The following table presents selected consolidated financial data for and as of each of the five years ended December 31, 1997. The financial data presented for each of the five fiscal years has been derived from audited financial statements.
The Company derives its primary revenues from medical claims processing and accounts receivable management services. A substantial portion of the Company's revenues is derived from recurring monthly charges to its customers under service contracts that typically are cancelable with a 30 to 60 day notice. For the year ended December 31, 1997, approximately 90% of the Company's revenue was recurring. Recurring revenues are defined as revenues derived from services that are used by the Company's customers each year in connection with ongoing business, and accordingly exclude revenues from backlog accounts receivable management, advance funding, UMClaimPros, and consulting services.
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.
Effective June 16, 1997, the Company entered into a contract with a hospital in Oklahoma which is owned by a nationally prominent hospital chain. Under this contract, the Company is to provide collection
- collection follow-up, rebilling and collection services with respect to WHC non-emergency physician claims with balances less than $5,000 beginning at 31 days from date of service
Late in the first quarter of 1996, the Company was notified by its third largest customer, MMH, that it had accepted an offer to be acquired by a hospital chain. The chain has the resources necessary to perform all of the billing and collection functions which had been outsourced to UMC. Effective April 12, 1996, MMH discontinued transmitting new claims to UMC for processing. MMH contributed $119,351 in fees during 1996 and $364,365 in fees during 1995.
During 1995, the Company signed three contracts with domestic healthcare providers. A contract was signed to deliver "patient balance" collection services to a major hospital in the midwest. A contract was signed to provide third party billing and patient balance collection services to selected clinics to be opened
Effective June 30, 1996, the Company completed a Settlement and Termination Agreement (the "Agreement") with HAS. Under the Agreement, on August 2, 1996 HAS paid to UMC a total of $172,000 representing the sum of $46,000 to purchase UMC's interest in the claims inventory in process for the AFASS clinics located at Coamo, Juana Diaz, Adjuntas, Jayuya, Villalba, and Santa Isabel; $72,000 to purchase UMC's interest in the claims inventory in process for the AFASS hospital located at Yauco; and $54,000 as additional consideration for the Agreement. Following receipt of these cash payments, the Company reported Fee Income of $118,000 and Other Income of $54,000. The Agreement included a mutual release by UMC and HAS of any claims either party may have against the other, and an indemnification of UMC by HAS against any claim by AFASS for a refund of fees paid.
During 1995, the Company received cash payments from HAS totaling $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.
The following table sets forth for each period indicated the volume and gross dollar amount of collection accounts received and fees recognized for UMY. In general, collections on most new placements range from about 0 to 27 percent of the gross placement amount. Collection fees percentages charged to the customer vary for the three different placement categories: bad debt, early out, and second placements.
The following table sets forth certain items from the Company's Consolidated Statements of Operations expressed as a percentage of revenues:
- - On May 5, 1997, the Company amended its existing WHC Customer Service Agreement to provide ongoing accounts receivable management services to certain groups within the WHC Physician Billing Department ("WHCPBD"). For the three months ended December 31, 1997, WHCPBD generated revenue totaling $221,000. This level of revenue may not be indicative of future revenue as it includes a catch-up of claims billed and collected back to the amendment's effective date. Management continues to estimate that this ongoing project will generate approximately $50,000 of recurring monthly revenues.
- - UMClaimPros revenue of $236,000 in 1997 increased by $85,000 compared to 1996 primarily due to increased utilization from existing customers. Management continues to refine its strategies related to UMClaimPros and continues to believe that this service provides a competitive advantage for the Company as well as providing a viable entree' to new customers. Management believes that historical revenue for this project is indicative of the revenue potential for 1998.
- - During 1996, HAS and MMH provided total revenue of $406,000. The HAS contract was terminated on June 30, 1996. The MMH contract expired on April 1, 1996.
PROFESSIONAL FEES decreased $24,625 or 31% primarily due to adjustment of accrued expenses related to the settlement of previously pending litigation. This litigation was settled in the fourth quarter of 1997.
The Company's strategies for enhanced customer service, additional services offerings and growth in sales and profits in fiscal 1997 were to utilize its cash resources to pursue available opportunities. Principal among these resources was working capital derivable from operations cash flows, net cash proceeds of $159,487 from the July 11, 1997 private placement of 1.6 million shares of common stock at $0.10 per share, and capital lease financing. Expenditures for investing activities that were within affordability of these resources were also seen as a critical element of the Company's strategy. At December 31, 1997, the Company had cash of $275,948, up from $188,868 when the year began.
Investing activities, which were comprised of purchases of equipment used $131,143 of cash, a modest expenditure in view of the level of revenue growth for the fiscal year. Greater levels of capital expenditures are anticipated to support the continued growth in revenues expected in fiscal 1998.
Financing activities comprised of the aforementioned net proceeds from the private placement of common stock provided $159,487 of cash. Principal payments on capital lease obligations used $37,545 of cash. Management anticipates that addition capital lease obligations will be necessary in 1998 primarily to upgrade the existing IBM AS/400 computer. Management is currently seeking a working capital revolving line of credit to supplement working capital and capital lease financing; however, there is no assurance that such a line of credit will be secured at terms and conditions acceptable to the Company. Based on current expectations, plans and assumptions, management currently does not anticipate a need to sell additional shares of common stock in the foreseeable future to finance internal growth.
The Company's working capital increased to $331,552 at the end of fiscal 1997 compared to $104,903 at the end of fiscal 1996. Long term capital lease obligations decreased from $100,344 to $84,368 during the same period.
The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result is a system failure or miscalculation causing disruptions of operations, including, among other things, a temporary inability to process transactions, send and receive electronic data, or engage in similar normal business activities.
The Company's current remediation plan calls primarily for the use of existing internal resources to reprogram, replace, and test the software for Year 2000 modification. The Company currently plans to complete the Year 2000 project by December 31, 1998. The total incremental costs associated with this project are currently estimated to be about $30,000 intended to be funded through operating cash flows.
SALARIES AND BENEFITS expense decreased 22% due to several factors: Puerto Rico headcount went down from seven full-time and two part-time employees in 1995, to one full-time employee at December 31, 1996. Also the Company's MIS, Sales, Finance, Operations, and Operations Management departments' salaries expense decreased from 1995 to 1996 due primarily to reduced headcount.
OFFICE AND EQUIPMENT RENTAL increased by 23% due to increased rent expense on the office space in Dallas, Texas and also twelve months of rent expense for the Ponce, Puerto Rico office versus only six and a half months for that space in 1995.