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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year end March 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _______________ to ________________
Commission file number 0-23514
ROCKPORT HEALTHCARE GROUP, INC.
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(Exact name of small business issuer in charter)
Delaware 33-0611497
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 Briar Hollow Lane, Suite 515W
Houston, Texas 77027
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 621-9424
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to
Section 12(g) of the Act: Common Stock, par value $.001
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Indicate by check mark whether the registrant (1) 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 (2) has
been subject to such filing requirements for the past 90 days. [X] Yes [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $43,828.
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 31, 1999 was $9,500,000.
The number of shares outstanding of the issuer's classes of Common
Stock as of March 31, 1999: Common Stock, $.001 Par Value - 4,937,169 shares
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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STATEMENTS IN THIS REPORT THAT RELATE TO FUTURE RESULTS AND EVENTS ARE
BASED ON THE COMPANY'S CURRENT EXPECTATIONS. ACTUAL RESULTS IN FUTURE
PERIODS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY EXPECTED OR DESIRED
BECAUSE OF A NUMBER OF RISKS AND UNCERTAINTIES.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Rockport Healthcare Group, Inc., a Delaware corporation (the
"Company" or "Rockport"), 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. Protokopos Corporation 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 assets.
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, 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.
In late November 1998, the Company filed its Form 211 and received
its clearance letter from the National Association of Securities Dealers
("NASD") on January 20, 1999, to begin trading its stock via the OTC Bulletin
Board. The Company began trading on the OTC Bulletin Board under the symbol
"RPHL" on February 12, 1999.
The executive offices of the Company are located at 50 Briar Hollow
Lane, Suite 515W, Houston, Texas 77027. Its telephone number is (713)
621-9424 and its fax number is (713) 621-9492.
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 during the year ended March 31, 1999.
The Company has been able to retain the services of key management
personnel and develop critical infrastructure components including
information and data management, customer services, provider credentialing
and contracting, claims review and re-pricing systems. During the year ended
March 31, 1999, the Company acquired a wholly owned Texas based preferred
provider organization ("PPO") having contracts with 65 hospitals and 8,000
providers. It has also negotiated access agreements with hospitals and
providers in California, Indiana, Louisiana, Ohio and Oklahoma as part
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of its development plan to create a nationwide PPO network. Negotiations have
begun with hospitals and providers in Arkansas, Georgia, Florida and
Mississippi to add these states to the nationwide network.
The healthcare providers selected by the Company to join its
networks have been selected based on their clinical qualifications and their
adherence to the standards of care and service developed by the Company. The
product provided to the payors and/or consumers is a network of exclusive,
high quality providers organized to facilitate the delivery of a full
continuum of integrated healthcare services. The network of providers is
geographically appropriate, accessible and consumer friendly. Care is
approached as an "episodic situation" that groups related diagnoses and
treatment services provided as collective events. Treatment outcomes are
monitored, documented and reported. Results of these activities are utilized
in improving all of the processes necessary to ensure high quality network
development, care management, prevention and health education programs.
Building on the experience of the Company's leadership and implementing the
processes and procedures established by the Company, products and services
would meet or exceed the requirements of the healthcare purchasers.
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. Of these business entities, the Company
developed five since November 1997 and acquired one on September 14, 1998,
with the issuance of 100,000 shares of the Company's SEC Rule 144 restricted
common stock.
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 1999 with final completion 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 with
access to networks in all fifty states. RCN has three client agreements for
use of its networks and is in final negotiations with five other clients with
all agreements expected to be completed by August 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.
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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 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 the second calendar quarter of 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.
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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.
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 March 31, 1999, the Company employed seven full time individuals,
six 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.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases office space in Houston, Texas and an executive
suite in Palmer City, Colorado.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended March 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began trading on the OTC Bulletin Board
under the symbol "RPHL" on February 12, 1999. During the period February 12,
1999, through and including March 31, 1999, the high and low sales prices for
the Company's common stock were $9 and $3, respectively. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions. As of March 31, 1999, there were
approximately 337 stockholders of record of the Company's common stock. No
dividends have been paid in the history of the Company. The Company does not
anticipate paying dividends in the near future until such time the Company
has sufficient cash flow from operations to justify payment of a dividend. On
December 17, 1997, Protokopos Corporation acquired all of the issued and
outstanding common stock of Rockport Group of Texas, Inc. in exchange for
1,442,432 shares of common stock of Protokopos Corporation.
