<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 June 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 5,055,669
- --------------------------------- ------------------------------------
Title of Class Number of Shares outstanding at
June 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
June 30, 1999 and March 31, 1999
Consolidated Statements of Operations 5
Three Months Ended June 30, 1999 and 1998
Consolidated Statement of Changes in Shareholders' 6
Deficit
Year Ended March 31, 1999 and Three Months Ended
June 30, 1999
Statement of Cash Flows 7
Three Months Ended June 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 19
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>
JUNE 30, MARCH 31,
1999 1999
---------------- ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 5,672 $ 17,320
Account receivables, no allowance for doubtful accounts 37,189 13,357
Prepaid expenses 514 1,028
---------------- ---------------
Total current assets 43,375 31,705
---------------- ---------------
Property, Plant and Equipment:
Office furniture and equipment 35,097 35,097
Computer equipment and software 53,643 51,892
Telephone equipment 15,085 15,085
---------------- ---------------
103,825 102,074
Less accumulated depreciation 25,412 20,418
---------------- ---------------
Net property, plant and equipment 78,413 81,656
---------------- ---------------
Other Assets:
Deposits 10,015 10,015
Capitalized loan costs, net 113,889 233,056
Goodwill, net 99,849 99,849
---------------- ---------------
Total other assets 223,753 342,920
---------------- ---------------
$ 345,541 $ 456,281
================ ===============
</TABLE>
See accompanying notes to unaudited consolidated financial
statements.
3
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ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1999 1999
---------------- ---------------
<S> <C> <C>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 490,260 $ 428,536
Accounts payable 98,654 91,251
Due to shareholders, directors, officers, and employee 54,593 35,100
Payroll tax payable 173,232 139,157
Other current liabilities 39,529 34,091
------------ -----------
Total current liabilities 856,268 728,135
------------ -----------
Long-term Debt -- --
------------ -----------
Total liabilities 856,268 728,135
------------ -----------
Commitments and Contingencies (Notes 4 and 7)
Shareholders' Equity (Deficit):
Preferred stock, $.001 par value, 1,000,000 authorized,
none issued -- --
Stock subscription receivable (1,040,486) (1,086,487)
Common stock, $.001 par value, 20,000,000 shares authorized,
5,055,669 and 4,937,169 shares issued and outstanding
at June 30, 1999 and March 31, 1999 5,056 4,938
Additional paid in capital 3,141,684 2,924,802
Accumulated deficit during the development stage (2,616,981) (2,115,107)
------------ -----------
Total shareholders' deficit (510,727) (271,854)
------------ -----------
$ 345,541 $ 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 THREE MONTHS DURING
ENDED JUNE 30, DEVELOPMENT
1999 1998 STAGE
-------------- ------------- ----------------
<S> <C> <C> <C>
Revenue $ 28,339 $ -- $ 104,456
Less cost of sales 6,847 -- 9,944
----------- ----------- ------------
Gross profit 21,492 94,512
Operating Expenses:
General and administrative 389,392 296,717 2,370,632
Depreciation and amortization 124,161 3,524 306,203
----------- ----------- ------------
513,553 300,241 2,676,835
----------- ----------- ------------
Net Loss Before Other Income (Expense)
and Income Taxes (492,061) (300,241) (2,582,323)
Other Income (Expense)
Interest expense (9,816) (2,294) (34,661)
----------- ----------- ------------
(9,816) (2,294) (34,661)
----------- ----------- ------------
Net Loss Before Income Taxes (501,877) (302,535) (2,616,984)
Income taxes -- --
----------- ----------- ------------
Net Loss $ (501,877) $ (302,535) $ (2,616,984)
----------- ----------- ------------
----------- ----------- ------------
Net Loss per share $ (0.14) $ (.11) $ (0.71)
----------- ----------- ------------
----------- ----------- ------------
Weighted Average Number of Shares
Outstanding 3,706,168 2,657,153 3,675,915
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
YEAR ENDED MARCH 31, 1999 AND THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
STOCK ---------------------- PAID IN ACCUMULATED SHAREHOLDERS'
SUBSCRIPTIONS SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------------- ---------- --------- ------------ ------------- -------------
<S> <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 subscription (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 debt -- 400,000 400 399,600 -- 400,000
Stock issued to acquire Newton --
Healthcare Network, LLC 100,000 100 99,900 -- 100,000
Conversion of debt to equity -- 324,960 325 324,635 -- 324,960
Collection of stock subscription 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 -- 98,500 98 196,902 -- 197,000
Collection of stock subscription 46,001 -- -- -- -- 46,001
Stock issued for services -- 20,000 20 19,980 -- 20,000
Net loss -- -- -- -- (501,877) (501,877)
------------ ----------- -------- ------------ ------------ -----------
Balances June 30, 1999 (Unaudited) $ (1,040,486) 5,055,669 5,056 $ 3,141,684 (2,616,981) $ (510,727)
------------ ----------- -------- ------------ ------------ ------------
------------ ----------- -------- ------------ ------------ ------------
</TABLE>
See accompanying notes to unaudited consolidated financial 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 THREE MONTHS DURING
ENDED JUNE 30, DEVELOPMENT
1999 1998 STAGE
--------------- ------------- ---------------
<S> <C> <C> <C>
Operating Activities:
Net Loss $ (501,877) $ (302,535) $ (2,616,984)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 4,994 3,434 26,696
Amortization of loan costs 119,167 -- 286,111
Amortization of organization costs -- 90 5
