<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _________________
to _______________
Commission File Number 0-23514
ROCKPORT HEALTHCARE GROUP, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
Delaware 33-0611497
- ------------------------------- -----------------------------------
State or other Jurisdiction of I.R.S. Employer Identification No.
Incorporation or Organization
50 Briar Hollow Lane, Suite 515W, Houston, Texas 77027
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(713) 621-9424
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (i) has filed all reports
required to be filed by Section 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (ii) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practical date.
Common Stock, $.001 par value 5,239,882
- -------------------------------- ------------------------------------
Title of Class Number of Shares outstanding at
September 30, 1999
One exhibit included.
1
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ROCKPORT HEALTHCARE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART 1 FINANCIAL INFORMATION
PAGE NO.
--------
<S> <C> <C> <C>
Item 1. Consolidated Balance Sheets 3
September 30, 1999 and March 31, 1999
Consolidated Statements of Operations 5
Six Months Ended September 30, 1999 and 1998
Consolidated Statement of Changes in Shareholders' 6
Deficit
Year Ended March 31, 1999 and Six Months Ended
September 30, 1999
Statement of Cash Flows 7
Six Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
PART 2 OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matter to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1.
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 30, MARCH 31,
1999 1999
----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 52,170 $ 17,320
Account receivables, no allowance for doubtful accounts 28,644 13,357
Prepaid expenses 1,920 1,028
----------- -----------
Total current assets 82,734 31,705
----------- -----------
Property, Plant and Equipment:
Office furniture and equipment 35,847 35,097
Computer equipment and software 55,446 51,892
Telephone equipment 15,085 15,085
----------- -----------
106,378 102,074
Less accumulated depreciation 30,268 20,418
----------- -----------
Net property, plant and equipment 76,110 81,656
----------- -----------
Other Assets:
Deposits 10,015 10,015
Investments in and advances to Elite Data Services, Inc. 22,000 -
Capitalized loan costs, net 93,056 233,056
Goodwill, net 99,849 99,849
----------- -----------
Total other assets 224,920 342,920
----------- -----------
$ 383,764 $ 456,281
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 30, MARCH 31,
1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 522,077 $ 428,536
Accounts payable 104,423 91,251
Due to shareholders, directors, officers, and employee 254,158 35,100
Payroll tax payable 149,069 139,157
Other current liabilities 59,796 34,091
----------- -----------
Total current liabilities 1,089,524 728,135
----------- -----------
Long-term Debt - -
----------- -----------
Total liabilities 1,089,524 728,135
----------- -----------
Commitments and Contingencies (Notes 4 and 7)
Shareholders' Equity (Deficit):
Preferred stock, $.001 par value, 1,000,000 authorized,
None issued - -
----------- -----------
Stock subscription receivable (515,000) (1,086,487)
Common stock, no par value, 20,000,000 shares authorized,
5,239,882 and 4,937,169 shares issued and outstanding
at September 30, 1999 and March 31, 1999 5,238 4,938
Additional paid in capital 2,920,353 2,924,802
Accumulated deficit during the development stage (3,129,700) (2,115,107)
Stock Warrants Sold 13,350 -
----------- -----------
Total shareholders' deficit (705,759) (271,854)
----------- -----------
$ 383,764 $ 456,281
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE SIX MONTHS DURING
ENDED SEPTEMBER 30, DEVELOPMENT
1999 1998 STAGE
------------ ------------ ------------
<S> <C> <C>
Revenue $ 90,194 $ 19,805 $ 166,311
Less cost of sales 18,252 3,043 21,349
------------ ------------ ------------
Gross profit 71,942 16,762 144,962
Operating Expenses:
General and administrative 806,770 644,763 2,788,010
Depreciation and amortization 249,915 15,390 431,957
------------ ------------ ------------
1,056,685 660,153 3,219,967
------------ ------------ ------------
Net Loss Before Other Income (Expense)
and Income Taxes (984,743) (643,391) (3,075,005)
Other Income (Expense)
Interest expense (29,850) (3,545) (54,695)
------------ ------------ ------------
(29,850) (3,545) (54,695)