During the twelve month period ended March 31, 1999, the Company
issued 2,475,697 shares of its common stock. These shares were sold for cash,
issued for services rendered to the Company, issued as inducement for making
loans to the Company, conversion of debt and issued for the acquisition of
Newton Healthcare Network, LLC. At March 31, 1999, the Company had a
subscription receivable of $1,086,487 for the sale of 1,086,487 shares of its
SEC Rule 144 restricted common stock at a price of $1 per share, which are
included in the number of shares issued by the Company during the
twelve-month period ended March 31, 1999.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion of the results of operations and financial
condition of Rockport Healthcare Group, Inc. for the years in the two year
period ended March 31, 1999 should be read in conjunction with the Company's
Financial Statements and related notes thereto and schedules included
elsewhere herein.
OVERVIEW
RESULTS OF OPERATIONS - YEARS ENDED MARCH 31, 1999 AND 1998
REVENUE. Total revenue increased by $11,539, or 36%, to $43,828 in
1999 from $32,289 in 1998. Network access fees increased from zero in 1998 to
$43,828 in 1999. Consulting fees in 1998 were $32,289 and there were no
consulting fees in 1999.
During 1999, the Company concentrated its efforts in developing
workers' compensation healthcare networks in various states and seeking out
various types of organizations to utilize the Company's healthcare networks.
The Company receives fees from companies who access and utilize its networks
and receives a fixed amount per covered individual per month or a percentage
of the cost savings achieved by the utilizing company as compared to its
total cost of the previous year. The Company intends to continue to expand
its workers' compensation networks in other states through contracting and
acquisitions and add additional companies throughout the United States to
utilize its networks.
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.
On September 14, 1998, the Company acquired 100% of the membership
interests of Newton Healthcare Network, LLC ("Newton") through the issuance
of 100,000 shares of SEC Rule 144 Company restricted common stock. Newton is
a statewide preferred provider organization holding contracts with 65
hospitals and 8,000 providers. This acquisition allows the Company to enter
the accident and health area of the healthcare industry. The Company intends
to expand Newton's network to include all states and 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.
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 $3,097 in 1999. There were
no cost of sales during 1998. This was comprised primarily of fees the
Company pays for accessing other healthcare networks and commissions.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $1,257,150, or 277%, to $1,710,216 in 1999 from
$453,066 in 1998. This increase was primarily due to the fact that only five
months of general and administrative expenses were included in the period
ended March 31, 1998, compared to twelve months of expenses included in the
year ended March 31, 1999. 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 $174,625 to $181,638 in 1999 from $7,013
in 1998. The Company obtained loans during 1999 to fund its operations. Three
of the loans obtained in the principal amounts of $400,000 granted the makers
400,000 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 period ended March
31, 1999, was $166,944.
INTEREST EXPENSE. Interest expense increased by $15,513, or 610%, to
$20,179 in 1999 from $4,666 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. The Company has an agreement with an outside
firm whereby the firm is to sell 1,000,000 shares of the Company's common
stock under SEC Rule 144 for total proceeds to the Company of $1,305,487. As
of March 31, 1999, the Company had received proceeds from the sale of the
Company's common stock of $219,000 with an additional amount due of
$1,086,487 after revisions to the agreement. It is anticipated the balance of
the funding from the sale of Company common stock will be received during the
second and third calendar quarters of 1999.
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.
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
should be developed by the Company no later the end of September, 1999.
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ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company required to be
included in Item 7 are set forth in the Financial Statements Index.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In June, 1999, the Company retained Hein + Associates, LLP,
Certified Public Accountants, Houston, Texas as its independent accountants
of the Company to audit the Company's financial statements for the period
ended March 31, 1999. The Company's previous principal auditors Warfield &
Co. ("Warfield"), Certified Public Accountants, Scottsdale, Arizona, resigned
in June, 1999 due to nonpayment of the prior year audit fees which resulted
in a lack of independence.
