<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 September 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 33-0611497
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
50 Briar Hollow Lane, Suite 515W, Houston, Texas 77027
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(Address of principal executive offices)
(713) 621-9424
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(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 / /
As of November 10, 2000, there were outstanding 9,039,009 shares of
common stock, $.001 per value per share.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES / / NO /X/
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ROCKPORT HEALTHCARE GROUP, INC.
INDEX TO FORM 10-QSB
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
September 30, 2000 (unaudited) and March 31, 2000
Consolidated Statements of Operations (unaudited) 5
Three and Six Months Ended September 30, 2000 and
1999
Consolidated Statement of Changes in Shareholders' 6
Deficit (unaudited)
Six Months Ended September 30, 2000
Consolidated Statements of Cash Flows (unaudited) 7
Six Months Ended September 30, 2000 and 1999
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results of 12
Operations and Financial Condition
PART 2 OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ROCKPORT HEALTHCARE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
-------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 56,256 $ 133,258
Accounts receivable, no allowance for doubtful accounts 176,674 100,716
Prepaid expenses 1,606 980
-------------------------------------------
Total current assets 234,536 234,954
-------------------------------------------
Property and equipment:
Office furniture and equipment 38,173 37,729
Computer equipment and software 78,351 65,025
Telephone equipment 15,734 15,734
-------------------------------------------
132,258 118,488
Less accumulated depreciation (52,260) (40,558)
-------------------------------------------
Net property and equipment 79,998 77,930
-------------------------------------------
Other assets:
Deposits 9,038 9,038
Accounts receivable, other 122,703 81,250
Capitalized loan costs, net -- 33,333
Intangible assets, net 119,869 126,739
-------------------------------------------
Total other assets 251,610 250,360
-------------------------------------------
Total assets $ 566,144 $ 563,244
===========================================
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
3
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ROCKPORT HEALTHCARE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable to related parties $ 325,000 $ 518,165
Accounts payable 107,391 84,788
Due to shareholders, directors, officers and employees 196,336 66,994
Payroll taxes payable 45,167 120,913
Other current liabilities 203,967 157,610
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Total liabilities 877,861 948,470
-------------------------------------------
Commitments and contingencies (Note 4)
Shareholders' deficit:
Preferred stock, $.001 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $.001 par value, 20,000,000 shares authorized,
7,798,937 and 6,210,127 shares issued and outstanding at
September 30 and March 31, 2000, respectively 7,799 6,210
Additional paid-in capital 4,628,649 3,702,152
Accumulated deficit (4,948,165) (4,093,588)
-------------------------------------------
Total shareholders' deficit (311,717) (385,226)
-------------------------------------------
Total liabilities and shareholders' deficit $ 566,144 $ 563,244
===========================================
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
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ROCKPORT HEALTHCARE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenue $ 224,428 $ 61,855 $ 400,148 $ 90,194
Cost of sales 63,992 11,405 107,392 18,252
--------------------------------------- ---------------------------------
Gross profit 160,436 50,450 292,756 71,942
--------------------------------------- ---------------------------------
Operating expenses:
General and administrative
expenses 523,371 417,378 1,061,898 806,770
Depreciation and
amortization 17,618 125,754 51,903 249,915
--------------------------------------- ---------------------------------
Total operating expenses 540,989 543,132 1,113,801 1,056,685
--------------------------------------- ---------------------------------
Net loss before interest expense
and income taxes (380,553) (492,682) (821,045) (984,743)
Interest expense 8,301 20,034 33,532 29,850
--------------------------------------- ---------------------------------
Net loss $ (388,854) $ (512,716) $ (854,577) $(1,014,593)
======================================= =================================
Net loss per share - basic and
diluted ($0.05) ($0.10) ($0.13) ($0.20)
======================================= =================================
Weighted average number of
common shares outstanding 7,249,491 5,055,669 6,738,601 5,051,260
======================================= =================================
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
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ROCKPORT HEALTHCARE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