------------ ------------ ------------
Net Loss Before Income Taxes 1,014,593) (646,936) (3,129,701)
Income taxes - -
============ ============ ============
Net Loss $ 1,014,593) $ (646,936) $ (3,129,701)
============ ============ ============
Net Loss per share $ (0.20) $ (.21) $ (0.81)
============ ============ ============
Weighted Average Number of Shares
Outstanding 5,051,260 3,032,399 3,884,002
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED STATEMENT IF CHANGES IN SHAREHOLDERS' DEFICIT
YEAR ENDED MARCH 31, 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK TOTAL
STOCK --------------------- PAID-IN ACCUMULATED WARRANTS SHAREHOLDERS'
SUBSCRIPTIONS SHARES AMOUNT CAPITAL DEFICIT SOLD EQUITY
------------- ---------- --------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances March 31, 1998 (restated) $ - 2,461,472 $ 2,462 $ 198,930 $ (425,443) - $ (224,051)
Common stock issued for cash 674,100 674 426,076 426,750
Stock issued for subscriptions (1,305,487) 805,487 806 1,304,681 -
Stock issued for services 171,150 171 170,980 171,151
Stock issued in connection with 400,000 400 399,600 400,000
debt
Stock issued to acquire Newton
Healthcare Network, Inc. 100,000 100 99,900 100,000
Conversion of debt to equity 324,960 325 324,635 324,960
Collection of stock subscriptions 219,000 219,000
Net loss (1,689,664) (1,689,664)
------------ ---------- --------- ---------- ------------ ---------- -----------
Balances March 31, 1999 (1,086,487) 4,937,169 4,938 2,924,802 (2,115,107) - (271,854)
------------ ---------- --------- ---------- ------------ ---------- -----------
Common stock issued for cash 181,138 181 324,095 324,276
Collection of stock subscription 66,003 66,003
Stock issued for services 121,575 119 171,456 171,575
Stock warrants sold 13,350 13,350
Reduction of subscription
receivable to estimated net
realizable value 505,484 (500,000) 5,484
Net loss (1,014,593) (1,014,593)
============ ========== ========= ========== ============ ========== ===========
Balances September 30, 1999 $ (515,000) 5,239,882 $ 5,238 $2,920,353 $ (3,129,701) 13,350 $ (705,759)
============ ========== ========= ========== ============ ========== ===========
</TABLE>
See accompanying notes to unaudited consolidated finanacial statements
6
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ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE SIX MONTHS DURING
ENDED SEPTEMBER 30, DEVELOPMENT
1999 1998 STAGE
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net Loss $(1,014,593) $ (646,936) $(3,129,701)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 9,850 6,877 31,552
Amortization of loan costs 240,000 8,333 406,944
Amortization of organization costs - 180 5
Issuance of stock for compensation - - 145,000
Stock issued for services 50,483 25,000 76,634
Issuance of stock for accounts payable 26,575 - 26,575
Write-off of bad debt - - 48,598
Changes in assets and liabilities:
Accrued interest receivable - - 257
Accounts payable 13,110 19,593 85,789
Accrued expenses 13,470 71,542 234,148
Other assets - - 3,841
Other current liabilities 25,770 26,565 25,770
Accounts receivable - trade (15,288) (7,532) (62,243)
Prepaid expenses (892) 5,742 8,914
----------- ----------- -----------
Cash Used in Operating Activities (651,515) (490,637) (2,097,916)
----------- ----------- -----------
Financing Activities:
Proceeds from sale of stock 286,277 286,000 913,989
Proceeds from stock subscription of sub 66,003 - 285,003
Proceeds from notes payable 200,000 200,000 685,536
Repayments of notes payable (106,460) - (131,460)
Loans from shareholders 253,500 66,229 407,483
Sale of stock warrants 13,348 13,348
Other assets - 2,056 -
----------- ----------- -----------
Cash Provided by Financing Activities 712,668 554,285 2,173,899
----------- ----------- -----------
Investing Activities:
Purchase of fixed assets (4,305) (862) (29,582)
Proceeds from notes receivable - - 20,000
Investment and advances to Elite Data Services (22,000) (22,000)
Other - (3,482) (2,834)
----------- ----------- -----------
----------- ----------- -----------
Cash Used in Investing Activities (26,305) 4,344 (34,416)
----------- ----------- -----------
Net Increase (Decrease) in Cash 34,850 59,304 (41,568)
Cash and Cash Equivalents, beginning 17,320 1,398 10,602
=========== =========== ===========
Cash and Cash Equivalents, end of period $ 52,170 $ 60,702 $ 52,170
=========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
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ROCKPORT HEALTHCARE GROUP, INC.