During the fiscal year ended March 31, 1999 and the period between
April 1, 1999, up to and including the day of its resignation, there were no
disagreements between the Company and Warfield on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures which if not resolved to Warfield's satisfaction would have caused
them to make reference in connection with their opinion to the subject matter
of the disagreement.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. The executive officers serve at the pleasure of the Board of Directors.
The following table sets forth the name, age and position of each of the persons
who were serving on the Board of Directors and executive officers of the Company
as of March 31, 1999.
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Name Age Position
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John K. Baldwin 65 Chairman of the Board and Executive Vice President
Harry M. Neer 59 President, Chief Executive Officer and Director
Larry K. Hinson 53 Secretary, Treasurer and Director
William W. Wollenberg 45 President, Rockport Community Network, Inc.
Robert D. Johnson 52 Director
Dirk A. Wray 42 Director
</TABLE>
Set forth below is biographical information about each of the Company's
executive officers and Board members.
JOHN K. BALDWIN. Mr. Baldwin has been Chairman of the Board and a
director of the Company since 1997. Mr. Baldwin was appointed to the position of
Executive Vice President in 1999. Mr. Baldwin is an attorney and possesses an
MBA degree in finance. During the period 1961 through 1970, Mr. Baldwin served
as corporate counsel and held various executive positions with Litton Industries
and Dart Industries. Thereafter, as an entrepreneur, he founded businesses that
operated profitably in the areas of real estate development, direct sales to
consumers and providing marketing and financial services to healthcare
providers. His wholly owned Athena Company, a direct marketing business, was
sold to the Gillette Company in 1976. In 1977, Mr. Baldwin co-founded and served
as Vice Chairman of American Sterling Corporation that engaged in providing
insurance and data processing to major financial institutions. This business was
sold to Zurich Insurance Company in 1997.
HARRY M. NEER. Mr. Neer has been President, Chief Executive Officer and
a director of the Company since 1997. Mr. Neer has a Masters degree in Hospital
Administration and his entire career has been in the healthcare delivery and
managed healthcare industry. Mr. Neer's experience includes serving as President
of USA Health Network, as Division Vice President of the Hospital Corporation of
America (HCA) and as President of the Presbyterian Hospital System in Oklahoma
City, Oklahoma. From November 1994 to November 1997, Mr. Neer was a principal of
Rockport Group of Texas, Inc. From January 1993 to October 1994 Mr. Neer was
President of USA Health Holding Company, a holding company for a group of
managed healthcare companies. Prior to 1993, Mr. Neer was a consultant for USA
Healthcare Network, Inc. and the Columbia Hospital Systems.
LARRY K. HINSON. Mr. Hinson has been Secretary, Treasurer and a
director of the Company since 1997. Mr. Hinson has a Bachelor of Business
Administration degree with a major in accounting. Mr. Hinson has 30 years
experience as a CPA in a wide variety of industries that include 31 years of
experience in the insurance and healthcare industries. He has served as Chief
Financial Officer of USA Healthcare Network, Inc. and Vice President and
Treasurer of Reserve Life Insurance Company, Dallas, Texas, and was formerly
with KPMG Peat Marwick, LLP in Dallas and Austin, Texas. From
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November 1994 to November 1997 Mr. Hinson was a principal of Rockport Group
of Texas, Inc. From March 1989 to October 1994, Mr. Hinson was Vice Chairman
and Chief Financial Officer of USA Health Holding Company and its
subsidiaries and also served as President of USA Health Network Company.
WILLIAM W. WOLLENBERG. Mr. Wollenberg has been President of Rockport
Community Network, Inc. since 1998. Mr. Wollenberg has a Bachelors degree in
Criminal Justice Administration. Mr. Wollenberg has 20 years of experience in
the healthcare industry. From 1991 to 1998, Mr. Wollenberg was Senior Sales
Manager and National Accounts Director for CNN/ Medview Services, Inc. in
Monument, Colorado. From 1987 to 1991, Mr. Wollenberg was Vice President and
Co-founder of Work Reconditioning Systems, Inc., which was one of the first
nationally recognized industrial based work hardening programs. Prior to 1987,
Mr. Wollenberg held various management positions in the worker's compensation
healthcare industry.
