<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT UNDER 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 small business issuer as specified in its charter)
Delaware 33-0611497
- -------------------------------- ------------------------------------
State or other jurisdiction of IRS Employer Identification No.
incorporation or organization
50 Briar Hollow Lane, Suite 515W, Houston, Texas 77027
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(713) 621-9424
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer has (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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.
Yes [X] No [_]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practical date: As of February 10,
2000, there were outstanding 5,398,863 shares of common stock, $.001 per
value per share.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
1
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<TABLE>
<CAPTION>
ROCKPORT HEALTHCARE GROUP, INC.
INDEX
PART 1 FINANCIAL INFORMATION
PAGE NO.
--------
<S> <C> <C> <C>
Item 1. Consolidated Balance Sheets 3
December 31, 1999 and March 31, 1999
Consolidated Statements of Operations 5
Nine Months Ended December 31, 1999 and 1998
Consolidated Statement of Changes in Shareholders' 6
Deficit
Year Ended March 31, 1999 and Nine Months Ended
December 31, 1999
Statement of Cash Flows 7
Nine Months Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
PART 2 OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matter to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
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PART 1 FINANCIAL INFORMATION
ITEM 1.
<TABLE>
<CAPTION>
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
CONSOLIDATED BALANCE SHEETS
DEC. 31, MARCH 31,
1999 1999
--------------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 156,555 $ 17,320
Account receivables, no allowance for doubtful accounts 37,690 13,357
Prepaid expenses 1,447 1,028
--------------- --------------
Total current assets 195,692 31,705
--------------- --------------
Property, Plant and Equipment:
Office furniture and equipment 37,247 35,097
Computer equipment and software 60,930 51,892
Telephone equipment 15,734 15,085
--------------- --------------
113,912 102,074
Less accumulated depreciation 35,454 20,418
--------------- --------------
Net property, plant and equipment 78,457 81,656
--------------- --------------
Other Assets:
Deposits 10,136 10,015
Investments in and advances to Elite Data Services, Inc. 52,250 -
Capitalized loan costs, net 58,333 233,056
Goodwill, net 99,849 99,849
--------------- --------------
Total other assets 220,569 342,920
--------------- --------------
$ 494,718 $ 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>
DEC. 31, MARCH 31,
1999 1999
--------------- --------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Notes payable $ 1,021,725 $ 428,536
Accounts payable 121,704 91,251
Due to shareholders, directors, officers, and employee 46,755 35,100
Payroll tax payable 133,335 139,157
Other current liabilities 74,588 34,091
--------------- --------------
Total current liabilities 1,398,107 728,135
--------------- --------------
Long-term Debt - -
--------------- --------------
Total liabilities 1,398,107 728,135
--------------- --------------
Commitments and Contingencies (Notes 3 and 7)
Shareholders' Equity (Deficit):
Preferred stock, $.001 par value, 1,000,000 authorized,
None issued - -
Stock subscription receivable (441,400) (1,086,487)
Common stock, no par value, 20,000,000 shares authorized,
5,361,363 and 4,937,169 shares issued and outstanding
at December 30, 1999 and March 31, 1999 5,362 4,938
Additional paid in capital 3,043,192 2,924,802
Accumulated deficit during the development stage (3,528,075) (2,115,107)
Stock Warrants Sold 17,532 -
--------------- --------------
Total shareholders' deficit (903,389) (271,854)
--------------- --------------
$ 494,718 $ 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 NINE MONTHS DURING
ENDED DECEMBER 31, DEVELOPMENT
1999 1998 STAGE
--------------- ------------ ---------------------