(FORMERLY KNOWN AS PROTOKOPOS CORPORATION)
(COMPANIES IN THE DEVELOPMENTAL STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Rockport Healthcare Group, Inc., a Delaware corporation (the
"Company"), formerly Protokopos Corporation was incorporated on May 4, 1992. The
Company had no operating history other than organizational matters until
December 17, 1997, at which time the Company acquired all of the issued and
outstanding common stock of Rockport Group of Texas, Inc. For accounting
purposes, the acquisition has been treated as a reverse acquisition of the
Company by Rockport Group of Texas, Inc. (See Note 7, Reverse Acquisition by
Rockport Group of Texas, Inc.").
The Company has been in the development stage since its inception and
has been established as a holding company to develop and/or acquire business
entities which deliver comprehensive, integrated products and/or services to
targeted healthcare populations. These products and services include, but are
not limited to, medical healthcare networks for workers' compensation injuries
and rehabilitation, individual and group medical networks for accidents and
illnesses, medical networks for catastrophic illnesses and injuries and access
to national medical, dental, prescription, chiropractic and vision networks via
private label or retail medical access savings cards.
The goal of the Company is to develop and deliver high value, quality
healthcare services and programs that create provider and customer satisfaction
as well as result in appropriate financial return to investors in the Company.
The Company was originally formed specifically to be a "clean public shell" for
the purpose of either merging with or acquiring an operating company with
operating history and other assets.
The Company had the following wholly owned subsidiaries as of September
30, 1999:
Rockport Advanced Care, Inc.
Rockport Community Network, Inc.
Rockport Group of Texas, Inc.
Rockport Occupational Network, Inc.
Rockport Preferred, Inc.
Newton Healthcare Network, LLC
All significant intercompany balances and transactions have been
eliminated for the purpose of presenting the accompanying consolidated financial
statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and held in banks in
unrestricted accounts.
8
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PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
computed on the straight-line method over the estimated economic lives of the
assets which range from 3 to 7 years.
INCOME TAXES
The Company accounts for income taxes on the liability method, under
which the amount of deferred income taxes is based on the tax effects of the
differences between the financial and income tax basis of the Company's assets,
liabilities and operating loss carryforwards at the balance sheet date based
upon existing laws. Deferred tax assets are recognized if it is more likely than
not that the future income tax benefit will be realized. Since utilization of
net operating loss carryforwards is not assured, no benefit for future offset of
taxable income has been recognized in the accompanying financial statements.
LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss would be recognized when estimated
future cash flows expected to result from the use of the asset, and its eventual
disposition, is less than its carrying amount. The Company has not identified
any such impairment losses.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles, requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
LOAN FEES
Loan fees incurred while obtaining financing, aggregating $500,000 are
being amortized using a straight-line method over the term of the related notes
payable. Accumulated amortization of these loans aggregated $406,944 at
September 30, 1999.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income is defined as all changes in stockholders' equity,
exclusive of transactions with owners, such as capital instruments.
Comprehensive income includes net income or loss, changes in certain assets and
liabilities that are reported directly in equity such as translation adjustments
on investment in foreign subsidiaries, changes in market value of certain
investments in securities and certain changes in minimum pension liabilities.
The Company's comprehensive income was equal to its net loss for the year ended
September 30, 1999.
REVENUE RECOGNITION
Revenue is recognized as products and services are delivered and
earned. Losses are recognized when reasonable estimates of the amount of the
loss can be made.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments, primarily accounts receivable,
accounts payable and notes payable closely approximate the carrying values of
the instruments due to the short-term maturities of such instruments.
9
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2. STOCK SUBSCRIPTION RECEIVABLE
The Company has a stock subscription receivable of $515,000 due from a
third party. The amount was reduced to an estimated collectable amount during
the quarter ended September 30, 1999. Of the original amount subscribed, $20,000
was collected during the three months ended September 30, 1999.