ROBERT D. JOHNSON. Mr. Johnson has been a director of the Company since
1998. Since 1986, Mr. Johnson has been the Chief Executive Officer and Owner of
Bannon Energy Incorporated "Bannon", an independent oil and gas company located
in Houston, Texas. Mr. Johnson formed Bannon in 1986 with a $1,000 initial
investment. In 1996 Bannon sold substantially all of its oil and gas assets for
$38 million and, after paying down its bank debt, netted $12.3 million from the
sale. During the past two years, Bannon has focused on venture capital
investments in start-up companies and trading of common stocks and options of
publicly traded companies. Bannon owned a majority of the membership interests
in Newton when it was acquired by the Company and as a result of the acquisition
of Bannon's interest, Mr. Johnson was elected as a director of the Company. Mr.
Johnson has a Bachelors degree in Engineering and 30 years of experience in the
oil and gas industry in various management positions with major and independent
oil and gas companies.
DIRK A. WRAY. Mr. Wray has been a director of the Company since 1998.
Mr. Wray is President and Chief Financial Officer of Covenant Care, Inc. which
he co-founded in 1994. Mr. Wray has a Bachelor of Arts degree in Business
Administration, a Masters degree in Business Administration with a major in
finance and a Masters degree in International Management. Mr. Wray has 19 years
of experience in finance and venture capital, primarily in the hotel industry.
The Company has no arrangement, understanding or intention of entering
into any transaction for participating in any business opportunity with any
officer, director or principal shareholder or with any firm or business
organization with which such persons are affiliated, whether by reason of stock
ownership, position as an officer or director or otherwise.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Non-employee directors receive no compensation for serving on the Board
of Directors, nor are they reimbursed for their expenses of attending meetings
of the Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes the compensation paid to the executive
officers of the Company during the two years ended March 31, 1999 and 1998.
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SUMMARY COMPENSATION TABLE
<TABLE>
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Fiscal Conversion of Salary
Name and Principal Position Year Salary to Common Stock (c)
- --------------------------- ---- ------ --------------------
<S> <C> <C> <C>
Harry M. Neer 1999 $ 87,500 (a) $ 40,500
President and Chief Executive Officer 1998 $ 24,500 (b) --
Larry K. Hinson 1999 $ 88,500 (a) $ 35,500
Secretary and Treasurer 1998 $ 23,500 (b) --
William W. Wollenberg 1999 $240,000 --
President, Rockport Community 1998 $ 30,000 --
Network, Inc.
</TABLE>
- --------------
(a) Does not include salary that has been accrued to Messrs. Neer and
Hinson at March 31, 1999 of $11,000 and $10,000, respectively.
(b) Does not include salary which was accrued at March 31, 1998 to Messrs.
Neer and Hinson of $20,500 and $21,500, respectively.
(c) During 1999, Messrs. Neer and Hinson converted debt and accrued and
unpaid salary to common stock of the Company at $1 per share for
150,342 and 35,500 shares, respectively.
Rockport Group of Texas, Inc. expended $75,000 to effect the merger
with Protokopos Corporation. This amount was charged to three executive officers
of the Company in the amount of $25,0000 each. Mr. Hinson owed the Company
$7,500 for his portion of the $25,000 as of March 31, 1998. This amount was paid
during the year ended March 31, 1999.
Mr. Wollenberg has a three year employment agreement with the Company
whereby he receives a fixed annual salary, a commission based on various
percentages of revenues earned by the Company and a bonus, comprised of stock
and cash, based on a percentage of the Company's earnings before interest,
taxes, depreciation and amortization. The Company does not have employment
agreements with any of its other executive officers.
The Company does not have an employee stock option plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to beneficial
ownership of Company common stock by those persons beneficially holding more
than 5% of the Company capital stock, by the Company's directors and executive
officers, and by all of the Company's directors and executive officers as a
group, as of March 31, 1999.
