within 35 days of the date that the claim is transmitted to UMC. UMC management estimates that about 30% to 50% of the secondary claims accepted for processing are due from crossover payors, of these, approximately 60% pay with no effort required (and no credit for collections received is taken) by UMC. As a result, the ratio of Collections to the Gross $ Amount of Claims Accepted for Processing shown in the preceding table will be lower for periods beginning with the fourth quarter of 2001 than for the preceding quarters shown.
During 2001, 91% of revenue was earned from four customers: Presbyterian Healthcare Services of New Mexico ("PHS"), Valley Baptist Medical Center ("VBMC"), Inova Health Services ("Inova"), and Brownsville Surgical Hospital ("BSH"). PHS provided revenue totaling $1,744,000 or 63% of total revenue. Of this, 55% was from Collection Agency Services, 37% was from Ongoing Accounts Receivable Management Services, and 8% was from Backlog Accounts Receivable Management Services. VBMC provided revenue of $272,000 or 10% of total revenue. All of the VBMC revenue was from Collection Agency Services. Inova provided revenue of $247,000 or 9% of total revenue. All of the Inova revenue was from Ongoing Accounts Receivable Management Services. BSH provided revenue of $254,000 or 9% of total revenue. Of this, 97% was from Ongoing Accounts Receivable Management Services, and 3% was from Collection Agency Services.
On May 30, 2002, the Company received notice from Valley Baptist Medical Center (VBMC) terminating their accounts receivable management contract dated March 13, 2000. The termination of the contract was pursuant to recommendations from outside consultants to consolidate VBMC's outsourcing projects, and according to VBMC management had nothing to do with UMC's performance. This contract provided revenues of $245,000, $272,000 and $35,000 which represented 7%, 10% and 1.5% of total revenue for the years 2002, 2001 and 2000 respectively.
(a) an incentive payment of $192,000 which was made upon the closing of the purchase of the new operations center facility in Pampa. The Agreement includes a claw back provision whereby if UMC does not maintain a minimum of 30 full time equivalent employees ("FTEE") employed in its Pampa operations center during any given year of the eight years of the Agreement beginning with the year ended December 31, 2001, UMC will be required to remit $24,000 back to PEDC for each such year. UMC met the FTEE requirement for this incentive in 2001 and 2002 and recognized $24,000 of the incentive as income at December 31st of each year.
(b) an incentive payment of $40,000 per calendar year (for a maximum of $320,000) so long as UMC provides a minimum average of 40 FTEE 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 $40,000 in revenue from this incentive for each of the years 2001 and 2002.
On August 21, 2000 UMC purchased a building in Pampa, located at 200 N. Cuyler Street that serves as its Pampa operations center, and simultaneously received payment of the relocation incentive totaling $192,000 (as specified in paragraph (a) above). On December 31, 2000 UMC had 45 full time and 2 part time employees at its Pampa operations center, and qualified for the initial incentive payment as specified in paragraph (e) above. This payment was applied to the forgivable loan from the PEDC that is detailed below. As of March 15, 2003 UMC had 76 full time, and 3 part time employees at its Pampa operations center.
There can be no assurance that UMC will be successful in: (a) continuing to meet the aforementioned minimum employment requirements to trigger incentive payments, (b) maintaining the minimum employment requirements to prevent triggering the aforementioned claw back provision, or (c) averting a default to its Lender or discontinuing its operations in Pampa within five years to prevent PEDC from being released from paying any and all unpaid annual payments to UMC relative to the aforementioned terms of the PEDC Agreement.
During 2002, the Company entered a maintenance agreement on leased mail processing equipment, that requires quarterly payments through 2007. The total commitments under the agreement are $6,420 for each of the years 2003 through 2006 and $4,815 in 2007. The Company paid $1,605 during 2002 under this agreement.
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
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 December 31, 2002 there were no factored invoices that had ages more than 90 days.
$136,000 compared to 2001 as a result of the winding down of a Backlog medical claims management contract executed on March 22, 2000 with a major hospital system located in New Mexico. This contract generated revenues of $3,000 and $139,000 in 2002 and 2001 respectively. Assuming that there are no significant changes in the existing volume and mix of claims placed by the Company's customers as of December 31, 2002, management does not anticipate any significant revenue from Backlog Accounts Receivable Management Services in 2003.
