The Company's corporate offices and operations are located in an 8,230 square feet leased office space in Dallas, Texas. On August 1, 1995, the lease on this space was renegotiated with a five and one-half year term
extending until January 31, 2001. The first six months through January 31, 1996 were rent free. Effective February 1, 1996 through January 31, 1999, the Company's monthly rent is $7,544. From February 1, 1999 through January 31, 2000, and February 1, 2000 through January 31, 2001, the monthly rent will be $7,887 and $8,230 respectively. The Company has the option to terminate this lease after three years of occupancy, providing it gives a ninety day notice to the Lessor. Management believes that its facilities are well-located and are in good condition. The Company's future facilities requirements will depend upon the success of its business. Management believes that there is adequate office space available should its space requirements increase.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ----------------------------------------------------------------------------
The Company emerged from the development stage during the fourth quarter of 1991. During the period from its inception on March 13, 1989 until the fourth quarter of 1995, the Company raised capital and incurred significant expenditures primarily for systems development, for developing and implementing a marketing program and generally to build and maintain an organization to facilitate the management of the Company. Accordingly, the Company has reported a loss for every year since its inception up until 1996, and any comparison between periods does not necessarily present a meaningful analysis because of the Company's level of operations in each period.
On September 13 and October 1, 1994, the Company executed contracts with the Mimbres Memorial Hospital to perform the initial processing, submission to payers, and collection follow up of claims due from several payer classes. In addition, the Company agreed to purchase certain medical accounts receivable under a separate medical claims purchase contract. Revenues of $42,347 were generated from this customer during 1994.
On December 30, 1994, the Company leased a new IBM A/S 400 Advanced System 9406 Model 300 computer, for a term of 66 months including 6 months of deferred payments. The total amount financed, including the rollover of the remaining lease payments under the previous A/S 400 lease and financing of the maintenance contract on the new computer, was $182,752.
1995: On January 30 and February 24, 1995, the Company made two installments to complete repayment of all principal and interest due on a $200,000 note due to an offshore bank. The Company borrowed this money on September 30, 1994, to provide advance funding services to the Mimbres Memorial Hospital in Deming, New Mexico. The Company completed collection of all claims purchased from MMH under this advance funding contract in May 1995.
The number of full time permanent employees increased from 45 at December 31, 1994 to 49 at December 31, 1995.
1994: On June 2, 1994, the Company signed agreements with Healthcare Advisory Services of Puerto Rico, Inc., and its related company, Hospital Advisory Service ("HAS"). Under the agreements, the Company provided claims processing, submission to payers and collection follow up services to the customers of HAS in the Puerto Rican market during a three year term. HAS is responsible for marketing, sales and payer relations in the Puerto Rican market. The Company agreed to pay HAS a monthly retainer of $12,000 for six months, totalling $72,000.
1995: The Company's principal source of revenue in Puerto Rico results from a contract between Healthcare Advisory Service of Puerto Rico, Inc. ("HAS"), and a government agency known as "AFASS." Under this contract, the Company serves as a subcontractor to HAS in processing claims with dates of service from October 1, 1994 to June 30, 1995 for a government funded hospital ("GH") and four government funded clinics. UMC's fees for services rendered to the clinics are computed at 10% of collections. During 1995, the Company recognized fees totaling $108,008 for services rendered to the GH. These revenues were based on a fee structure which required that the Company meet a collections baseline requirement of $1,875,000, above which the Company received fees based on a percentage of collections. In June 1995, the HAS contract with AFASS was amended to allow the continuation of services for an undefined period beginning July 1, 1995. The baseline for the GH portion of the contract was reset at $2,500,000 for collections from claims with dates of service during the period from July 1, 1995 to June 30, 1996. In addition, HAS and UMC received the right to process claims from four additional clinics, thus increasing the number of AFASS clinics served to eight.
During 1995, the Company received cash payments from HAS totalling $39,000 in repayment of a number of short term loans the Company made to HAS to sustain HAS' operations during late 1994 and early 1995. As of December 31, 1995, HAS was current with respect to all invoices payable to UMC.
