<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 June 30, 2000
[ ] 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 July 22, 2000, there
were outstanding 7,150,127 shares of common stock, $.001 per value per share.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ]
NO [X]
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, 2000 (unaudited) and March 31, 2000
Consolidated Statements of Operations (unaudited) 5
Three Months Ended June 30, 2000 and 1999
Consolidated Statement of Changes in Shareholders' 6
Deficit
Year Ended March 31, 2000 and Three Months Ended
June 30, 2000 (unaudited)
Statement of Cash Flows (unaudited) 7
Three Months Ended June 30, 2000 and 1999
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
PART 2 OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matter to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1.
ROCKPORT HEALTHCARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
---------------- ---------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current Assets:
Cash $ 88,512 $ 133,258
Account receivables, no allowance for doubtful accounts 214,067 100,716
Prepaid expenses 496 980
---------------- ---------------
Total current assets 303,075 234,954
---------------- ---------------
Property, Plant and Equipment:
Office furniture and equipment 38,173 37,729
Computer equipment and software 72,778 65,025
Telephone equipment 15,735 15,734
---------------- ---------------
126,686 118,488
Less accumulated depreciation (46,409) (40,558)
---------------- ---------------
Net property, plant and equipment 80,277 77,930
---------------- ---------------
Other Assets:
Deposits 9,036 9,038
Accounts receivable, other 109,250 81,250
Capitalized loan costs, net 8,333 33,333
Intangible assets, net 123,307 126,739
---------------- ---------------
Total other assets 249,926 250,360
---------------- ---------------
$ 633,278 $ 563,244
================ ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
---------------- ---------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Notes payable $ 402,843 $ 518,165
Accounts payable 106,716 84,788
Due to shareholders, directors, officers, and employee 129,726 66,994
Payroll tax payable 85,242 120,913
Other current liabilities 159,698 157,610
--------------- --------------
Total liabilities 884,225 948,470
--------------- --------------
Commitments and Contingencies (Notes 4 and 7)
Shareholders' Deficit:
Preferred stock, $.001 par value, 1,000,000 shares authorized,
None issued - -
Common stock, $.001 par value, 20,000,000 shares authorized,
7,010,127 and 6,210,127 shares issued and outstanding
at June 30, 2000 and March 31, 2000, respectively 7,011 6,210
Additional paid in capital 4,283,820 3,684,620
Retained deficit (4,559,310) (4,093,588)
Stock warrants 17,532 17,532
--------------- --------------
Total shareholders' deficit (250,947) (385,226)
--------------- --------------
$ 633,278 $ 563,244
=============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
2000 1999
---------------- -------------
<S> <C> <C>
Revenue $ 175,720 $ 28,339
Less cost of sales 43,400 6,847
--------------- ------------
Gross profit 132,320 21,492
Operating Expenses:
General and administrative 538,527 389,392
Depreciation and amortization 34,285 124,161
--------------- ------------
572,812 513,553
--------------- ------------
Loss Before Interest Expense (440,492) (492,061)
Interest expense (25,231) (9,816)
--------------- ------------
Net Loss $ (465,723) $ (501,877)
=============== ============
Net Loss Per Share $ (0.07) $ (.14)
=============== ============
Weighted Average Number of Shares
Outstanding 6,227,110 3,706,168
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
YEAR ENDED MARCH 31, 2000 AND THREE MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
STOCK ------------------------- PAID IN ACCUMULATED
SUBSCRIPTIONS SHARES AMOUNT CAPITAL DEFICIT
---------------- ------------ ------------ --------------- ------------------
<S> <C> <C> <C> <C> <C>
Balances March 31, 1999 $ (1,086,487) 4,937,169 $ 4,938 $ 2,924,802 $ (2,115,107)
Common stock issued for cash 527,618 527 691,684
Stock issued for subscriptions
Stock issued for services 66,710 66 117,122
Stock issued in connection with loans 50,000 50 99,950
Stock issued for an acquisition 37,500 38 37,462
Debt converted to equity 1,032,530 1,032 760,043
Stock warrants sold
Reduction of stock subscription
receivable to amounts collected 920,400 (441,400) (441) (940,959)
Collection of stock subscriptions 166,087 (5,484)
Net loss (1,978,481)
---------------- ------------ ------------ --------------- ------------------