<S> <C> <C> <C>
Revenue $ 152,480 $ 27,873 $ 228,597
Less cost of sales 33,863 7,524 36,961
--------------- ------------ ---------------------
Gross profit 118,617 20,349 191,636
Operating Expenses:
General and administrative 1,180,656 998,472 3,161,896
Depreciation and amortization 289,758 85,698 471,800
--------------- ------------ ---------------------
1,470,415 1,084,170 3,633,697
--------------- ------------ ---------------------
Net Loss Before Other Income (Expense)
and Income Taxes (1,351,798) (1,063,821) (3,442,060)
Other Income (Expense)
Interest expense (61,171) (13,072) (86,016)
--------------- ------------ ---------------------
(61,171) (13,072) (86,016)
--------------- ------------ ---------------------
Net Loss Before Income Taxes (1,412,969) (1,076,893) (3,528,075)
Income taxes - -
--------------- ------------ ---------------------
Net Loss $ (1,412,969) $ (1,076,893) $ (3,528,075)
=============== ============ =====================
Net Loss per share $ (0.27) $ (.32) $ (0.87)
=============== ============ =====================
Weighted Average Number of Shares
Outstanding 5,149,503 3,402,075 4,076,277
</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 IF CHANGES IN SHAREHOLDERS' DEFICIT
YEAR ENDED MARCH 31, 1999 AND NINE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
STOCK --------------------------- PAID IN ACCUMULATED
SUBSCRIPTIONS SHARES AMOUNT CAPITAL DEFICIT
----------------- ------------ ------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Balances March 31, 1998 (restated) $ - 2,461,472 $ 2,462 198,930 $ (425,443)
Common stock issued for cash 674,100 674 426,076
Stock issued for subscriptions (1,305,487) 805,487 806 1,304,681
Stock issued for services 171,150 171 170,980
Stock issued in connection with debt 400,000 400 399,600
Stock issued to acquire Newton
Healthcare Network, Inc. 100,000 100 99,900
Conversion of debt to equity 324,960 325 324,635
Collection of stock subscriptions 219,000
Net loss (1,689,664)
----------------- ------------ ------------- ---------------- ------------------
Balances March 31, 1999 (1,086,487) 4,937,169 4,938 2,924,802 (2,115,107)
----------------- ------------ ------------- ---------------- ------------------
Common stock issued for cash 286,634 287 420,468
Common stock issued for services 50,484 50 50,434
Common stock issued for loans 50,000 50 99,950
Common stock for subscriptions 10,500 10 20,990
Common stock issued for debt 26,575 27 26,548
Stock warrants sold
Collection of stock subscription 145,087
Reduction of subscription receivable
to estimated net realizable value 500,000 (500,000)
Net loss (1,412,969)
----------------- ------------ ------------- ---------------- ------------------
Balances December 31, 1999 $ (441,400) 5,361,362 $ 5,362 3,043,192 $ (3,528,075)
================= ============ ============= ================ ==================
STOCK TOTAL
WARRANTS SHAREHOLDERS'
SOLD EQUITY
-------------- -----------------
<S> <C> <C>
Balances March 31, 1998 (restated) - $ (224,051)
Common stock issued for cash 426,750
Stock issued for subscriptions -
Stock issued for services 171,151
Stock issued in connection with debt 400,000
Stock issued to acquire Newton
Healthcare Network, Inc. 100,000
Conversion of debt to equity 324,960
Collection of stock subscriptions 219,000
Net loss (1,689,664)
-------------- -----------------
Balances March 31, 1999 - (271,854)
-------------- -----------------
Common stock issued for cash 420,755
Common stock issued for services 50,484
Common stock issued for loans 100,000
Common stock for subscriptions 21,000
Common stock issued for debt 26,575
Stock warrants sold 17,532 17,532
Collection of stock subscription 145,087
Reduction of subscription receivable -
to estimated net realizable value -
Net loss (1,412,969)
-------------- -----------------
Balances December 31, 1999 17,532 $ (903,389)
============== =================
</TABLE>
See accompanying notes to unaudited consolidated finanacial statements
6
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<TABLE>
<CAPTION>
ROCKPORT HEALTHCARE GROUP, INC.