SIX MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------------- Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Deficit
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<S> <C> <C> <C> <C> <C>
Balances, March 31,
2000 6,210,127 $ 6,210 $ 3,702,152 $ (4,093,588) $ (385,226)
Stock issued for cash 942,456 942 445,079 -- 446,021
Debt converted to equity 638,640 639 478,341 -- 478,980
Stock issued for services 7,714 8 3,077 -- 3,085
Net loss -- -- -- (854,577) (854,577)
---------------------------------------------------------------------------------------
Balances, September 30,
2000 7,798,937 $ 7,799 $ 4,628,649 $ (4,948,165) $ (311,717)
=======================================================================================
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
6
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ROCKPORT HEALTHCARE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
September 30,
2000 1999
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<S> <C> <C>
Cash flows used by operating activities:
Net loss $ (854,577) $ (1,014,593)
Adjustments to reconcile net loss to cash flow used by operating activities:
Depreciation 11,702 9,850
Amortization 40,203 240,000
Issuance of stock for services 3,085 50,483
Issuance of stock for accounts payable -- 26,575
Changes in assets and liabilities:
Accounts receivable - trade (75,959) (15,288)
Prepaid expenses (626) (892)
Accounts payable 22,603 13,110
Accrued expenses and other (29,389) 39,242
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Cash used by operating activities (882,958) (651,513)
--------------------------------------
Investing activities:
Purchase of fixed assets (13,770) (4,305)
Accounts receivable - other (41,453) (22,000)
--------------------------------------
Cash used by investing activities (55,223) (26,305)
--------------------------------------
Financing activities:
Proceeds from sale of stock 446,021 286,277
Proceeds from stock subscription -- 66,003
Proceeds from notes payable 375,000 200,000
Repayments of notes payable (89,184) (106,460)
Loans from shareholder 129,342 253,500
Sale of stock warrants -- 13,348
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Cash provided by financing activities 861,179 712,668
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Net increase (decrease) in cash (77,002) 34,850
Cash and cash equivalents, beginning of period 133,258 17,320
--------------------------------------
Cash and cash equivalents, end of period $ 56,256 $ 52,170
======================================
Non-cash transactions:
Debt converted to equity $ 478,980 $ --
======================================
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
7
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ROCKPORT HEALTHCARE GROUP, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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" or
"Rockport") have been prepared in accordance with Form 10-QSB 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 September 30, 2000, the results of operations for the three month and
six month periods ended September 30, 2000 and 1999, and the cash flows for
the six months ended September 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 conjunction 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 period's financial statements
have been reclassified as necessary to conform to the current period'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 Texas"). For accounting
purposes, the acquisition has been treated as a reverse acquisition of the
Company by Rockport Texas. 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
occupational 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.
8
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The Company had the following wholly owned subsidiaries as of September
30, 2000:
Rockport Advanced Care, Inc.
Rockport Community Network, Inc.
Rockport Group of Texas, Inc.
Rockport Occupational Network, Inc.
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.
2. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
--------------- --------------
(Unaudited)
<S> <C> <C>
Unsecured note payable to a stockholder, due in monthly
installments of $2,842, with interest at 8%. $ -- $ 11,260
Unsecured note payable to a director and stockholder,
with interest at 8%. The note matures in December
2001 and is payable on demand. 125,000 125,000
Convertible notes payable to a stockholder, with interest
payable monthly at 15%. The notes are guaranteed by
two officers and shareholders and are convertible into
150,000 shares of Rockport Healthcare Group, Inc.
common stock at any time before redemption. The notes
are currently due March 31, 2001. 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 stockholder
exercised the convertibility feature of the note, and
the Company issued 300,000 shares of common stock in
connection therewith on June 29, 2000. -- 181,905
-------------- -------------
Total $ 325,000 $ 518,165
============== =============
</TABLE>
9
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On June 29, 2000, $300,000 of advances due under a note due to a
shareholder and $178,980 principle and interest due on the convertible notes
payable due to another shareholder were converted into 638,640 shares of the
Company's restricted common stock.