During 1995, the Company's Puerto Rican operation generated total revenues of $176,635, with an operating loss of $58,837. The primary reasons for the loss were the start up costs incurred primarily during the first half of 1995 to train employees and develop UMC's claims entry, editing, submission, and follow up processes consistent with the dynamics of the Puerto Rican market; the costs incurred to set up UMC's office in Ponce; the costs and expected delay in collections associated with the start up of services for the four additional AFASS clinics for claims with dates of service beginning July 1, 1995; and the costs associated with the start of a new baseline measurement period for GH for claims with dates of service beginning July 1, 1995.
On September 1, 1995, the Company signed a contract with a group of 15 emergency room physicians. This contract was significant in that it established the first direct relationship between a customer and the Company in Puerto Rico.
The Company's headcount in Puerto Rico at December 31, 1995 consisted of one manager, one supervisor, five full time employees, and two part time employees.
1996: During 1996, most of the Company's revenue in Puerto Rico was derived from HAS, which the Company served as a subcontractor in regard to HAS' contract for claims processing services with the Administration de Facilidades y Servicios de Salud ("AFASS"). Under this contract, the Company provided claims processing and follow up services to eight AFASS funded clinics and one hospital in Yauco, Puerto Rico.
MANAGEMENT: Robert D. Powell joined UMC on November 9, 1995 and was named Secretary and Treasurer on April 22, 1996. On August 13, 1996, UMC hired Robert C. Smith as Director of Sales and Marketing.
Fee income from UMC's advance funding service decreased 67%, from $14,058 in 1994 to $4,574 in 1995, due to the completion of the advance funding services for MMH. Fee income from "Ongoing" claims processing, management and collection services increased by 30%, from $1,247,730 in 1994 to $1,620,868 in 1995, due to increased revenue from WHC and MMH. Backlog collection fees decreased by 3%, from $58,584 in 1994 to $56,754 in 1995 due to reduced backlog fees from WHC, offset by increased fees from MMH. Fees from UMC's new UMClaimPros interim staffing service totalled $116,489 in 1995. No fees were earned from UMClaimPros in 1994. Patient billing fees decreased from $2,921 in 1994 to $90 in 1995, and installation fees decreased from $4,737 in 1994 to $0 in 1995.
Office and equipment rental increased 26%, from $64,753 in 1994 to $81,648, due to the office that the Company established in Puerto Rico in May 1995.
Depreciation and amortization increased by 7%, from $118,814 in 1994 to $126,807 in 1995, due to depreciation on office equipment purchased for the Company's Puerto Rico office.
Interest income decreased by 32% from $3,632 in 1995 to $2,485 in 1996 due to a lower level of investable cash. Other income increased from $0 in 1995 to $74,649 in 1996 due to a gain on an insurance settlement paid to the Company, and to the settlement agreement reached between the Company and HAS.
Selling, general, and administrative expenses decreased by 7% from $467,397 in 1995 to $434,093 in 1996 due to decreased expenses for property taxes, dealer commissions, marketing and advertising, travel and entertainment, office supplies, telephone service (long distance), express services, and contract clerical offset by increased expenses for Directors and Officer's insurance, bad debts, recruitment, education and training, and software maintenance.
Interest expense decreased by 7% from $19,169 in 1995 to $17,842 in 1996 due to reduced
Other, net increased from ($1,243) in 1995 to ($73) in 1996 due to reduced gains from the sale of assets.
Cash and cash equivalents were $188,868 at December 31, 1996, an increase of $130,790 from December 31, 1995. Net cash provided by operating activities was $189,347 in 1996, contrasted with a net use of $79,311 in 1995 and a net use of $855,424 in 1994. The most significant area of change in 1996 was a net income of $119,214 in 1996 compared to a net loss of $285,745 in 1995. Financing activities resulted in a net use of $33,846 in 1996 related to payments made on capital lease obligations.