(COMPANIES IN THE DEVELOPMENTAL STAGE)
STATEMENT OF CASH FLOWS
(UNAUDITED)
CUMULATIVE
FOR THE NINE MONTHS DURING
ENDED DECEMBER 31, DEVELOPMENT
1999 1998 STAGE
---------------- -------------- ---------------------
<S> <C> <C> <C>
Operating Activities:
Net Loss $(1,412,969) $(1,076,893) $(3,528,076)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 15,036 10,398 36,738
Amortization of loan costs 274,722 75,000 441,666
Amortization of organization costs - 301 5
Issuance of stock for compensation - - 94,517
Stock issued for services 50,484 25,000 127,118
Issuance of stock for accounts payable 26,575 - 26,575
Write-off of bad debt - 20,000 48,598
Changes in assets and liabilities:
Accrued interest receivable - - 257
Accounts payable 30,454 59,425 103,133
Accrued expenses 40,497 48,215 261,175
Other assets - - 3,841
Other current liabilities 6,081 75,184 6,081
Accounts receivable - trade (24,334) (12,083) (71,289)
Prepaid expenses (419) 5,908 9,388
---------------- -------------- ---------------------
Cash Used in Operating Activities (993,871) (769,545) (2,440,272)
---------------- -------------- ---------------------
Financing Activities:
Proceeds from sale of stock 426,239 507,100 1,053,951
Proceeds from stock subscription 160,603 - 379,603
Proceeds from notes payable 749,500 300,000 1,235,036
Repayments of notes payable (156,311) - (181,311)
Loans from shareholders - 73,377 153,983
Sale of stock warrants 17,532 17,532
Other assets - 2,056 -
---------------- -------------- ---------------------
Cash Provided by Financing Activities 1,197,563 554,285 2,658,794
---------------- -------------- ---------------------
Investing Activities:
Purchase of fixed assets (11,838) (3,330) (37,115)
Proceeds from notes receivable - - 20,000
Investment and advances to Elite Data Services (52,500) (52,500)
Other (121) (10,209) (2,955)
---------------- -------------- ---------------------
Cash Used in Investing Activities (64,458) (13,539) (72,569)
---------------- -------------- ---------------------
Net Increase (Decrease) in Cash 139,235 99,449 145,953
Cash and Cash Equivalents, beginning 17,320 1,398 10,602
---------------- -------------- ---------------------
Cash and Cash Equivalents, end of period $ 156,555 $ 100,847 $ 156,555
================ ============== =====================
</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
DECEMBER 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 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 6, "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
December 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.
8
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PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
computed on the straight-line method over the estimated economic lives of the
assets which range from 3 to 7 years.
INCOME TAXES
The Company accounts for income taxes on the liability method under
which the amount of deferred income taxes is based on the tax effects of the
differences between the financial and income tax basis of the Company's
assets, liabilities and operating loss carryforwards at the balance sheet
date based upon existing laws. Deferred tax assets are recognized if it is
more likely than not that the future income tax benefit will be realized.
Since utilization of net operating loss carryforwards is not assured, no
benefit for future offset of taxable income has been recognized in the
accompanying financial statements.
LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset, and
its eventual disposition, is less than its carrying amount. The Company has
not identified any such impairment losses.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles, requires the Company's
management to make estimates and assumptions that affect the amounts reported
in these financial statements and accompanying notes. Actual results could
differ from those estimates.
LOAN FEES
Loan fees incurred while obtaining financing, aggregating $500,000
are being amortized using a straight-line method over the term of the related
notes payable. Accumulated amortization of these loans aggregated $441,666 at
December 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 December 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 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 $441,400 due from
a third party. Of the original amount subscribed, $73,600 was collected
during the three months ended December 31, 1999.
3. NOTES PAYABLE
The Company had an 8% note due to a shareholder and director in the
amount of $100,000 as of March 31, 1998. The principal balance of the note
has been reduced by $25,000 at June 30, 1999, as a result of a payment made
by the Company to the prior controlling shareholder on behalf of this
shareholder to effectuate the transfer of control of the Company. Additional
loans in the amount of $57,000 were advanced by this shareholder during the
six month period ended September 30, 1998. The loan balance of $132,000 plus
accrued interest of $7,118 was converted to 139,118 shares of the Company's
common stock valued at $1 per share effective October 31, 1998. Additional
loans in the amount of $579,500 were advanced by this shareholder during the
nine month period ended December 31, 1999.
On September 14, 1998, Bannon Energy Incorporated ("Bannon") loaned
the Company $200,000 under a one-year, 8% note secured by all assets of the
Company and received 200,000 shares of the Company's restricted common stock.
The stock, valued at $1 per share, was recorded as a loan cost and was
amortized over one year. On January 26, 1999, Bannon loaned the Company an
additional $100,000 at 8% interest. This note matured 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 was
amortized as a loan cost over the term of the loan. Bannon has the option,
but not the obligation, to convert the principal amount of the loans into an
additional 300,000 shares of the Company's restricted common stock at any
time prior to the loan maturity dates. Both of the loans above are, by mutual
agreement, being paid monthly beginning January 1, 2000, in the amount of
$26,724.53 per month for twelve months.
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, was
recorded as a loan cost and was 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, including
extensions. On July 28, 1999, this shareholder of the Company loaned the
Company $100,000 for a one-year period at 15% interest and received 50,000
shares of the Company's restricted common stock. The stock, valued at $2 per
share, has been recorded as a loan cost and is being amortized over the
period of the loan. The shareholder has the option to convert the principal
amount of the loan into an additional 50,000 shares of the Company's
restricted common stock at any time prior to the loan maturity date. As of
November 5, 1999, the first loan was extended for a one year period with the
interest being paid monthly. The right to convert into common stock of the
Company has also been extended for the same period. A third party agreed to
purchase 50,000 shares of stock from this shareholder at $5 per share. The
Company guaranteed performance and is contingently liable to purchase this
stock.