- - 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 $117,000 during 2002. Assuming that there is no significant change in the existing volume of claims coded for existing customers at December 31, 2002, Coding Services will generate revenues from such customers of approximately $150,000 in 2003.
- - Other revenue of $132,000 in 2002 increased by $10,000 compared to 2001 which was primarily due to incentives received in accordance with the agreement with the PEDC. Assuming that the Company continues to meet the incentive requirements, this agreement will generate approximately $118,000 in incentive revenues in 2003.
- - UMClaimPros revenue of $0 in 2002 decreased by $2,500 compared to 2001 due to the discontinuation of UMClaimPro services in February of 2001.
WAGES AND BENEFITS expense increased $546,000 or 31% primarily due increased headcount as a result of increased business requirements, and the addition of two corporate officers during March and April of 2002. During 2002 total employee headcount averaged 80 compared to 61 during 2001. As of March 15, 2003, UMC had a total of 82 full time and 9 part time employees. Assuming no significant change in the Company's core services, management expects that wages and benefits should remain at approximately 67% of revenues in 2003.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense increased $137,000 or 26% primarily due to increases in postage, travel, office supplies, advertising and marketing, employee training, and commission costs. These increases were the result of an increased number of self pay accounts requiring letters (postage and office supplies), additional travel requirements of the new Vice President of Sales and Marketing and the new Vice President of Coding Services, sponsorship costs for various healthcare association conferences (advertising and marketing), training costs associated with the start up of a new customer project, commission costs associated with the addition of a Vice President of Sales and Marketing, and the reversal of previously accrued expenses totaling $27,000 during the first quarter of 2001. Assuming
no significant change in the Company's core services, management expects that SG&A should remain at approximately 19% of revenues in 2003.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense decreased $270 or 1% in 2002 as compared to 2001. Assuming no significant changes in office space and equipment leased at 12/31/02, management expects lease and rental expense to be less than 1% of revenues in 2003.
INTEREST, NET decreased $16,000 or 44% primarily due to lower interest rates, and the payoff of certain leases and notes payable during 2002.
Management believes that current cash and cash equivalents and projected cash flows from operations together with the Company's factoring agreement, incentives under the Economic Development and Incentive Agreement, capital leases and other potential financing should be sufficient to support projected growth in revenues through fiscal 2003.
In April 2002, the FASB approved for issuance Statements of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections ("SFAS 145"). SFAS 145 rescinds previous accounting guidance, which required all gains and losses from extinguishment of debt be classified as an extraordinary item. Under SFAS 145 classification of debt extinguishment depends on the facts and circumstances of the transaction. SFAS 145 is effective for fiscal years beginning after May 15, 2002 and adoption is not expected to have a material effect on the Company's financial position or results of its operations.
In August 2002, the FASB issued Statements of Financial Accounting Standards No. 147, "Acquisitions of Certain Financial Institutions" (SFAS 147). SFAS 147 requires financial institutions to follow the guidance in SFAS 141 and SFAS 142 for business combinations and goodwill and intangible assets, as opposed to the previously applied accounting literature. This statement also amends SFAS 144 to include in its scope long-term customer relationship intangible assets of financial institutions. The provisions of SFAS 147 do not apply to the Company.
- - Backlog Accounts Receivable Management Services revenue of $139,000 in 2001 decreased by $322,000 compared to 2000 as a result of the winding down of a Backlog medical claims management contract executed on March 22, 2000 with a major hospital system located in New Mexico. This contract generated revenues of $139,000 and $370,000 in 2001, and 2000 respectively.
- - Collection Agency Services revenue of $1,376,000 in 2001 increased by $813,000 compared to 2000 due primarily to a collection agency services contract executed October 13, 2000. This contract generated revenues of $891,000 and $227,000 in 2001 and 2000 respectively. The Company also received a significant increase in placements during 2001 from a collection agency services contract executed in March of 2000. This contract provided revenues of $272,000 and $35,000 in 2001 and 2000 respectively.
- - Other revenue of $121,000 in 2001 increased by $13,000 compared to 2000 which was primarily due to incentives received in accordance with the agreement with the PEDC.
- - 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.
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES decreased $30,000 due to recovery of accounts previously reserved, and good collection experience in 2001.