Balances March 31, 2000 0 6,210,127 6,210 3,684,620 (4,093,588)
---------------- ----------- ------------ --------------- ------------------
Common stock issued for cash 161,360 162 120,859
Debt converted to equity 638,640 639 478,341
Net loss (465,723)
---------------- ----------- ------------ --------------- ------------------
Balances June 30, 2000 $ 0 7,010,127 $ 7,011 $ 4,283,820 $ (4,559,310)
================ ============ ============ =============== ==================
<CAPTION>
STOCK TOTAL
WARRANTS SHAREHOLDERS'
SOLD EQUITY
-------------- -----------------
Balances March 31, 1999 $ - $ (271,854)
Common stock issued for cash 692,211
Stock issued for subscriptions -
Stock issued for services 117,188
Stock issued in connection with loans 100,000
Stock issued for an acquisition 37,500
Debt converted to equity 761,075
Stock warrants sold 17,532 17,532
Reduction of stock subscription
receivable to amounts collected (21,000)
Collection of stock subscriptions 160,603
Net loss (1,978,481)
-------------- -----------------
Balances March 31, 2000 17,532 (385,226)
-------------- -----------------
Common stock issued for cash 121,021
Debt converted to equity 478,980
Net loss (465,723)
-------------- -----------------
Balances June 30, 2000 $ 17,532 $ (250,947)
============== =================
</TABLE>
See accompanying notes to unaudited consolidated finanacial statements
6
<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
2000 1999
--------------- --------------
<S> <C> <C>
Operating Activities:
Net Loss $ (465,723) $ (501,877)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 5,851 4,994
Amortization of loan costs 25,000 119,167
Writeoff of organization costs 750 -
Amortization of intangible assets 3,434 -
Changes in assets and liabilities:
Accounts payable 21,928 7,404
Accrued expenses 2,089 34,705
Other assets - (630)
Other current liabilities (43,936) 5,438
Accounts receivable - trade (113,352) (23,833)
Prepaid expenses 484 514
--------------- --------------
Cash Used in Operating Activities (563,476) (354,118)
--------------- --------------
Financing Activities:
Proceeds from sale of stock 120,859 263,002
Conversion of debt 478,341 -
Proceeds from notes payable 75,000 61,724
Repayments of notes payable (189,522) -
Loans from shareholders 71,000 19,493
--------------- --------------
Cash Provided by Financing Activities 555,678 344,219
--------------- --------------
Investing Activities:
Purchase of fixed assets (8,198) (1,749)
Investment and advances to Elite Data Services (28,000) -
Other (750) -
--------------- --------------
Cash Used in Investing Activities (36,948) (1,749)
--------------- --------------
Net Increase (Decrease) in Cash (44,746) (11,648)
Cash and Cash Equivalents, beginning 133,258 17,320
--------------- --------------
Cash and Cash Equivalents, end of period $ 88,512 $ 5,672
=============== ==============
Non-Cash Transaction:
Stock issued to convert debt to equity $ 478,341 $ -
=============== ==============
</TABLE>
7
g<PAGE>
ROCKPORT HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited consolidated financial statements of
Rockport Healthcare Group, Inc. and Subsidiaries (the "Company") have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30,
2000, the results of operations for the three month period ended June 30,
2000 and 1999 and cash flows for the three months ended June 30, 2000 and
1999. These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in
the preparation of the Company's 2000 Annual Report on Form 10-KSB.
The accompanying unaudited consolidated financial statements should
be read in conjuction with the audited consolidated financial statements and
notes thereto included in the Company's 2000 Annual Report on Form 10-KSB.
Reclassifications - Amounts in prior years' financial statements are
reclassified as necessary to conform with the current year's presentation.
BUSINESS
Rockport Healthcare Group, Inc., a Delaware corporation, 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 6, "Reverse Acquisition by Rockport"). The
capital section of the Company was restated to reflect the reverse merger.
The Company was established as a holding company to develop and/or
acquire business entities that 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
work illnesses and injuries, 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 had the following wholly owned subsidiaries as of June
30, 2000:
Rockport Advanced Care, Inc.
Rockport Community Network, Inc.
Rockport Group of Texas, Inc.
Rockport Occupational Network, Inc.
8
<PAGE>
Rockport Preferred, Inc.