12
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Number of of Outstanding
Shareholder Shares Owned (1) Common Stock (2)
- ----------- ------------ ------------
<S> <C> <C>
John K. Baldwin 666,892 12.2%
901 Highland Avenue
Del Mar, CA 92014
Harry M. Neer (3) 548,116 10.0%
Larry K. Hinson (3) 433,274 7.9%
William W. Wollenberg (3) 100,000 1.8%
Robert D. Johnson (4) 685,000 12.6%
3934 FM 1960 West, Suite 240
Houston, TX 77068
Dirk Wray 221,250 4.1%
30551 Hilltop Way
San Juan Capistrano, CA 92675
Directors and executive officers
as a group (six persons) 2,654,532 48.7%
Primex Capital USA (5) 1,280,247 23.5%
4617 Montrose Blvd., #C-215
Houston, TX 77006
</TABLE>
- -------------------------------------------------------------------------------
(1) As of June 30, 1999.
(2) Based on the number of shares outstanding (5,455,669) at the close of
business on June 30, 1999.
(3) The address of such person is in care of the Company.
(4) The shares owned are in the name of Bannon Energy Incorporated
("Bannon"), of which Mr. Johnson is the sole shareholder. Bannon has
two loans to the Company totaling $300,000, which are due September 15,
1999. Bannon has the option, but not the obligation, to convert the
principal balance of the loans to 300,000 shares of the Company's
common stock under SEC Rule 144. The common shares include the option
shares as if Bannon exercised its option to convert the loan to common
stock.
(5) The Company has an agreement with Primex Capital USA ("Primex") to sell
Company SEC Rule 144 restricted common stock to raise $1,000,000 for
the Company in a private placement of its stock. The Company has issued
805,487 shares of its common stock to Primex for this purpose which are
included in the total shares owned by Primex. The remaining amount of
the subscription receivable due to the Company as of March 31, 1999 was
$1,086,487 after revisions to the agreement.
13
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Prior to the merger of Protokopos Corporation and The Rockport Group
of Texas, Inc. on December 17, 1997, all of the issued and outstanding stock
of the Rockport Group of Texas, Inc. was equally owned by John K. Baldwin,
Harry M. Neer and Larry K. Hinson. Subsequent to the merger, Messrs. Baldwin,
Neer and Hinson served on the Company's Board of Directors and as executive
officers of the Company.
PART V
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits of the Company are included
herein.
<TABLE>
<CAPTION>
Sequential
Exhibit No. Document Description Page No.
