INTEREST EXPENSE. Interest expenses decrease $3.4 million to $0.2 million in 2000 from $3.6 million in 1999. The decrease in interest expense was attributed to the subordinated convertible debt inducement as a result of the Patel Transaction in 1999. At which time, the Company transferred ownership of the two real properties securing two mortgages to their respective lenders in lieu of foreclosure.
PREMIUMS EARNED. Premiums earned in 1999 decreased by 22.6%, or $32.2 million, to $110.5 from $142.7 million in 1998. Commercial premium revenue decreased 29.6%, or $20.6 million primarily resulting from the sale of WCNY's commercial line of business. The decrease in commercial premium revenue in WCNY exceeded the annual average membership and corresponding premium revenue in FirstChoice's commercial line of business. Medicare premium revenue decreased 7.9%, or $2.5 million, because of 11.0% decrease in member months. Medicaid premium revenue decreased 21.4% or $9.1 million, because of an approximate 50% decrease in member months. Interest income remained relatively consistent, and is primarily on float balance at the Company's operating accounts.
In our opinion, such consolidated financial statements present fairly, in all material respects, the Company's results of operations and cash flows for the year ended December 31, 1998 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedules for the year ended December 31, 1998, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
FirstChoice HealthPlans of Connecticut, Inc. ("FirstChoice", formerly WellCare of Connecticut, Inc.), a wholly-owned subsidiary of WCNY, operates as an IPA model HMO in the state of Connecticut. Under this type of arrangement, agreements are entered into with IPAs and Physician Hospital Organizations ("PHOs") and individual physicians for the provision of all medical care to FirstChoice's enrollees for a specified fee for services rendered. FirstChoice is approved to operate State-wide in Connecticut. Effective October 1, 2000, FirstChoice closed on its transaction with HealthChoice of Connecticut, Inc., ("HealthChoice") to acquire the assets of HealthChoice's Medicaid line of business, known as PreferredOne for a purchase price of $1.00 (one dollar). FirstChoice, which was licensed solely as a commercial health maintenance organization in the State of Connecticut, covering about 4,200 members, received all necessary regulatory approval effective October 1, 2000 to assume the responsibility for approximately 24,000 adult and child members of HealthChoice's Medicaid and HUSKY Plans.
The following table summarizes the activities related to options during 2000, 1999, and 1998:
During, 1999 the Company granted 4,000,000 options to purchase common stock at an exercise price of $0.375 per share. The options expire in ten years and vest over a period of seven years.
In July 1999, the Company entered into an agreement (the "Settlement Agreement") with Primergy, Promedco of the Hudson Valley, Inc., and Promedco Management Company to settle outstanding indebtedness to the Company from Primergy. Primergy's indebtedness to the Company pertains to an acquisition by Primergy of a former subsidiary of the Company's during 1995. Promedco of the Hudson Valley, Inc., and Promedco Management Company are affiliates of Primergy. Due to uncertainty surrounding the financial condition of Primergy, the indebtedness from Primergy was fully reserved for during the years 1995 through 1998, and was written off completely in 1999. The Settlement Agreement stipulated a $425,000 cash payment to the Company at closing, and required a release to the Company from Primergy for approximately $325,000 in past payments due to Primergy.
Notwithstanding the above, the State of New York Insurance Department ("SNYID") has the authority to allow an HMO to maintain a net worth of 50% to 100% of the contingent reserve. On June 1, 1999, the majority shareholder submitted a program to the SNYID to restore the WCNY's contingency reserve to 100% of its required level over a three-year period ending June 1, 2002. In the interim, the SNYID has allowed WCNY to maintain a contingency reserve of no less than 50% of its required level. At December 31, 2000, the Company's statutory net worth was approximately $68,000, which was not in compliance with the SNYID's adjusted minimum statutory net worth requirements. However, in March 2001 and May 2001, $750,000 and $590,733, respectively, in surplus notes was infused into WCNY from Comprehensive Health Management of Florida, L.L.C., an affiliate of the majority shareholder. Management believes the infusion of these surplus notes has cured the deficiency in meeting its minimum surplus requirements. Failure to maintain compliance with the reserve requirement could cause SNYID to take action, which could include restriction or revocation of WCNY's license.
Total Assets: New York $ 10,045 $ 14,060 $ 20,392 Connecticut 9,705 5,731 3,742 Other 370 532 5,805 ---------- ---------- ---------- Total 20,120 20,323 29,939 ========== ========== ==========