Newton Healthcare Network, LLC
Rockport Administrative Services, Inc.
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.
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 tax 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, representing stock issued valued at fair market value,
amounted to $500,000. These loan fees were incurred to obtain financing and
are being amortized using the interest yield method over the term of the
related notes payable. Accumulated amortization aggregated $491,667 and
$466,667 at June 30, 2000 and March 31, 2000, respectively.
PROVIDER CONTRACTS
Amounts paid for healthcare provider contracts are amortized to
expense on the straight-line method over the estimated life of the contracts
of 10 to 20 years.
9
<PAGE>
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 three months ended June 30, 2000 and the year ended March 31, 2000.
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.
2. STOCK SUBSCRIPTION RECEIVABLE
The Company had a stock subscription receivable as of March 31, 1999
due from a third party. Of the original amount subscribed, $160,603 was
collected during the year ended March 31, 2000. The balance of the receivable
was eliminated by canceling the stock originally issued as of March 31, 2000.
3. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
--------------------------------
2000 2000
--------------- --------------
<S> <C> <C>
Unsecured note payable to a stockholder, due in monthly
installments of $2,842, with interest at 8%. $ 2,843 $ 11,260
Unsecured note payable to a stockholder, with interest at
8%. The note matures in December 2001 and is payable
on demand. 200,000 125,000
Convertible notes payable to a stockholder, with interest
payable monthly at 15%. The note is guaranteed by two
officers and shareholders and is convertible into
150,000 shares of Rockport Healthcare Group, Inc.
common stock at any time before November 2000, the due
date. The Company issued 150,000 shares of its common
stock in connection with these notes. 200,000 200,000
Convertible notes payable to a stockholder, due in
monthly installments of $26,725, with 18% interest,
due January 2001. These notes were collateralized by
all Company assets and were convertible into 300,000
shares of Rockport Healthcare Group, Inc. common stock
at any time before January 2001. The Company issued
300,000 shares of common stock in connection with
these notes. - 181,905
-------------- -------------
Total $ 402,843 $ 518,165
============== =============
</TABLE>
10
<PAGE>
On June 29, 2000, $300,000 of advances due under a note due to a
shareholder and $178,979 principle and interest due on the convertible notes
payable due to another shareholder were converted into 638,640 shares of the
Company's common stock.
4. LEASES
The Company's subsidiary has assumed leases for office space and
equipment under operating leases expiring at various dates through 2005.
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>
2001 $ 135,295
2002 225,428
2003 227,776
2004 232,710
2005 230,668
-------------
Total $ 1,051,877
=============
</TABLE>
5. ACQUISITIONS
On September 19, 1999, the Company acquired Primary Provider
Management Company, Inc. ("PPMC"), a preferred provider organization in San
Antonio, Texas, for 37,500 shares of the Company's stock plus a 10%
commission on revenue generated from the healthcare provider contracts
acquired. The acquisition was accounted for under the purchase method of
accounting. The Company's stock was valued at $1 per share, and the assets
acquired, consisting of provider contracts, are being amortized over a
ten-year period.
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. A company, 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 other than healthcare
provider contracts. An intangible asset representing the estimated fair value
of the provider contracts acquired was recorded in the amount of $99,849 and
is being amortized on the straight-line method over a 20-year period.
6. 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.
11
<PAGE>
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 the
option of the holder at $200 per share and is redeemable out of future cash
flows of the Company.
The Company entered into a consulting agreement with an individual,
effective April 1, 2000, that provides for monthly payments of $12,500 plus
2% of the Company's gross revenues. The agreement expires on March 31, 2001.
8. STOCK WARRANTS
During the fiscal year ended March 31, 2000, the Company sold
warrants to purchase common stock of the Company at any time until September
1, 2002 for $1.75 a share. The warrants were sold for $.25 per share. Total
proceeds from the sale of the warrants amounted to $17,532.
9. RELATED PARTY TRANSACTIONS
The Company incurred management fees to various shareholders and
directors in the amount of $182,500 for the year ended March 31, 2000. No
management fees were incurred during the three months ended June 30, 2000.
See Note 3 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 $4,559,310 and has negative
working capital of $581,150 as of June 30, 2000. These matters raise
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. Although management
believes the funding necessary to implement its business plan will be
obtained, should the Company not be able to raise such funding, the Company
may not be able to continue as a going concern.