3. NOTES PAYABLE
The Company had an 8% note due to a shareholder and director in the
amount of $100,000 as of March 31, 1998. The principal balance of the note has
been reduced by $25,000 at June 30, 1999, as a result of a payment made by the
Company to the prior controlling shareholder on behalf of this shareholder to
effectuate the transfer of control of the Company. Additional loans in the
amount of $57,000 were advanced by this shareholder during the six month period
ended September 30, 1998. The loan balance of $132,000 plus accrued interest of
$7,118 was converted to 139,118 shares of the Company's common stock valued at
$1 per share effective October 31, 1998. Additional loans in the amount of
$215,00 were advanced by this shareholder during the six month period ended
September 30, 1999.
On September 14, 1998, Bannon Energy Incorporated ("Bannon") loaned the
Company $200,000 under a one-year, 8% note secured by all assets of the Company
and received 200,000 shares of the Company's restricted common stock. The stock,
valued at $1 per share, has been recorded as a loan cost and is being amortized
over one year. On January 26, 1999, Bannon loaned the Company an additional
$100,000 at 8% interest. This note matures September 15, 1999. The Company
issued an additional 100,000 shares of the Company's restricted common stock to
Bannon, which was also valued at $1 per share and is being amortized as a loan
cost over the term of the loan. Bannon has the option, but not the obligation,
to convert the principal amount of the loans into an additional 300,000 shares
of the Company's restricted common stock at any time prior to the loan maturity
dates. Both of the loans above have been, by mutual agreement, been changed to
demand loans.
On November 5, 1998, a shareholder of the Company loaned the Company
$100,000 for a six-month period at 10% interest and received 50,000 shares of
the Company's restricted common stock. The stock, valued at $1 per share, has
been recorded as a loan cost and is being amortized over the period of the loan.
The loan was extended in January 1999 to a one-year loan, and an additional
50,000 shares of the Company's restricted common stock was issued to this
shareholder. The shareholder has the option to convert the principal amount of
the loan into an additional 100,000 shares of the Company's restricted common
stock at any time prior to the loan maturity date. On July 28, 1999, this
shareholder of the Company loaned the Company $100,000 for a one-year period at
15% interest and received 50,000 shares of the Company's restricted common
stock. The stock, valued at $2 per share, has been recorded as a loan cost and
is being amortized over the period of the loan. The shareholder has the option
to convert the principal amount of the loan into an additional 50,000 shares of
the Company's restricted common stock at any time prior to the loan maturity
date.
On March 1, 1999, a shareholder of the Company loaned the Company
$28,536 at 8% interest payable in 12 equal installments, including interest of
$2,482. The loan is due March 1, 2000 and is unsecured.
10
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4. LEASES
The Company's subsidiary has assumed leases for office space and
equipment under operating leases expiring at various dates through 2003.
Management expects that in the normal course of business, leases will be renewed
or replaced by similar leases. Future minimum lease payments under
noncancellable leases with terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Years Ending March 31,
----------------------
<S> <C>
2000 $ 68,719
2001 $ 35,400
2002 $ 4,032
2003 $ 2,688
</TABLE>
5. ACQUISITIONS
On September 14, 1998, Rockport Community Network, Inc., a wholly owned
subsidiary of the Company, acquired 100% of the membership interests of Newton
Healthcare Network, LLC ("Newton"), a Texas limited liability company for
100,000 shares of the Company's restricted common stock. Bannon, owned by a
former director of the Company, owned 85% of the membership interest and
received a 2% overriding royalty interest in the gross revenues received by
Newton and Rockport Community Network, Inc. The acquisition has been accounted
for on the purchase method of accounting. Newton had $151 of cash and no other
assets or liabilities on the date of acquisition. Goodwill has been recorded in
the amount of $99,849 and is being amortized over a 20-year period.