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.
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4. LEASES
The Company's subsidiary has assumed leases for office space and
equipment under operating leases expiring at various dates through 2003.
Management expects that in the normal course of business, leases will be renewed
or replaced by similar leases. Future minimum lease payments under
noncancellable leases with terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Years Ending March 31,
----------------------
<S> <C>
2000 $ 70,150
2001 $ 35,400
2002 $ 4,032
2003 $ 2,688
</TABLE>
5. ACQUISITIONS
On September 14, 1998, Rockport Community Network, Inc., a wholly owned
subsidiary of the Company, acquired 100% of the membership interests of Newton
Healthcare Network, LLC ("Newton"), a Texas limited liability company for
100,000 shares of the Company's restricted common stock. Bannon, owned by a
former director of the Company, owned 85% of the membership interest and
received a 2% overriding royalty interest in the gross revenues received by
Newton and Rockport Community Network, Inc. The acquisition has been accounted
for on the purchase method of accounting. Newton had $151 of cash and no other
assets or liabilities on the date of acquisition. Goodwill has been recorded in
the amount of $99,849 and is being amortized over a 20-year period.
6. REVERSE ACQUISITION BY ROCKPORT GROUP OF TEXAS, INC.
On December 17, 1997, the shareholders of Rockport Group of Texas,
Inc. approved a merger with Protokopos Corporation (the "Merger"). Pursuant
to the Merger Agreement, each outstanding share of Rockport Group of Texas,
Inc., par value $1 per share, was converted to the right to receive 961.6213
shares of Protokopos Corporation, par value $.001 per share. After the
completion of the Merger, Protokopos Corporation changed its name to Rockport
Healthcare Group, Inc. At the conclusion of the Merger, the Company had
2,461,472 shares of common stock outstanding. As of the date of the
acquisition, Protokopos had no assets or liabilities.
7. CONTINGENT LIABILITIES
One of the Company's subsidiaries has issued 1,000 shares of its 8%,
cumulative, non-participating preferred stock. The stock is redeemable at $200
per share and is expected to be redeemed out of future cash flows of the
Company.
The Company has unpaid payroll taxes from June 30, 1998 forward
totaling $133,335. As a result of an installment agreement with the Internal
Revenue Service, this liability, which includes penalties and interest, is being
paid in the amount of $12,000 per month.
The Company is contingently liable to purchase 50,000 shares at $5 per
share as the result of a performance guarantee by a third party in connection
with a loan to the Company as described in Note 3.
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
11
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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 as of October 31, 1998. These liabilities were converted to equity
during fiscal year 1999. During the three months ended December 31, 1999,
additional advances or accrued management fees totaled $11,000.
The Company incurred management fees to various shareholders and
directors in the amount of $60,000 for the three months ended December 31, 1999.
See Note 3 for a discussion of financing provided by related parties.
9. GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has incurred an
accumulated net loss of $3,528,075. This matter raises substantial doubt about
the Company's ability to continue as a going concern.
The Company has funded its operations through the sale of Company
common stock, borrowing funds from outside sources and conversion of employee
and director debt to common stock of the Company. Should the Company not be able
to raise the necessary funding to implement the Company's business plan, the
Company would not be able to proceed prospectively, and therefore, would no
longer anticipate being a going concern.
10. INCOME TAXES
There were no material deferred tax assets and liabilities as of
December 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 $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 is currently has provider networks in Texas, Louisiana, Florida, Indiana,
California and Tennessee. Development is currently underway in Arkansas,
Mississippi, Georgia, Alabama, North Carolina, South Carolina, Oklahoma, and
Nevada. RCN has sixteen client agreements for use of its networks. Management
expects several major clients to be added in the first half of 2000.
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.
13
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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
1999 and 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 year 2000, 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.
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 extremely 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 December 31, 1999, the Company employed fourteen full time
individuals, thirteen in Houston, Texas and one in Colorado. None of the
Company's employees are represented by a labor union, and the
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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 nine months ended December,
31, 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 - Nine Months ended December 31, 1999 and 1998
REVENUE. Total revenue increased from $27,873 in 1998 to $152,480 for
the nine month period ended December 31, 1999.