Net cash used in 1995 and 1994 was $293,155 and $496,086 respectively. Investing activities required additional cash of $2,133 in 1995 and $165,110 in 1994. Financing activities resulted in net cash used of $211,711 in 1995 primarily related to the repayment of $200,000 note, compared to net cash provided of $524,448 in 1994 from the sale of common stock and issuance of $200,000 note.
The Company's current ratio at December 31, 1996, was 1.43 to 1, compared to .84 to 1 at December 31, 1995. The increase in current ratio occurred primarily as a result of the net income of $119,214 earned in 1996 and positive cash flow from operations of $189,347 as mentioned above. During 1996, the Company was able to produce positive cash flow from operations for the first time since its inception. If the Company is unsuccessful in sustaining positive cash flow from operations, management may be forced to sell additional shares of stock during 1997 in order to sustain the Company's operating activities. There can be no assurance that management will be successful in finding buyers for the Company's shares, or of the terms under which shares might be sold.
On September 30, 1994, the Company signed a promissory note to borrow $200,000 from an offshore bank. The funds borrowed were used to provide the Company's advance funding service to MMH.
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
On May 3, 1995, the last of the claims that were advance funded in late 1994 were collected. The Company's ability to raise capital to fund the purchase of claims will determine the extent of the Company's future commitment to advance funding services.
During the second half of 1990 and the first three quarters of 1991, the Company used some of the proceeds from the August 1990 public offering to fund its advance funding services. The Company was forced to discontinue its advance funding service from October 1991 until September 1994 due to capital constraints brought on by operating losses.
The Company leases a portion of the computer hardware used on its premises under a 66 month lease agreement which expires in June 2000. The total amount financed, including the rollover of the remaining lease payments under a previous A/S 400 lease and financing of the maintenance contract on the new computer, was $182,752. Monthly lease payments will be $4,196 from June 1995 until May 2000. The Company's capitalized lease obligations totaled $137,206 as of December 31, 1996, of which $50,352 is payable in each year through 1999 and $20,980 is payable in 2000. The A/S 400 equipment financed under this lease may be purchased at the end of the lease for $1.
At December 31, 1996, the Company had $188,868 in cash and cash equivalents on hand. These funds along with forecasted revenues are projected by management to be adequate to fund current levels of operations through 1997. The Company continues to pursue new business through direct contacts with prospective customers and through independent sales agents in an effort to generate additional revenues. There is no assurance that revenues generated from existing customers will continue as forecasted or that the Company will be successful in securing new customers or sources of revenue before the Company's remaining capital is depleted. In the event such new customers or sources of revenue are not secured, management projects that cash flow from operations may not be sufficient to provide for the Company's working capital needs beyond 1997, in which case the Company will be required to raise additional capital in order to continue operating in its present form. Due to the Company's history of operating losses there can be no assurance that additional investment capital can be raised in the event the Company is not successful in securing new customers or new sources of revenue.
In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" was issued. This statement requires the fair value of stock options and other stock-based compensation issued to employees to either be included as compensation expense in the income statement or the pro-forma effect on net income and earnings per share of such compensation expense to be disclosed in the footnotes to the Company's financial statements commencing with the Company's 1996 fiscal year. The Company has adopted SFAS No. 123 on a disclosure basis.
At the Annual Meeting of Stockholders on August 14, 1995, the stockholders of UMC approved a 1 for 5 reverse split of the Company's Common Stock, to be implemented at the discretion of UMC's Board of Directors. As of the date of this report, the 1 for 5 reverse split had not been implemented.
From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that forward-looking statements include the intent, belief, or current expectations of the Company and members of its senior management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, the status of the Company's billing and accounts receivable management services operations, continued availability of credit on terms and conditions acceptable to the Company, on-going management initiatives designed to reduce costs and enhance efficiencies, continued availability of qualified personnel to serve in the various functional capacities required to sustain the Company's operations, sales of the Company's healthcare billing and collection services and prospective changes in laws, regulations or policies affecting the Company's business and/or operations. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -------------------------------------------------------------------------------- Refer to the Index to Consolidated Financial Statements and Financial Statement Schedules on page 31 for the required information.