----------- -------------------- ----------
<S> <C> <C>
3. (Previously Filed) Certificate of Incorporation and Bylaws
3.1 Articles of Incorporation(1)
3.2 Bylaws(1)
10. Material Contracts
10.1 Bill Review Company Payor Agreement-Elite Data Services, Inc.
10.2 TPA Payor Agreement-Humana Workers' Compensation Services, Inc.
27 Financial Data Schedule
</TABLE>
- -----------------------
(1) Incorporated by reference to such exhibit as filed with the Company's
registration statement form 10-SB, File No. 0-2351
(b) Reports on Form 8-K
None
14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
July 9, 1999
The Board of Directors
Rockport Healthcare Group, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of Rockport
Healthcare Group, Inc. and subsidiaries (Companies in the developmental
stage) as of March 31, 1999, and the related consolidated statements of
operations, changes in shareholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rockport
Healthcare Group, Inc. and subsidiaries (Companies in the developmental
stage) as of March 31, 1999, and the results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Rockport Healthcare Group, Inc. and subsidiaries (Companies in
the developmental stage) will continue as a going concern. As more fully
discussed in Note 10 to the financial statements, the Company has incurred an
accumulated net loss of $2,115,107. This matter raises substantial doubt
about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 10. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Hein & Associates LLP
- ----------------------------
Certified Public Accountants
-16-
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------
1999 1998
----------------- -----------------
(Restated and
unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 17,320 $ 1,398
Accounts receivable, no allowance for doubtful accounts 13,357 -
Prepaid expenses 1,028 7,549
--------------- ---------------
Total current assets 31,705 8,947
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT:
Office furniture and equipment 35,097 25,317
Computer equipment and software 51,892 39,450
Telephone equipment 15,085 12,617
--------------- ---------------
102,074 77,384
Less accumulated depreciation 20,418 5,724
--------------- ---------------
Net property, plant and equipment 81,656 71,660
--------------- ---------------
OTHER ASSETS:
Deposits 10,015 12,071
Note receivable - 20,000
Organization cost, net - 1,785
Capitalized loan costs, net 233,056 -
Goodwill, net 99,849 -
--------------- ---------------
Total other assets 342,920 33,856
--------------- ---------------
Total assets $ 456,281 $ 114,463
=============== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 428,536 $ 25,000
Accounts payable 91,251 30,112
Due to shareholders, directors, officers, and employees 35,100 174,983
Payroll tax payable 139,157 -
Other current liabilities 34,091 33,419
--------------- ---------------
Total current liabilities 728,135 263,514
--------------- ---------------
LONG-TERM DEBT - 75,000
--------------- ---------------
Total liabilities 728,135 338,514
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 8)
SHAREHOLDERS' DEFICIT :
Preferred stock, $.001 par value, 1,000,000 shares authorized, none
issued - -
Stock subscription receivable (1,086,487)
Common stock, $.001 par value, 20,000,000 shares authorized,
4,937,169 and 2,461,472 shares issued and outstanding at
March 31, 1999 and 1998, respectively 4,938 2,462
Additional paid-in capital 2,924,802 198,930
Accumulated deficit during the development stage (2,115,107) (425,443)
--------------- ----------------
Total shareholders' deficit (271,854) (224,051)
--------------- ---------------
Total liabilities and shareholders' deficit $ 456,281 $ 114,463
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-17-
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
YEAR ENDED MARCH 31, DURING
-------------------------------------- DEVELOPMENT
1999 1998 STAGE
-------------- -------------- --------------
(Restated and (unaudited)
unaudited)
<S> <C> <C> <C>
Revenues $ 43,828 $ 32,289 $ 76,117
Cost of Sales 3,097 - 3,097
-------------- -------------- --------------
Gross Profit 40,731 32,289 73,020
-------------- -------------- --------------
General and Administrative Expenses 1,710,216 453,066 2,163,282
Interest, Net 20,179 4,666 24,845
-------------- -------------- --------------
1,730,395 457,732 2,188,127
-------------- -------------- --------------
Net Loss $ (1,689,664) $ (425,443) $ (2,115,107)
============== ============== ==============
Net Loss Per Share - Basis and Diluted $ (.46) $ (.26) $ (.79)
============== ============== ==============
Weighted Average Number of Common Shares Outstanding 3,706,168 1,615,459 2,660,813
============== ============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-18-
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK
STOCK -------------------------------
SUBSCRIPTIONS SHARES AMOUNT
-------------- ------------ --------------
<S> <C> <C> <C>
Balances March 31, 1997 (restated and unaudited) $ - - $ -
