The following table presents selected consolidated financial data for and as of each of the five years ended December 31, 2000. The financial data presented for each of the five fiscal years has been derived from audited financial statements.
For Ongoing claims, there is typically a time lag of approximately 30 to 90 days from contract execution to complete development of system interfaces and definition of procedural responsibilities with customer personnel. During this period, Company personnel survey the customer's existing operations and prepare for installation. Once the customer begins transmitting claims to the Company, there is usually a time lag of 30 to 90 days between transmission of claims to third party payors and collection of those claims from payors.
During 2000, 76% of revenue was earned from three customers: the Washington Hospital Center ("WHC"), Presbyterian Healthcare Services ("PHS") of New Mexico, and Inova Health Systems ("Inova"). WHC provided revenue totaling $657,426 or 28% of total revenue. Of this, 96% was from the Ongoing Accounts Receivable Management service contract, as amended, entered into in 1992, and 4% related to a physician billing contract, as amended, entered into in May, 1997. 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 WHC. Of this WHC revenue, 63% was provided as a result of the 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.
entered into in May, 1997. PHSD provided revenues, primarily under various early out and bad debt collection contacts entered into in 1997, totaling $985,000, or 23% of total revenue. Of this PHSD revenue, 87% was provided from Collection Agency services, and 13% was provided from UMClaimPros services.
On May 8, 2000, the Company was officially notified by WHC that claim transmissions from the Hospital Billing contract would terminate effective June 30, 2000. Revenue from this contract was generated through July 31, 2000 consistent with revenues generated on a monthly basis through June 30, 2000, and thereafter, ramped down through and terminated December 31, 2000. Revenue from this contract accounted for approximately 28%, 52%, and 36% of total consolidated revenues during 2000, 1999, and 1998, respectively.
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 1%, 7% and 6% of total revenue during 2000, 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, the Company was formally notified by WHC that claim transmissions from the Department of Women's Services ("WHCDWS") would terminate effective 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 terminated on or about December 31, 1999. Revenue from this contract accounted for approximately 9% and 1% of total revenue during 1999 and 1998, respectively. It is management's understanding that this decision was related to cost reduction measures in response to declining reimbursement attributable to the Balanced Budget Act of 1997, and other factors.
Effective July 28, 2000, UMC executed an Economic Development and Incentive Agreement (the "Agreement"), with the Pampa Economic Development Corporation ("PEDC"), included as Exhibit 10.39 to this Form 10-K and incorporated herein by reference. Management entered into this Agreement in order to: (a) create a new expense paradigm which includes reduced hourly wages expense, (b) access a pool of applicants who are believed to be capable of rapidly assimilating training in the job skills related to UMC's business, and (c) put into place a facility with 20,000 square feet of space at a cost far below that which would be incurred in the Dallas area.
In exchange for providing jobs within the city limits of Pampa, Texas, at a lower hourly rate than is possible in the Dallas area, the Agreement calls for the PEDC to provide the following incentives to UMC:
(c) an incentive payment of $1,000 per job per calendar year (for a maximum of $80,000) for each FTEE from the 41st up to and including the 50th 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, and
(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, and
(f) PEDC will guarantee up to $137,000 for the benefit of UMC's lender (the "Lender"), relative to the purchase of an operations center facility in Pampa. In addition, PEDC will pay to UMC $27,400 per year during each of the first five years of the Agreement (for a maximum of $137,000) commencing with the year ending December 31, 2001. After offsetting the total monthly payments made to Lender during the preceding 12 months from this annual payment, UMC will remit the balance to the Lender. PEDC
will be released from paying any and all unpaid annual payments if UMC defaults on its obligations to its Lender or if UMC discontinues its operations in Pampa within five years of July 28, 2000.
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, 2001 UMC had 66 full time, and 3 part time employees at its Pampa operations center.
As a result of the aforementioned changes within its customer base, management has taken certain actions (in addition to executing the Economic Development Incentive agreement with the PEDC), in an attempt to better position the Company. These actions include, but are not limited to
o Effective December 26, 2000, UMC discontinued its agreement with Administaff, Inc., a professional employer organization ("PEO") whereby Administaff was the employer of record for all UMC employees. UMC has resumed all payroll and human resource functions internally as of the cancellation date. The cost savings to UMC as a result of the discontinuation of the agreement is approximately 7% of gross payroll cost.
o Management is evaluating new service lines to complement 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.
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. 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, 2000, Backlog Accounts Receivable Management Services will generate revenues from such customers of approximately $150,000 in 2001.
DEPRECIATION AND AMORTIZATION expense decreased $2,000 or 1.7% in 2000. Management expects depreciation and amortization expense to remain at approximately 5% of revenues in 2001.
At December 31, 2000, the Company's liquid assets, consisting of cash, totaled $8,000 compared to $122,000 at December 31, 1999. The working capital deficit was ($226,000) and ($199,000) at December 31, 2000 and December 31, 1999, respectively. Working capital decreased primarily due the net operating loss for the year ended December 31, 2000, which was partially offset by incentives received pursuant to the Economic Development and Incentive Agreement.
o Other revenue of $14,000 in 1999 decreased by $99,000 compared to 1998 primarily due to decreased funding fees related to Advance Funding Services and decreased Consulting Services. Approximately $51,000 of 1998's other revenue related to services provided to AHO. Upon the acquisition of AHO, billing for services performed by UMC was terminated.
DEPRECIATION AND AMORTIZATION expense increased $30,000 or 35% primarily due to amortization expense related to assets under capital leases recorded in 1999 and the full year effect of assets under capital leases and fixed assets acquired throughout 1998.
INTEREST, NET increased $38,000 or 452% primarily due to increased credit facility borrowings and promissory note borrowings required to support AHO.
OTHER EXPENSE increased $26,000 primarily due to accruals related to AHO and a loss on the rollover financing of the Company's IBM AS/400. These expenses were non-recurring.