11. INCOME TAXES
The tax effect of significant temporary differences representing
deferred tax assets and liabilities at March 31, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
March 31,
-------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Net operating loss carryforwards $ 1,209,000 $ 482,000
Valuation allowance (1,209,000) (482,000)
--------------- ---------------
Net deferred tax asset $ - $ -
=============== ===============
</TABLE>
12
<PAGE>
The increase in the valuation allowance during fiscal 2000 of $727,000
is the result of additional losses incurred during the year.
As of March 31, 2000, Rockport Healthcare Group, Inc. has net
operating loss carryforwards of approximately $3,224,000 which begin to
expire in 2009. Future utilization of the net operating loss carryforwards
may be limited by changes in the ownership of Rockport Healthcare Group, Inc.
under section 382 of the Internal Revenue Code.
The difference between the actual income benefit of zero for fiscal
years 2000 and 1999 and the expected benefit using the statutory income tax
rate of 34% results from the 100% valuation allowance on Rockport Healthcare
Group Inc.'s net operating loss deferred tax asset at each year end.
13
<PAGE>
FORWARD LOOKING STATEMENTS
This report on Form 10-QSB contains certain "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which represent the Company's
expectations and beliefs, including, but not limited to, statements
concerning the Company's expected growth. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify
forward-looking statements, which speak only as of the date such statement
was made. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors,
including but not limited to: the Company's ability to forge satisfactory
relationships with healthcare providers and employers and enroll sufficient
numbers of employees of contracting employers to utilize the Company's
services; continued efforts to control healthcare costs; potential regulatory
intervention if the Company fails to comply with regulatory requirements;
proposed future efforts to control administrative costs; future health care
and administrative costs, future provider network, future provider
utilization rates, future service performance and other operations matters;
future government regulation and relations and the future of the health care
industry; the ability of the Company to price its products competitively;
sources for sufficient additional capital to meet the Company's growth and
operations; the failure to properly manage growth and successfully integrate
additional providers; changes in economic conditions; demand for the
Company's products; and changes in the competitive and regulatory
environment. Future events and actual results could differ materially from
those expressed in, contemplated by, or underlying any such forward-looking
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
PLAN OF OPERATION - GENERAL
Rockport Healthcare Group, Inc. (the "Company" or "Rockport") is a
managed healthcare company that offers its proprietary network of healthcare
providers of services and products to its clients for the benefit of
employees with work related illnesses and injuries. Rockport's clients are
primarily employers, insurance companys and companies that provide
administrative services to employers and insurance companies. In addition to
medical healthcare networks for work related illnesses and injuries, Rockport
will offer 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 Company's products and services are designed to reduce medical
costs while maintaining high quality medical care. The Company establishes
proprietary networks of contracted healthcare providers who agree to provide
healthcare products and services for fees which are less than the state
mandated fee under workers compensation laws and regulations and/or below
usual and customary fees. Rockport contracts with employers and insurance
companies, or those companies servicing these groups, to provide access to
these networks primarily for the benefit of their employees with work related
illnesses and injuries. When employees use the Company's network of
healthcare product and service providers, the Company earns fees equal to a
percentage of the savings realized by the employer or insurance company.
These fees constitute the majority of the Company's revenue. The proprietary
networks are referred to as Preferred Provider Organizations ("PPO's") or
Exclusive Provider Organizations ("EPO's"). The Provider Network is marketed
to third party administrators, managed care organizations, insurers, case and
utilization management companies, self-funded employers, and other similar
organizations. Currently, the Company provides the Provider Network primarily
in the area of work related illnesses and injuries.
14
<PAGE>
The healthcare providers selected by the Company for its Provider
Networks are selected on the basis of their clinical qualifications and their
adherence to the standards of care and service developed by the Company. The
Company ensures that the providers are geographically appropriate, accessible
and consumer friendly.
The Company has increased the number of providers that are a part of
its Provider Network. In 1999, the Company acquired a Texas PPO which had
contracts with 65 hospitals and 8,000 providers. The Company has also
negotiated access agreements with hospitals and providers in Arizona,
California, Florida, Indiana, Louisiana, Nevada, Ohio, Oklahoma and Tennessee
as part of its development plan to create a nationwide PPO network.