Initial issuance of common stock (restated and
unaudited) - 961,621 962
Common stock issued for cash (restated and - 480,811 481
unaudited)
Issuance of common stock to acquire Protokopos
Corporation (unaudited) - 1,019,040 1,019
Net loss (unaudited)
-------------- ------------ --------------
Balances March 31, 1998 (restated) - 2,461,472 2,462
Common stock issued for cash - 674,100 674
Stock issued for subscription (1,305,487) 805,487 806
Stock issued for services - 171,150 171
Stock issued in connection with debt - 400,000 400
Stock issued to acquire Newton Healthcare
Network, LLC - 100,000 100
Conversion of debt to equity - 324,960 325
Collection of stock subscription 219,000 - -
Net loss - - -
-------------- ------------ --------------
Balances March 31, 1999 $ (1,086,487) 4,937,169 $ 4,938
============== ============ ==============
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
ADDITIONAL DURING THE SHAREHOLDERS'
PAID-IN DEVELOPMENT EQUITY
CAPITAL STAGE (DEFICIT)
------------- -------------- -------------
<S> <C> <C> <C>
Balances March 31, 1997 (restated and unaudited) $ - $ - $ -
Initial issuance of common stock (restated and
unaudited) - - 962
Common stock issued for cash (restated and
unaudited) 199,519 - 200,000
Issuance of common stock to acquire Protokopos
Corporation (unaudited) (589) - 430
Net loss (unaudited) (425,443) (425,443)
------------- -------------- -------------
Balances March 31, 1998 (restated) 198,930 (425,443) (224,051)
Common stock issued for cash 426,076 - 426,750
Stock issued for subscription 1,304,681 - -
Stock issued for services 170,980 - 171,151
Stock issued in connection with debt 399,600 - 400,000
Stock issued to acquire Newton Healthcare
Network, LLC 99,900 - 100,000
Conversion of debt to equity 324,635 - 324,960
Collection of stock subscription - - 219,000
Net loss - (1,689,664) (1,689,664)
------------- -------------- -------------
Balances March 31, 1999 $ 2,924,802 $ (2,115,107) $ (271,854)
============= ============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 19 -
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
YEARS ENDED MARCH 31, DURING
------------------------------------ DEVELOPMENT
1999 1998 STAGE
-------------- -------------- ----------------
(Restated and (unaudited)
unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,689,664) $ (425,443) $ (2,115,107)
Adjustments to reconcile net loss to cash flow for operating
activities:
Depreciation 14,694 7,008 21,702
Issuance of stock for services 171,151 - 171,151
Changes in assets and liabilities:
Accrued interest receivable 257 257
Accounts payable 61,139 11,540 72,679
Accrued expenses 152,406 68,272 220,678
Other assets 3,841 - 3,841
Accounts receivable - trade (46,955) - (46,955)
Prepaid expenses 6,521 3,285 9,806
Other 200,542 15,005 215,547
-------------- -------------- ----------------
CASH FOR OPERATING ACTIVITIES (1,126,325) (320,076) (1,446,401)
-------------- -------------- ----------------
(Continued)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 20 -
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
STATEMENT OF CASH FLOWS, CONTINUED
<CAPTION>
CUMULATIVE
YEARS ENDED MARCH 31, DURING
------------------------------------ DEVELOPMENT
1999 1998 STAGE
-------------- -------------- -----------------
(Restated and (unaudited)
unaudited)
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from sale of stock $ 426,750 $ 200,962 $ 627,712
Proceeds from notes payable 485,536 - 485,536
Repayments of notes payable (25,000) - (25,000)
Loans from officer 40,500 113,483 153,983
Proceeds from stock subscription 219,000 - 219,000
-------------- -------------- -----------------
CASH FROM FINANCING ACTIVITIES 1,146,786 314,445 1,461,231
--------------- -------------- -----------------
INVESTING ACTIVITIES:
Purchase of fixed assets (24,690) (588) (25,278)
Proceeds from note receivable 20,000 - 20,000
Cash acquired from acquisition of Newton Healthcare -
Network, LLC 151 151
Other (2,985) (2,985)
-------------- -------------- -----------------
CASH USED IN INVESTING ACTIVITIES (4,539) (3,573) (8,112)
-------------- -------------- -----------------
NET INCREASE IN CASH 15,922 (9,204) 6,718
CASH AND CASH EQUIVALENTS, beginning of year 1,398 10,602 10,602
-------------- -------------- -----------------
CASH AND CASH EQUIVALENTS, end of year $ 17,320 $ 1,398 $ 17,320
============== ============== =================
NONCASH TRANSACTIONS:
Stock issued for subscriptions $ 1,305,487 $ 1,305,487
Stock issued to convert debt to equity 324,960 324,960
Non-cash assets of Newton Healthcare Network, LLC 99,849 99,849
============== =================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 21 -
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
(FORMERLY KNOWN AS PROTOKOPOS CORPORATION)
COMPANIES IN THE DEVELOPMENTAL STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 The Rockport Group of Texas, Inc.("Rockport"). For
accounting purposes, the acquisition has been treated as a reverse acquisition
of the Company by Rockport (see Note 7, "Reverse Acquisition by Rockport").