3. ACCOUNTS RECEIVABLE - OTHER
The Company has been advancing operating capital to one of its
vendors which performs services for the Company's clients. The advances are
expected to be offset by future services to the Company.
4. CONTINGENT LIABILITIES
One of the Company's subsidiaries, Rockport Texas, 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. These shares are owned by a director
of the Company and were issued prior to the reverse merger.
The Company entered into a consulting agreement with a director of
the Company, 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.
Prior to September 30, 2000, the Company settled a dispute with a
former business associate. In exchange for this former business associate's
release of all claims against the Company, the Company agreed to pay the
former business associate the sum of $60,000 in cash over a one-year period
and issue to him 100,000 shares of the Company's common stock.
5. STOCK WARRANTS
During the fiscal year ended March 31, 2000, the Company sold
warrants to purchase restricted 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. No
warrants have been exercised as of September 30, 2000.
6. 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, and
consulting fees to a director in the amount of $75,000 during the six months
ended September 30, 2000, as more fully described in Note 4.
See Note 2 for a discussion of financing provided by related parties.
10
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7. 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 $4,948,165 and has negative working capital of
$643,325 as of September 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.
8. 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 $ 1,952,000 $ 482,000
Valuation allowance (1,952,000) (482,000)
--------------- ---------------
Net deferred tax asset $ - $ -
=============== ===============
</TABLE>
The increase in the valuation allowance during fiscal 2000 of
$1,470,000 is the result of additional losses incurred during the year.
As of March 31, 2000, the Company has net operating loss
carryforwards of approximately $2,989,000, which begin to expire in 2009.
Future utilization of the net operating loss carryforwards may be limited by
changes in the ownership of the Company 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 the Company's net
operating loss deferred tax asset at each year end.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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," "intend,"
"plan," "expect," "anticipate," "estimate," "project" and similar expressions
identify 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 healthcare and administrative costs, future provider network,
future provider utilization rates, future service performance and other
operations matters; future government regulations and the future of the
healthcare 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 such
forward-looking statements.
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL
CONDITION AS OF SEPTEMBER 30, 2000, AND THE COMPANY'S RESULTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999, SHOULD BE READ
IN CONJUNCTION WITH THE COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT AND 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.
OVERVIEW
Rockport Healthcare Group, Inc. is a healthcare services company
that offers its proprietary network of healthcare products and service
providers, primarily to large employers and insurance companies for the
benefit of employees with occupational injuries and illnesses. The Company
also offers access to national medical, dental, prescription, chiropractic,
hearing 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. The Company
contracts with employers and insurance companies to provide to employees and
12
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insured persons access to these networks primarily for the benefit of their
employees with occupational illnesses and injuries. When employees with
occupational injuries and illnesses 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 Company's provider networks are
marketed to third party administrators, managed care organizations, insurers,
case and utilization management companies, self-insured employers and other
similar organizations. Currently, the Company provides provider networks
through its wholly owned subsidiary, Rockport Community Network, Inc.,
primarily in the area of occupational illnesses and injuries.
The Company has increased the number of providers that are a part of
its provider networks. In 1998, the Company acquired a Texas PPO which had
contracts with 65 hospitals and 8,000 providers. The Company has also
negotiated 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 nation-wide PPO 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 (the
"Passport Card"). The Passport Card offers customers a discount on healthcare
services throughout the United States delivered by physicians, dentists,
chiropractors, vision care providers, hearing providers and a discount on
prescriptions. The Passport Card can provide users with significant discounts
on vision, dental, chiropractic, and hearing health services and on
prescriptions as well as a 24-hour nurse advisory service. The Company
charges its customers an annual fee for the Passport Card, based upon the
particular types of services and products for which a discount is provided
under the Passport Card. The appeal of the Passport 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 Passport Card is available nation-wide, except for
California where this type of medical access savings card is not permitted
under state law.
The Company' believes that the potential market for the Passport
Card is large. The Company estimates that there are 110 million individuals
in the United States who are either uninsured, under-insured or uninsurable,
many of whom could save money on their medical expenses by using the Passport
Card. The Company plans to market the Passport Card directly as a retail
product and through resellers through private branding. Resellers, by private
branding the Passport Card, can custom tailor the Passport Card to provide
specific programs to their customers. Further, the Reseller has the
additional benefit of brand identification by private branding the Passport
Card.