Although Rockport has product lines and subsidiaries devoted to
accident and health benefit plans, for its first year's operations Rockport has
concentrated on its workers' compensation product lines. We are selling access
to our preferred provider organization, Rockport Community Network, Inc. This
PPO offers the client maximization of the dollar penetration rate, number
dollars spent with our provider networks, and twenty to fifty percent (20% to
50%) savings. During the first year of the client's contract, Rockport offers
the client the opportunity to customize the network to increase its penetration
rates and begin to manage the claimant's episode of care with defined outcomes.
With in two years of the contract the client's network will be transformed into
Rockport Occupational Network, Inc. Rockport Occupational Network, Inc. is our
primary care providers' equity model exclusive provider network.
Marketing of the RCN occupational provider network began in January,
1999. The Houston Independent School District was our first client and was
implemented February, 1999. Since March 1999, fifteen additional new clients
have been added which represent approximately six hundred and seventy employers.
Although our current business is primarily in Texas, our Clients are also doing
business in Florida, Arkansas, Alabama and Louisiana. Rockport also has networks
in California, Tennessee, Indiana and Ohio. Currently Rockport is developing
networks in Virginia, North Carolina, Arizona, Nevada and South Carolina.
In 1998, our clients paid or processed $ $229,000,000 in occupational
and work related medical bills covering over 1,000,000 employees. In Texas, the
1998 annual paid medical bills of these clients were $195,000,000 with 923,090
covered employees. In the Greater Houston market, the paid medical bills for
such period were $41,500,000, covering over 190,000 employees. Based on annual
paid medical bill and assuming all clients are fully implemented, Rockport
estimates annualized revenue of $6,780,000 from these clients.
The Company has developed a medical access savings card, which among
other things allows the holder of the card the right to access national networks
in the areas of physicians, dentists, prescriptions, vision, hearing,
chiropractic and a 24-hour nurse "hot-line". The medical access savings card was
developed for those individuals who cannot afford medical insurance, are
uninsurable or require a supplement to their current medical insurance plan. By
accessing the networks provided by the medical access savings card, the holders
of the cards obtain national discounts of care providers' rates over the
non-contracted rates. The holder of the medical access savings card pays an
annual fee to the Company for the use of the card and the Company shares a
portion of the fee with the networks accessed by the medical access savings
card. Rockport through its subsidiary, Rockport Preferred, Inc. has begun test
marketing its medical access savings card. The Company intends to launch a
multi-level marketing program in the year 2000 to sell the medical access
savings card under the brand names of Passport and MAS.
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.
15
<PAGE>
COST OF SALES. Cost of sales increased to $33,863 for the nine month
period ended December 31, 1999 as compared to $7,524 during the same period in
1998. This was comprised primarily of fees the Company pays for accessing other
healthcare networks and commissions.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $182,184, or 18.2%, to $1,180,656 for the nine month
period ended December 31, 1999 from $998,472 during the same period 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 $204,060 to $289,758 for the nine month period ended
December 31, 1999 from $85,698 during the same period in 1998. The Company
obtained loans during 1999 to fund its operations. As consideration for four of
the loans which have an aggregate principal amount of $500,000, the Company
issued 450,000 shares of its common stock. The fair market value of such common
stock as of 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 nine month period ended December 31, 1999, was $274,722.
INTEREST EXPENSE. Interest expense increased by $48,099 to $61,171
for the nine month period ended December 31, 1999 from $13,072 during the
same period 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. As of December 31, 1999, the Company had outstanding
indebtedness in the form of notes payable in the aggregate principal amount of
$1,021,725. While $549,500 of such indebtedness is due and payable on demand,
the remainder is due and payable on various maturity dates no later than
December 31, 20000. In addition, as a condition to one of the loans described
above, the Company has guaranteed the purchase by a third party of 50,000 shares
of its common stock held by the lender for a purchase price of $5 per share or
an aggregate of $250,000.
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.
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
As anticipated, the Company did not experience any adverse consequences
as a result of the year 2000 and the Company is unaware of any adverse
consequences experienced by it major suppliers or customers.
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-QSB 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-QSB should be relied upon as predictions of future events. Such
statements are necessarily dependent on assumptions, data or methods that
16
<PAGE>
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.
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.
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
--------------------------------------
February 11, 2000 Larry K. Hinson
Chief Financial and Accounting Officer
(duly authorized officer)
19
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