Issuance of stock for compensation -- -- 145,000
Stock issued for services -- -- 26,151
Write-off of bad debt -- -- 48,598
Changes in assets and liabilities:
Accrued interest receivable -- -- 257
Accounts payable 7,404 8,067 80,083
Accrued expenses 34,705 83,450 254,753
Other assets -- -- 3,841
Other current liabilities 5,438 -- 5,438
Accounts receivable - trade (23,833) -- (70,788)
Prepaid expenses 514 2,871 10,320
------------ ------------ -------------
Cash Used in Operating Activities (354,118) (204,623) (1,800,519)
------------ ------------ -------------
Financing Activities:
Proceeds from sale of stock 263,002 152,001 844,714
Proceeds from stock subscription of sub. -- 5,000 265,000
Proceeds from notes payable 61,724 -- 547,260
Repayments of notes payable -- -- (25,000)
Loans from shareholders 19,493 81,763 173,476
Other assets -- 100 100
------------ ------------ -------------
Cash Provided by Financing Activities 344,219 233,864 1,805,450
------------ ------------ -------------
Investing Activities:
Purchase of fixed assets (1,750) -- (27,027)
Proceeds from notes receivable -- -- 20,000
Cash acquired from acquisition of Newton
Healthcare Network, LLC -- -- 151
Other -- -- (2,985)
------------ ------------ -------------
Cash Used in Investing Activities (1,750) -- (9,861)
------------ ------------ -------------
Net Increase (Decrease) in Cash (11,649) 29,241 (4,930)
Cash and Cash Equivalents, beginning 17,320 1,398 10,602
------------ ------------ -------------
Cash and Cash Equivalents, end of period $ 5,672 $ 30,639 $ 5,672
------------ ------------ -------------
------------ ------------ -------------
</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
JUNE 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 June 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 $400,000
are being amortized using a straight-line method over the term of the related
notes payable. Accumulated amortization of these loans aggregated $286,111 at
June 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 June 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 $1,040,484 due
from a third party. Of the original amount subscribed, $46,003 was collected
during the three months ended June 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.
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.
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 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.
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 $ 103,078
2001 $ 35,400
2002 $ 4,032
2003 $ 2,688
</TABLE>
10
<PAGE>
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 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 $173,232.
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 during fiscal year
1999. During the three months ended June 30, 1999, additional advances or
accrued management fees totaled $38,000.
The Company incurred management fees to various shareholders and
directors in the amount of $62,500 for the three months ended June 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 $2,616,981. This matter raises substantial doubt
about the Company's ability to continue as a going concern.
11
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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 fund the Company a
total of $1,000,000 through the sale of the Company's stock under SEC rule
144. 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
June 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
<PAGE>
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.
14
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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 June 30, 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.
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 three months ended June
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 - Three Months ended June 30, 1999 and 1998
REVENUE. Total revenue increased from zero in 1998 to $28,339 f6r
the three month period ended June 30, 1999.
Beginning in January, 1999, the Company began marketing its workers'
compensation healthcare networks. Reception of the product has far exceeded
expectations. The Company has added significant new clients during the three
months ended June 30, 1999, and has several significant clients to be added
during the third quarter. Revenue from the workers' compensation network will
exceed the original projections.
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
15
<PAGE>
Company shares a portion of the fee with the networks accessed by the medical
access savings card. The Company expects significant sales of the Card during
the third and fourth quarters of 1999.
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 $6,847 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.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $92,675, or 31.2%, to $389,392 in 1999 from $296,717 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 $120,637 to $124,161 in 1999 from $3,524
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 three month period
ended June 30, 1999, was $119,167.
INTEREST EXPENSE. Interest expense increased by $7,522, or 328%, to
$9,816 in 1999 from $2,294 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 to fund the Company $1,000,000 through the sale of the Company's common
stock under SEC Rule 144. As of June 30, 1999, the Company had received
proceeds from the sale of the Company's common stock of $259,003. It is
anticipated the balance of the funding from the sale of Company common stock
will be received during the third and fourth 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
16
<PAGE>
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.
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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<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
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