Negotiations have begun with hospitals and providers in Arkansas, Georgia,
Mississippi, North Carolina, South Carolina and Virginia to add these states
to the nationwide network. The Company has also entered into an agreement
with a national PPO to be utilized in those states where the Company has not
begun development of its own network.
The Company, through its wholly owned subsidiary Rockport Preferred,
Inc., offers customers the ability to obtain discounts on quality medical and
healthcare services by purchasing its Medical Access Savings Card ("Card").
The Card offers customers a discount on healthcare services throughout the
United States delivered by physicians, dentists, chiropractors, vision care
providers, hearing providers and on prescriptions. Typically, the Card can
provide users with an average 30% discount on vision, dental and
chiropractic, and hearing health services and on prescriptions. The Company
charges its customers an annual fee for the Card, based upon the particular
types of services and products for which a discount is provided under the
card. The appeal of the Card to employers is that while its employees enjoy a
significant cost savings on healthcare services, the employer is provided
with a simple solution for the administration of healthcare costs.
The market potential for the Medical Access Savings Card is large.
The Company estimates that there are 110 million individuals in the United
States who are either uninsured or underinsured. These individuals could
potentially benefit from the Card. The Company plans to offer the Card both
as a retail product and as a product through private branding channels. With
private branding, the Card can be custom tailored by the sponsor or endorser
to provide specific programs and can contain branding identification of the
sponsor or endorser.
The Company also offers support services to other companies in the
healthcare industry. For a fee, the Company provides companies in the heath
care industry management information services, customer services, physician
and facility referrals, contracting services (contracting providers and
payors), credentialing services (credentialing providers), and re-pricing.
DISCUSSION OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of the Company's financial
condition as of June 30, 2000 and the Company's results of operations for the
three month periods ended June 30, 2000 and 1999 should be read in
conjunction with the Company's unaudited financial statements and notes
thereto included elsewhere in this report, and these unaudited consolidated
financial statements contained in this report should be read in conjunction
with the audited consolidated financial statements and the notes thereto
included in the Company's Annual Report on form 10-KSB for the year ended
March 31, 2000.
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Results of Operations - Three months ended June 30, 2000 and 1999
REVENUE.
Total revenue increased by $147,381, or 520%, from $28,339 in 1999
to $175,720 in 2000. Fees for the use of the healthcare provider network for
work related illnesses and injuries increased 522% from $26,949 in 1999 to
$167,528 in 2000.
During the first fiscal quarter ended June 30, 2000 the Company has
significantly increased its client base for its work related illnesses and
injuries networks. Several new client contracts were signed and/or
implemented during the three months ended June 30, 2000, including El Paso
Independent School District, Mesquite Independent School District, Harris
County, Dallas County, American Resources and the University of Texas. The
Company has several significant contracts pending final negotiations and has
begun discussions with several large insurance carriers. The Company has
entered into an agreement with a national network of providers to provide
national coverage while it continues to expand its workers' compensation
networks in other states through contracting and acquisitions.
The Company has developed a Medical Access Savings Card (the
"Card"), which among other things, allows the holder of the Card the right to
access national networks in the areas of physicians, dentists, providers of
vision, hearing and chiropractic services; and receive the benefits of
prescription discounts and a 24-hour nurse "hot-line". The 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 Card, holders of the Cards obtain discounts from
the healthcare providers in the network. Each holder of the 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. In June, 2000, the Company entered into a marketing and sales agreement
with a large third party administer based in Florida to sell the Card in
Florida and Oklahoma.
COST OF SALES.
Cost of sales increased from $6,847 during 1999 to $43,400 in 2000.
Cost of sales consist of fees incurred by the Company to access other
healthcare networks and sales commissions and increase as revenue increases.
OPERATING EXPENSES.
Operating expenses increased by $59,259, or 12%, from $513,553 in
1999 to $572,812 in 2000. Incremental staffing and associated expenses to
implement the Company's business plan were the primary reasons for the
increase. The Company is currently in a position to experience a significant
increase in revenue growth without a corresponding significant increase in
associated expenses thereby adding to the profitability of the Company.
INTEREST EXPENSE.
Interest expense increased by $15,415, or 157%, from $9,816 in 1999
to $25,231 in 2000. This increase was a result of accrued interest payable on
the loans received by the Company during 2000.
