UMC moved out of the previous corporate office and operations center located in Dallas, on November 15, 2000. The company completed the transition of the operations center to Pampa, and moved its corporate offices to a 937 square foot office space in Garland, Texas at that time. The company signed a 36-month lease on the office space in Garland, with a lease term from December 1, 2000 through November 30, 2003. Lease payments are scheduled for $703 per month during the first year, $776 per month during the second year, and $885 per month during the third year of the lease term. The company has the option of terminating the lease after the first year, with 90 days written notice. This move resulted in a reduction of monthly lease expense of approximately $6,800. Management believes that its facilities are well located and are in good condition.
UMC and UMY derive their primary revenues from medical claims processing and accounts receivable management services. A substantial portion of UMC and UMY revenues are derived from recurring monthly charges to their customers under service contracts that typically are cancelable with a 30 to 60 day notice. For the year ended December 31, 2001, 2000 and 1999, approximately 91%, 82% and 91% of UMC and UMY revenues were recurring. Recurring revenues are defined as revenues derived from services that are used by the UMC and UMY customers in connection with ongoing business, and accordingly exclude revenues from backlog accounts receivable management, advance funding, UMClaimPros, and consulting services.
The following table sets forth for each period indicated the volume and gross dollar amount of customer service and collection accounts received and fees recognized for UMY.
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.
During November of 2001, Inova Health Services officially notified the Company, that they were terminating their Ongoing Accounts Receivable Management contract. Inova did not place any new business with the Company after August of 2001. All billing and collection efforts made on behalf of Inova were discontinued on January 11, 2002. Revenues from this contract accounted for approximately 9%, 16%, and 6% of total consolidated revenues during 2001, 2000, and 1999 respectively. It is UMC management's understanding that Inova's decision to terminate was due to poor collection performance during the third and fourth quarters of 2000 during the period when the Company's operation center was being moved from Dallas to Pampa.
(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 recognized $24,000 of the incentive revenue in December 2001.
(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. UMC recognized $10,000 in revenue from this incentive for 2001.
(f) PEDC guaranteed up to $137,000 for the benefit of UMC's lender (the "Lender"), relative to the purchase of the 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. On July 28, 2001 UMC received $27,400 from the PEDC in payment of the incentive described in paragraph (f) above. Of this, $14,178 was remitted to National Bank of Commerce (the lien holder on the building) as a principal payment on the building loan in accordance with paragraph (f). As of March 15, 2002 UMC had 73 full time, and 5 part time employees at its Pampa operations center.
o 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. Management does not anticipate any significant revenues from this contract in 2002. In November of 2001 the Company executed a Backlog Accounts Receivable Management contract with a hospital in central Texas. 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, 2001, Backlog Accounts Receivable Management Services will generate revenues from such customers of approximately $30,000 in 2002.
o 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. 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, 2001, Collection Agency Services will generate revenues from such customers of approximately $1.6 million in 2002.
o 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. Assuming that the Company continues to meet the incentive requirements, this agreement will generate approximately $110,000 in incentive revenues in 2002.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expense increased $16,000 or 3%. Assuming no significant change in the Company's core services, management expects that SG&A should remain at approximately 19% of revenues in 2002.
At December 31, 2001, the Company's liquid assets, consisting of cash, totaled $4,000 compared to $8,000 at December 31, 2000. The working capital deficit was ($24,000) and ($226,000) at December 31, 2001 and December 31, 2000, respectively. Working capital increased primarily due the net operating income for the year ended December 31, 2001.
Financing activities in 2001 consisted of borrowings under a bank loan for the purchase of the two company automobiles in the amount of $20,000, and principal payments on capital lease obligations and notes payable which used cash of $115,000.
On December 28, 1999, the Company executed a $500,000 recourse factoring agreement which may be terminated by either party with ten days notice. The agreement is secured by all of the Company's non-factored accounts receivable and is personally guaranteed by Peter Seaman, Chairman and CEO. Other significant terms of the factoring agreement include recourse for invoices remaining unpaid at 90 days, interest at prime plus 2.5%, and a factoring fee of 1% of the face value of each invoice.
o Ongoing Accounts Receivable Management Services revenue of $1,153,000 in 2000 decreased by $1,567,000 compared to 1999 primarily due to effect of the aforementioned loss of the WHC contract.
o Collection Agency Services revenue of $563,000 in 2000 increased by $231,000 compared to 1999 of which $227,000 is due to a collection agency services contract executed October 13, 2000.
o Other revenue of $63,000 in 2000 increased by $50,000 compared to 1999 which was primarily due to contract programming services provided to a customer in 2000.
WAGES AND BENEFITS expense decreased $416,000 or 20% primarily due to headcount reductions through attrition during the first months of 2000, and the gradual transition of jobs from Dallas to the new operations center in Pampa.
OFFICE, VEHICLE AND EQUIPMENT RENTAL expense decreased $45,000 or 32% primarily due to the August 2, 1999 office space reduction option exercised by the Company whereby 3,300 square feet of office space was vacated on September 2, 1999 resulting in a monthly expense reduction of approximately $3,500. In November of 2000, the Company negotiated the early termination of its lease agreement for 6,836 square feet of office space in Dallas, and moved it corporate offices to a 937 square foot space in Garland, Texas, resulting in a monthly expense reduction of approximately $6,800.
INTEREST, NET decreased $7,000 or 15% primarily due to the balance of net cash employed under the Company's factoring agreement being less than funds borrowed under the Company's previous credit facility, partially offset by increased interest rates.