6. REVERSE ACQUISITION BY ROCKPORT GROUP OF TEXAS, INC.
On December 17, 1997, the shareholders of Rockport Group of Texas, Inc.
approved a merger with Protokopos Corporation (the "Merger"). Pursuant to the
Merger Agreement, each outstanding share of Rockport Group of Texas, Inc., par
value $1 per share, was converted to the right to receive 961.6213 shares of
Protokopos Corporation, par value $.001 per share. After the completion of the
Merger, Protokopos Corporation changed its name to Rockport Healthcare Group,
Inc. At the conclusion of the Merger, the Company had 2,461,472 shares of common
stock outstanding. As of the date of the acquisition, Protokopos had no assets
or liabilities.
7. CONTINGENT LIABILITIES
One of the Company's subsidiaries has issued 1,000 shares of its 8%,
cumulative, non-participating preferred stock. The stock is redeemable at $200
per share and is expected to be redeemed out of future cash flows of the
Company.
The Company has unpaid payroll taxes from June 30, 1998 forward
totaling $149,069.
8. RELATED PARTY TRANSACTIONS
In connection with the acquisition of the Company by Rockport Group of
Texas, Inc., Rockport Group of Texas, Inc. remitted on behalf of the then three
common stock shareholders $75,000 ($25,000 for each) to the controlling
shareholder of the Company for the right to exchange the common stock of
Rockport Group of Texas, Inc. for the common stock of the Company. The Company
has reflected in its financial statements this remittance made on behalf of its
then shareholders as a $25,000 reduction in the prior advances and/or the note
payable made by each of these shareholders of which all are also directors of
the Company.
Shareholders who are also officers and directors of the Company have
advanced funds to and accrued management fees with the Company in the amount of
$185,842. These liabilities were converted to equity
11
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during fiscal year 1999. During the three months ended September, 30, 1999,
additional advances or accrued management fees totaled $185,500.
The Company incurred management fees to various shareholders and
directors in the amount of $60,000 for the three months ended September 30,
1999.
See Note 4 for a discussion of financing provided by related parties.
9. GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has incurred an
accumulated net loss of $3,129,701. This matter raises substantial doubt about
the Company's ability to continue as a going concern.
The Company has funded its operations through the sale of Company
common stock, borrowing funds from outside sources and conversion of employee
and director debt to common stock of the Company. Should the Company not be able
to raise the necessary funding to implement the Company's business plan, the
Company would not be able to proceed prospectively, and therefore, would no
longer anticipate being a going concern.
10. INCOME TAXES
There were no material deferred tax assets and liabilities as of
September 30, 1999, with the exception of the Company's net operating loss
carryforwards ("NOL's") for which the Company has provided a 100% valuation
allowance. The Company's NOL's amounted to $1,683,116 at March 31, 1999 and
expires in 2019.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
PLAN OF OPERATION - GENERAL
The Company has been established as a holding company to develop and/or
acquire business entities which deliver comprehensive, integrated products
and/or services to targeted healthcare populations. These products and services
include, but are not limited to, medical healthcare networks for workers'
compensation injuries and rehabilitation, individual and group medical networks
for accidents and illnesses, medical networks for catastrophic illnesses and
injuries and access to national medical, dental, prescription, chiropractic and
vision networks via private label or retail medical access savings cards. The
goal of the Company is to develop and deliver high value, quality healthcare
services and programs that create provider and customer satisfaction as well as
result in appropriate financial return to investors in the Company. The Company
has commenced revenue-generating operations in the workers' compensation
networks and medical access savings cards.
The following six subsidiaries comprise the specific business units of
the Company for implementation of its business plan. The entities are linked
through core management functions and overseen by the senior management team of
the Company.
ROCKPORT ADVANCED CARE, INC. Rockport Advanced Care, Inc. ("RAC") was
incorporated in the State of Nevada on March 19, 1998, and is a wholly owned
subsidiary of the Company. RAC will be a nationwide catastrophic illness and
injury network comprised of providers of disease, illness and injury-specific
tertiary and quartinary care which includes trauma, burns, transplants, hearts,
high-risk maternal, perinatal and neonatal, cancer, neurological and
gastrointestinal care. Contracting for this network will begin during the year
2000.
ROCKPORT COMMUNITY NETWORK, INC. Rockport Community Network, Inc.