An additional product of the Company is the provision of consulting
and other services to other companies in the healthcare industry. The Company
offers other entities in the healthcare industry consulting and other
services with respect to management information systems,
13
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customer service, physician and facility referrals, contracting (providers
and payors), credentialing (providers) and re-pricing.
DISCUSSION OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - SIX MONTHS
ENDED SEPTEMBER 30, 2000 AND 1999
REVENUE. The largest source of the Company's revenue is fees it
receives from employers and insurance companies whose employees and insured
access and utilize the Company's provider networks. The fees are based on a
percentage of the cost savings realized by the customers who use the
Company's provider networks. The Company's total revenue increased by
$309,954, or 344%, from $90,194 during the six months ended September 30,
1999, to $400,148 during the six months ended September 30, 2000. The
increase in revenue is attributable to the increased use of the Company's
provider network by customers and the expansion of the Company's customer
base. Of the Company's revenue for the current six-month period, 96% was
earned from customers' use of the Company's provider networks. With respect
to the source of the Company's revenue, the Company's three largest customers
are the source of 66% of the Company's revenue.
During the six months ended September 30, 2000, the Company
significantly increased its client base for its occupational illnesses and
injuries networks. Seven new customer contracts were signed and/or
implemented during the six month period ended September 30, 2000. The Company
has entered into an agreement with a national network of providers to provide
national coverage in the areas where the Company does not have its own
networks while it continues to expand its own workers' compensation networks
in other states through contracting with providers of healthcare services and
through acquisitions of existing networks.
COST OF SALES. Cost of sales increased from $18,252 during the six
months ended September 30, 1999, to $107,392 during the six months ended
September 30, 2000. The Company's cost of sales consist primarily of fees
paid for sales commissions to sales personnel and fees paid for access to
third party provider networks where the Company does not have its own
network. Sales commissions paid by the company are based on a percentage of
revenue billed and collected . Fees for access to third party provider
networks are based on a percentage of the Company's revenues from using such
network, and may range from 25% to 40% of the revenue billed and collected
with respect to usage of such third party network.
For the six-month period ended September 30, 2000, $31,965 was
earned by directors of the Company. A marketing and sales agreement with two
individuals provides for a quarterly bonus payable in stock of the Company.
The Company issued 7,714 shares of its common stock on September 30, 2000,
for this bonus. Cost of sales will increase as revenue increases.
The Company utilizes its own personnel to develop its provider
networks. The Company currently has significant provider networks in Texas.
The Company intends to expand its own provider networks in other areas of the
country in conjunction with the expansion of its customer base. By
establishing its own networks, the Company can avoid paying network access
fees to access third party networks, and thereby reduce the Company's cost of
sales. Costs associated
14
<PAGE>
with developing the Company's networks are charged to expense when incurred
and are included in general and administrative expenses.
GROSS PROFIT. The Company's gross profit increased by $220,814, or
307%, from $71,942 during the six months ended September 30, 1999, to
$292,756 during the six months ended September 30, 2000. Gross profit as a
percentage of sales decreased from 80% for the six months ended September 30,
1999 to 73% during the six months ended September 30, 2000. The increase in
gross profit was attributable to the increase in sales. The decrease in gross
profit as a percentage of sales was attributable to an increase in the
amounts paid by the Company with respect to sales commissions and access fees
for third party provider networks.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $255,128, or 32%, from $806,770 during the six months
ended September 30, 1999, to $1,061,898 during the six months ended September
30, 2000. Incremental staffing and associated expenses to enable the Company
to implement its business plan were the primary source for the increase in
general and administrative expenses. The Company has added personnel during
2000 to develop its provider networks, design and develop its management
information systems, handle its customer services and provide for the
administration of the Company. As a result of this increased staffing, the
Company has increased its processing capabilities and believes that the
Company is well positioned to continue its recent growth.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
decreased by $198,012, or 382%, from $249,915 during the six months ended
September 30, 1999, to $51,903 during the six months ended September 30,
2000. This decrease is attributable to the amortization of stock issued in
association with loans obtained by the Company.