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 March 31,
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.
- 22 -
<PAGE>
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 are 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 $400,000, are
being amortized using the interest yield method over the term of the related
notes payable. Accumulated amortization aggregated $166,944 at March 31, 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
March 31, 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 values 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.
- 23 -
<PAGE>
2. STOCK SUBSCRIPTION RECEIVABLE
The Company has a stock subscription receivable of $1,086,407 due from
a third party. Of the original amount subscribed, $219,000 was collected during
the year ended March 31, 1999.
3. RESTATEMENT OF PRIOR PERIOD
The Company had previously not reported the acquisition of Rockport as
a reverse acquisition during the year ended March 31, 1998. As a result, certain
amounts have been restated in the fiscal 1998 financial statements as follows:
<TABLE>
<CAPTION>
As previously Restated
reported Adjustment Amounts
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues $ 25,487 $ 6,802 $ 32,289
Cost of sales - - -
-------------- -------------- --------------
Gross profit 25,487 6,802 32,289
-------------- -------------- --------------
General and administrative 331,367 121,699 453,066
Interest, net 2,841 1,825 4,666
-------------- -------------- --------------
334,208 123,524 457,732
-------------- -------------- --------------
Net loss $ (308,721) $ (116,722) $ (425,443)
============== ============== ==============
Net loss per share $ (0.19) $ (0.26)
============= =============
</TABLE>
4. 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 March 31, 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 fiscal 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 during the year
ended March 31, 1999.
On September 14, 1998, Bannon Energy Incorporated ("Bannon") loaned the
Company $200,000 under a one-year, 8% note collateralized 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 to Bannon an additional 100,000 shares of the Company's
restricted common stock, 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.
- 24 -
<PAGE>
On November 5, 1998, a shareholder of the Company loaned the Company
$100,000 (unsecured) for a six-month period at 10% 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. This note is personally
guaranteed by two officers and shareholders.
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.
5. 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 $ 123,591
2001 $ 32,787
2002 $ 4,032
2003 $ 2,688
</TABLE>
6. 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
Director of the Company, owned 85% of the membership interest and received a 2%
overriding royalty interest on the gross revenues of 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.
7. REVERSE ACQUISITION BY ROCKPORT
On December 17, 1997, the shareholders of Rockport approved a merger
with Protokopos Corporation (the "Merger"). Pursuant to the Merger Agreement,
each outstanding share of Rockport, 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.
- 25 -
<PAGE>
8. 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 $139,157. Interest and penalties of approximately $18,000 have been
accrued at March 31, 1999.
9. RELATED PARTY TRANSACTIONS
In connection with the acquisition of the Company by Rockport, Rockport
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 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 who all are also directors of
the Company.
Shareholders who are also officers and directors of the Company have
advanced funds to and accrued consulting fees with the Company in the amount of
$185,842. These liabilities were converted to equity during fiscal 1999. At
March 31, 1999, additional advances or accrued consulting fees due these
individuals totaled $35,100.
The Company incurred management fees to various shareholders and
directors in the amount of $287,250 for the year end March 31, 1999.
See Note 4 for a discussion of financing provided by related parties.
10. GOING CONCERN
The accompanying financial statements have been prepared assuming that
Rockport Healthcare Group, Inc. will continue as a going concern. The Company
has incurred an accumulated net loss of $2,115,107. 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 converting employee and
director debt to common stock of the Company. The Company has an agreement with
an outside firm whereby the firm is to sell 805,487 shares of the Company's
common stock for total proceeds to the Company of $1,000,000. 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.
11. INCOME TAXES
There were no material deferred tax assets and liabilities as of March
31, 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 approximately $1,700,000 at March 31, 1999 and
expire in 2019.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 July 14, 1999.
ROCKPORT HEALTHCARE GROUP, INC.
By:
----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities on July 14, 1999.
By: Title: SecretaryTreasurer
-------------------------------- -------------------------
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