("RCN") was incorporated in the State of Nevada on November 14, 1997 and is a
wholly owned subsidiary of the Company. RCN is a preferred provider organization
that develops and operates national networks to serve the workers' compensation
markets. The provider networks are marketed to organizations including, but not
limited to, third party administrators, managed care organizations, insurers,
case and utilization management companies and self-funded employers. RCN will
accelerate its national growth by acquiring, creating joint ventures and/or
contracting with quality regional and local PPO's).
Fees for use of RCN's networks will be based on fixed amounts per
covered individual per month or as a percentage of savings; i.e., the difference
between billed charges for healthcare services and the rates contracted by RCN.
RCN currently has nine network access agreements. RCN has seven client
agreements for use of its networks and is in final negotiations with five other
clients with all agreements expected to be completed by September 1999.
ROCKPORT OCCUPATIONAL NETWORK, INC. Rockport Occupational Network, Inc.
("RON") was incorporated in the State of Nevada on March 19, 1998, and is a
wholly owned subsidiary of the Company. RON is an equity-model exclusive
provider organization ("EPO") specializing in providing workers' compensation
health services. The primary care physicians will own a minority interest of the
local network with RON owning the balance of 80% or more. The goal of RON is to
properly align the incentives for the employers, providers, employees and RON to
significantly reduce the costs of occupational illnesses and injuries. RON is
currently developing a network of quality providers to deliver and manage a full
consortium of integrated occupational medical services encompassing an injured
worker's entire episode of care from injury through rehabilitation and return to
work.
ROCKPORT PREFERRED, INC. Rockport Preferred, Inc. ("RP") was
incorporated in the State of Nevada on February 19, 1999, and is a wholly owned
subsidiary of the Company. RP is an organization providing
13
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discounts on quality medical and healthcare services through membership
and/or purchase of a private label or retail medical access savings card.
Benefits through private label cards are available to large employee groups
and/or associations and individuals that do not have sufficient insurance
coverage through their employer or Medicare or are unable to obtain
insurance. They can be custom tailored in terms of programs and personalized
to reflect sponsors and/or endorsers. Most typically, the card may provide up
to a 30% reduction on services such as prescriptions, vision, dental,
chiropractic and hearing for an annual fee of $120. Physicians are added to
the program for an additional fee of $60 per year for a total fee of $180 per
year. While the employee or consumer enjoys significant savings, the employer
is provided with solutions for administration of multiple benefit networks
through single source accountability, fee reconciliation, geo-mapping, etc.
It is estimated there are 110 million individuals in the United States
who are either uninsured, underinsured or uninsurable. The card will afford
discounted healthcare goods and services throughout the United States provided
by physicians, healthcare facilities, prescriptions, dentists, chiropractors,
vision care and hearing providers. The Company began selling the card during the
second calendar quarter of 1999 and has received a favorable response from those
presented with the medical access savings card literature.
ROCKPORT GROUP OF TEXAS, INC. Rockport Group of Texas, Inc. ("RGT") is
a business entity which provides the managed care support services to its sister
companies and to the healthcare industry. It houses the support services of all
of the operating companies, including management information services, customer
services, doctor and provider referrals, contracting providers and payors,
credentialing providers, re-pricing and claims management and processing of the
medical access savings card account enrollments.
NEWTON HEALTHCARE NETWORK, LLC. Newton Healthcare Network, LLC
("Newton") is a Texas limited liability company formed on January 2, 1997.
Newton is a preferred provider organization network for individual and group
healthcare benefits which currently provides statewide coverage within Texas
through a network of approximately 65 hospitals and 8,000 healthcare providers.
During 1999, the Company intends to begin actively marketing Newton's accident
and health network to insurance companies and other payors to provide premier
services for its clients needing quality and cost containment for their health
and medical benefits programs.
FORWARD-LOOKING INFORMATION
In accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company notes that certain
statements in this Form 10-KSB and elsewhere which are forward-looking and which
provide other than historical information, involve risks and uncertainties that
may impact the Company's results of operations. These forward-looking statements
include, among others, statements concerning the Company's general business
strategies, financing decisions and expectations for funding capital
expenditures and operations in the future. When used herein, the words
"believe", "anticipate", "hope", "estimate", "project", "intend", "expect" and
similar expressions are intended to identify such forward-looking statements.