INTEREST EXPENSE. Interest expense increased by $3,682, or 12%, from
$29,850 for the six months ended September 30, 1999, to $33,532 for the six
months ended September 30, 2000. This increase in interest expense is
attributable to interest payable on loans obtained by the Company during 2000.
LIQUIDITY AND CAPITAL RESOURCES
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
employee, director and shareholder debt to common stock. Through September
30, 2000, the current directors of the Company, or companies controlled by
them, have invested or advanced $2,671,651 in or to the Company. The Company
believes that two directors have the financial means, should they so elect,
to fund the operations of the Company until such time as the Company achieves
positive cash flow from operations.
On June 29, 2000, the Company converted a total of $478,980 in debt
it owed to two of its directors ($300,000 and $178,980) into 638,640 shares
of its common stock. Recently, the Company sold 200,000 shares of its common
stock to a director for $100,000 and then converted a debt of $100,000 owed
to another director into 200,000 shares of the Company's common
15
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stock. These same two directors have committed to purchase an additional
$250,000 each of common stock of the Company to fund its operations for the
next three-month period. The first such purchase of stock by the Directors
occurred on September 13 and 14, 2000, when such directors purchased 381,096
shares of common stock for $125,000.
The Company has experienced significant revenue growth from the
utilization of its occupational injuries and illnesses networks, and expects
this growth to continue during the following year. Revenue has increased 344%
from $90,194 for the six months ended September 30, 1999 to $400,148 for the
six months ended September 30, 2000. However, this continued growth is
conditioned on the Company signing more employers, insurers and others for
its networks and obtaining a greater participation by consumers who are
covered by such payors. The Company will dedicate a significant portion of
its future funding to the continuing development and marketing of this
product.
Management anticipates that the necessary funding to implement the
Company's business plan will be obtained. However, should the funding not be
realized, the Company would not be able to proceed prospectively, and
therefore, would no longer anticipate being a going concern. The Company is
evaluating various alternatives to meet its capital needs.
16
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On November 3, 2000, the Company was informed by the staff of the
SEC (the "Staff") that the Staff intends to recommend that the SEC bring a
civil enforcement action against the Company, as well as one against two of
its directors who are also officers, for alleged violations of federal
securities laws. The Company believes that the Staff recommendations are
based upon certain press releases issued by the Company in August and
September 1999, and do not relate to the claim of any person with respect to
the offer or sale of securities by the Company or either of the two
directors. The Staff has invited the Company to enter into settlement
negotiations. Because of the cost and business disruption that, Rockport
believes, would result from litigation with the SEC, as well as the risks
that always exist in litigation, the Company intends to enter into settlement
negotiations with the SEC. However, there can be no assurance such
negotiations ultimately will be successful.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits of the Company are included
herein.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Certificate of Incorporation of Registrant, dated as of April
28, 1992, as filed with the Secretary of State of Delaware on
May 4, 1992 (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form 10-SB, dated July
26, 1994, SEC File No. 0-23514.)
3.2 Amendment to Certificate of Incorporation of Registrant, dated
as of January 16, 1998, as filed with the Secretary of State
of Delaware 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.)
3.3 Bylaws of Registrant, dated as of May 4, 1992 (incorporated by
reference to Exhibit 3.2 of Registrant's Annual Report on
registration Statement on Form 10-SB, dated July 26, 1994, SEC
File No. 0-23514.)
27 Financial Data Schedule
</TABLE>
17
<PAGE>
(b) No Reports on Form 8-K were filed during the quarter ended
September 30, 2000.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ROCKPORT HEALTHCARE GROUP, INC.
(Registrant)
November 14, 2000 /s/ Larry K. Hinson
------------------------------------------------
Larry K. Hinson
Chief Financial and Principle Accounting Officer
(Duly authorized officer)
19