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LIQUIDITY AND CAPITAL RESOURCES
On August 27, 1999, the Company announced that it had
finalized a financing of $2,000,000. The investment banking firm that had
agreed to locate and secure the financing, however, was unable to do so on
terms acceptable to the Company. Management believes that the Company's
capital raising efforts have been delayed by generally unfavorable conditions
in the equities markets which have prevailed for small capitalization issuers
during the first half of 2000. Nevertheless, on June 29, 2000, $300,000 of
the Company's indebtedness under a certain note held by a stockholder of the
Company and $178,979 of principal and interest due on convertible notes were
converted into an aggregate of 638,640 shares of Rockport common stock, and
the Company sold an additional 161,360 shares of Rockport common stock to
certain accredited investors for $121,021.
The Company 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
shareholder 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.
The Company is currently updating its business plan and financial
projections with the intention of raising additional capital during its third
fiscal quarter 2000. Although the Company has recently been working with
another investment banking firm to raise $2,000,000 of capital, Rockport has
received no assurances and has made no commitments at this time. The Company
will continue to monitor market conditions and seek opportunities to raise
capital on terms which management deems appropriate.
OTHER DEVELOPMENTS
In August 1999, the Company announced that its subsidiary, Rockport
Preferred, Inc., had reached an agreement with a taxi cab company to sell its
Medical Savings Card to the taxi company's 1,000 independent taxi drivers.
Although the Company reached a preliminary agreement with the taxi company,
it failed to obtain a definitive agreement concerning the sale of its medical
savings card to this employer. In its August 1999 statement, the Company also
reported that it had entered an agreement with a Michigan marketing group to
offer its medical savings card to 17,000 residents of a community in
Michigan. Management believes that this marketing group did not provide the
expected level of marketing effort and, as a result, did not generate sales
of the card. To date the Company has not had adequate capital resources
available to fund an internal marketing effort sufficient to develop
substantial sales of the Company's Medical Savings Card. As a result, sales
of the Company's Passport Medical Savings card have been negligible to date.
However, Rockport recently entered into a contract with a major third party
administrator, Protegrity Services, Inc., to jointly market the card, and
management believes that this relationship will provide the Company with an
opportunity to widely market the Card to employer groups, primarily in
Florida and Oklahoma.
In the Fall of 1999, the Company made announcements concerning
substantial new clients with hundreds of millions of dollars in paid medical
bills annually which Rockport expected to result in over $4,000,000 in fee
revenue to Rockport annually. Implementation of the Rockport system with
these customers has been much slower than anticipated. With respect to the
largest of those clients, substantial delays have resulted from the work
required to reprogram the client's computers to reflect contracts with
healthcare providers in Rockport's provider network. This client began to
process bills from providers in Rockport's provider network in July 2000. The
Company is also working to end delays with other customers referenced in the
fall of 1999 announcements and to encourage widespread use of the Company's
provider network by the employees of these customers.
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In August, 1999 the Company also announced that it had entered into
an agreement to acquire a data services company. After further due diligence
investigation in connection with the acquisition, the Company discovered that
its systems would not interface as anticipated with those of the data service
company and that the anticipated economic benefits would not result.
Therefore, although the Company and the data services provider continue to
work together on certain matters, the acquisition was not consummated and the
Company does not plan to do so.
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 3.1 Certificate of Incorporation of Registrant, dated April
28th, 1992, as filed with the Secretary of State of Delaware
on May 4th, 1992 (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form 10-SB, dated July
26, 1994, SEC File No. 0-2351)
Ex 3.2 Amendment to Certificate of Incorporation of
Registrant, dated January 16, 1998, as filed with the
Secretary of State of on January 16, 2000 (incorporated by
reference to Exhibit 3.1 to Registrant's Current Report on
Form 8K/A, dated December 17, 1997, SEC File No. 0-23514).
Ex 3.3 Bylaws of Registrant, dated as of May 4, 1992
(incorporated by reference to Exhibit 3.2 to Registrant's
Annual Report on Registration Statement on Form 10-SB, dated
July 26, 1994, SEC File No. 0-23514)
Ex. 27 - Financial Data Schedule
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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 9, 2000 Larry K. Hinson
Chief Financial and Accounting Officer
(duly authorized officer)
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