Although the Company believes the expectations reflected in such forward-looking
statements are based on reasonable assumptions, no statements contained in this
Form 10-KSB should be relied upon as predictions of future events. Such
statements are necessarily dependent on assumptions, data or methods that may be
incorrect or imprecise and may be incapable of being realized. The risks and
uncertainties inherent in these forward-looking statements could cause actual
results to differ materially from those expressed in or implied by these
statements.
Important factors that could cause actual results to differ materially
from the expectations reflected in a forward-looking statement herein include,
among other things, (1) the volatile nature of the securities business, (2) the
uncertainties surrounding the rapidly evolving markets in which the Company
competes, (3) the uncertainties surrounding technological change and the
Company's dependence on computer systems, (4) the Company's dependence on its
intellectual property rights, (5) the success of marketing efforts by third
parties in revenue sharing agreements, (6) the potential of increased government
regulation of the healthcare industry and subsequent changes in the current
laws, rules and regulations, (7) the changing demands by customers and (8)
arrangements with present and future customers and third parties.
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Readers are cautioned not to place undue reliance on the
forward-looking statements contained herein, which speak only as of the hereof.
Changes may occur after that date and the Company will not update that
information except as required by law in the normal course of its public
disclosure practices.
COMPETITION
The managed healthcare industry and the Company's markets are highly
competitive. Healthcare, despite a continually changing reimbursement formula
and ten-year decline in net margins, continues to be this country's most
competitive industry. Quality and price of services and products, however,
continue to be distinguishing factors that customers and consumers will seek out
and purchase. The Company will compete by delivering comprehensive, integrated
services and/or products to defined healthcare populations with excellent
customer services and exteremely competitive pricing. There are many managed
healthcare organizations, including many that are larger and have financial
resources significantly greater than those of the Company.
The Company anticipates it will only participate in one business
industry, managed healthcare. This lack of diversification should be considered
a substantial risk to those investing in the Company because it will not permit
the Company to offset potential losses from one venture against gains from
another. For several years the Federal government has proposed various forms of
national health insurance. Should a comprehensive national health insurance
program be enacted, the Company would have to modify its business plan
accordingly.
EMPLOYEES
At September 30, 1999, the Company employed twelve full time
individuals, eleven in Houston, Texas and one in Monument, Colorado. None of the
Company's employees are represented by a labor union, and the Company considers
its relations with its employees to be good. The Company intends to add
additional personnel and/or sub-contract through independent contractors as
operations demand.
DISCUSSION OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion of the results of operations and financial
condition of Rockport Healthcare Group, Inc. for the six months ended September,
30, 1999 and 1998 should be read in conjunction with the Company's Financial
Statements and related notes thereto and schedules included elsewhere herein.
Overview
Results of Operations - Six Months ended September 30, 1999 and 1998
REVENUE. Total revenue increased from $19,805 in 1998 to $90,194 for
the six month period ended September 30, 1999.
Although Rockport has product lines and subsidiaries devoted to
Accident and Health Benefit Plans, the first year's operations Rockport has
concentrated on its Workers' Compensation product lines. We are selling access
to our preferred provider organization, Rockport Community Network, Inc. This
PPO offers the client maximization of the dollar penetration rate, number
dollars spent with our provider networks, and twenty to fifty percent (20% to
50%) savings. During the first year of the client's contract, Rockport offers
the client the opportunity to customize the network to increase its penetration
rates and begin to manage the claimant's episode of care with defined outcomes.
With in two years of the contract the client's network will be transformed into
Rockport Occupational Network, Inc. Rockport Occupational Network, Inc. is our
primary care providers' equity model exclusive provider network.
Marketing of the occupational provider network began in January of
1999. The Houston Independent School District (HISD) was our first client and
was implemented February 1. Since March, ten new clients have been added which
represent forty-one employers. Although our current business is primarily in
Texas,
15
<PAGE>
our Clients' are also doing business in Florida, Arkansas, Alabama and
Louisiana. In 1998, our Clients paid or processed $145,760,000 in workers'
compensation medical bills covering over 690,000 employees. In Texas, the
annual paid medical bills were $133,500,000 with 638,060 covered employees.
In the Greater Houston market, the paid medical bills were $41,500,000
covering over 190,000 employees. An agreement has been signed with a
statewide third party payor, Benefit Planners, Inc., in September and
implemented on October 1. This Client pays an estimated $10,000,000 in
medical bills for workers' compensation benefits. This new Client, added to
our existing Clients, brings the total medical bills paid to an estimated
$155,750,000 and the number of covered employees to 710,000.
The Company has developed a medical access savings card, which among
other things allows the holder of the card the right to access national networks
in the areas of physicians, dentists, prescriptions, vision, hearing,
chiropractic and a 24-hour nurse "hot-line". The medical access savings card was
developed for those individuals who cannot afford medical insurance, are
uninsurable or require a supplement to their current medical insurance plan. By
accessing the networks provided by the medical access savings card, the holders
of the cards obtain national discounts of care providers' rates over the
non-contracted rates. The holder of the medical access savings card pays an
annual fee to the Company for the use of the card and the Company shares a
portion of the fee with the networks accessed by the medical access savings
card. Rockport through its subsidiary, Rockport Preferred, Inc. has begun test
marketing its medical Savings Card. Once Rockport has secured its $2,000,000 in
capital, it will launch a multi-level marketing program to sell the Passport and
MAS medical savings cards to the underinsured and uninsured.
The Company sees significant revenue growth from the utilization of its
workers' compensation networks, medical access savings cards and accident and
health networks over the next twelve month period and will dedicate a
significant portion of its future funding to developing these products.
COST OF SALES. Cost of sales increased to $18,252 in 1999 as compared
to $3,043 during the same period in 1998. This was comprised primarily of fees
the Company pays for accessing other healthcare networks and commissions.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $162,007, or 25.1%, to $806,770 in 1999 from $644,763 in
1998. Increased staffing and associated expenses to implement the Company's
business plan accounted for the increase.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased by $234,525 to $249,915 in 1999 from $15,390 in 1998. The
Company obtained loans during 1999 to fund its operations. Four of the loans
obtained in the principal amounts of $500,000 granted the makers 450,000 shares
of the Company's SEC Rule 144 restricted common stock. The fair market value of
the common stock issued on the date of issuance has been capitalized as loan
costs and is being amortized over the term of the loans. The total amount of the
loan costs amortized during the six month period ended September 30, 1999, was
$240,000.
INTEREST EXPENSE. Interest expense increased by $26,305 to $29,850 in
1999 from $3,545 in 1998. This increase was a result of accrued interest payable
on the loans received by the Company during 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a developmental stage company and, as such, requires
additional outside capital to implement its business plan. The Company has
funded its operations through the sale of Company common stock, borrowing funds
from outside sources and conversion of employee and director debt to common
stock of the Company.
Should the Company not be able to raise the necessary funding to
implement the Company's business plan, the Company would not be able to proceed
prospectively, and therefore, would no longer anticipate being a going concern.
Should the funding of the private placement of Company common stock not
materialize, the Company is investigating alternative methods of obtaining the
funding required to implement its business plan.
16
<PAGE>
YEAR 2000 READINESS
The potential problems referred to as "Year 2000" or "Y2K" result from
systems using only two digits to indicate the year in a date and thereby not
being able to distinguish between January 1, 1900 and January 1, 2000. In
addition certain systems may fail to detect that the year 2000 is a leap year.
Since all of the Company's computer software has been created or
purchased from major vendors within the last two years, the year 2000 is not
expected to effect the Company's internal computer systems.
The most likely worst case scenario is the failure of one or more
outside communication or third party data providers to be Y2K compliant. Such
failure could require the Company to incur unanticipated expenses to replace
such outside communication or third party data, if needed, to maintain the
Company's products and services at expected levels, which action could have a
material adverse effect on the Company's business, results of operations and
financial condition. The contingency plan to react to the worst case scenario
has been developed by the Company and is currently in place.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS - None
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Ex. 27 - Financial Data Schedule
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROCKPORT HEALTHCARE GROUP, INC.
(Registrant)
/s/ Larry K. Hinson
-----------------------------------------
August 13, 1999 Larry K. Hinson
Chief Financial and Accounting Officer
(duly authorized officer)
19
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