FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended September 30,1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE COMMISSION ACT OF 1934
For the transition period from ______ to ______
Commission file number: 0-23184
APOLLO EYE GROUP, INC.
(Exact name of the small business issuer as specified in its
charter)
Delaware 65-0257498
State or other jurisdiction of (I.R.S Employer
incorporation or organization Identification No.)
2424 N. Federal Highway, Suite 362, Boca Raton, Florida 33431
(Address of Principle Executive Office) ( Zip Code)
(561) 395-5402
Issuer's telephone number including area code)
United Vision Group, Inc.
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of the issuer's Common Stock, $.001 par
value, outstanding as of November 8, 1996 was 5,888,891.
Transitional Small Business Disclosure Format
Yes No X
<PAGE> INDEX
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - September 30, 1996 1
and December 31, 1995
Consolidated Statement of Operations - Three Months 2
Ended September 30, 1996 and 1995 and Nine Months
Ended September 30, 1996 and 1995
Consolidated Statement of Cash Flows - Nine Months 3
Ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 4-8
Item 2. Management's Discussion and Analysis of Financial 9-13
Condition and Results of Operations
Liquidity and Capital Resources 13 - 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16 - 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 19
<PAGE>
<TABLE>
APOLLO EYE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 153,045 $ 0
Restricted cash 50,000 50,000
Marketable securities 12,000 12,000
Accounts receivable 570,446 280,640
Inventory 559,994 401,894
Other current assets 120,848 80,553
Total current assets 1,466,333 825,087
Property and equipment, net 3,728,813 3,682,472
Intangible assets, net 631,832 764,381
Other assets 109,029 85,896
Total assets $5,936,007 $5,357,836
LIABILITIES AND EQUITY
Current liabilities:
Cash overdraft $ 0 $ 3,528
Current portion of
long-term debt 35,361 38,718
Current portion of capital lease
obligations 184,398 185,048
Accounts payable 832,406 951,445
Accrued liabilities 2,169,175 2,218,772
Deferred revenue 103,070 73,961
Total current liabilities 3,324,410 3,471,472
Notes payable to shareholder 4,955,000 800,000
Long-term debt, net of current
portion 105,112 132,137
Capital lease obligations, net of current
portion 169,734 324,226
Total liabilities 8,554,256 4,727,835
Equity:
Preferred stock 0 1,666
Common stock 22,665 5,957
Additional paid-in capital 5,813,469 5,803,511
Accumulated deficit and fund
balance (8,454,383) (5,181,133)
Total equity (2,618,249) 630,001
Total liabilities and
equity $5,936,007 $5,357,836
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
APOLLO EYE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
(Unaudited) (Unaudited)
<CAPTION>
Sept. 30, Sept. 30, Sept. 30, Sept. 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue:
Premium $ 1,352,146 $ 503,219 $ 3,287,865 $ 503,219
Practice 1,198,996 705,959 3,806,240 1,009,439
Other 82,243 89,149 231,785 278,545
Total revenue 2,633,385 1,298,327 7,325,890 1,791,203
Operating costs and expenses:
Cost of goods and
services sold 741,380 614,772 2,209,735 668,139
Depreciation and
amortization 231,931 175,885 682,654 417,553
Selling general and administrative
expenses 2,294,643 1,955,262 7,385,193 4,152,930
Total operating costs
and expenses 3,267,954 2,745,919 10,277,582 5,238,622
Loss from operations
(634,569) (1,447,592) (2,951,692) (3,447,419)
Other income (expenses):
Other income 4,945
Interest, net (119,558) (6,322) (290,200) (6,575)
Other income (expense),
net (119,558) (6,322) (285,255) (6,575)
Loss before provision
for taxes (754,127) (1,453,914) (3,236,947 (3,453,994)
Provision for income
taxes 0 0 7,654 0
Net loss $ (754,127) $(1,453,914 $(3,244,60 $(3,453,994)
Net loss per
share $ (.17) $ (.32) $ (.72) $ (.76)
Weighted average number of shares used in
computing per share
amount 4,532,959 4,520,875 4,526,718 4,520,875
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
APOLLO EYE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended (Unaudited)
<CAPTION>
September 30, September 30,
1996 1995
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (3,244,601) $ (3,453,994)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and
amortization 682,654 417,553
Common stock issued for
services 25,000 0
Bad debt expense 12,484 2,273
Loss on disposal of assets 1,713 0
Changes in operating assets and liabilities exclusive
of net assets acquired:
Accounts receivable (302,290) (69,245)
Inventory (158,100) (19,861)
Other current assets (92,078) (111,443)
Accounts payable and
accrued liabilities (168,636) (368,784)
Deferred revenue 29,109 0
Net cash used in operating
activities (3,214,745) (3,603,501)
Cash flows from investing activities:
Purchase of property
and equipment (617,058) (826,370)
Proceeds from maturity (purchases) of
marketable securities 0 736,365
Proceeds from sale of
asset 18,900 0
Increase in intangibles 0 (83,638)
Net cash used in investing
activities (598,158) (173,643)
Cash flows from financing activities:
Cash overdraft (3,528) 0
Payments on long-term debt and
capital lease obligations (185,524) (122,159)
Proceeds from capital
contributions 0 4,370,956
Proceeds from notes payable
to shareholder 4,155,000 0
Net cash provided by
financing activities 3,965,948 4,248,797
Net increase in cash 153,045 471,653
Cash, beginning of period 0 5,037
Cash, end of period $153,045 $476,690
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
APOLLO EYE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-QSB and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting
principles for complete financial statements. These
consolidated financial statements include estimates and
assumptions that affect the reported amounts of assets and
liabilities and the amounts of revenues and expenses. Actual
results could differ from those estimates. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. The consolidated balance sheet amounts at December
31, 1995 have been derived from audited financial statements.
Operating results for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results
that may be expected for Apollo Eye Group, Inc.'s (formerly
United Vision Group, Inc., the "Company" or "AEG") fiscal year
or any other interim period. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995.
On August 7, 1995, Apollo Eye Associates, L.P. and Apollo Eye
Corporation, its general partner (the "Partnership"), were
merged into Apollo Eye Group, Inc.'s wholly owned subsidiary,
Apollo Acquisition Corporation, which was subsequently renamed
Apollo Eye Associates, Inc. ("Apollo"). In connection with the
merger agreement, the former partners of the Partnership
received an aggregate of 33,315.9185 shares of the Company's
newly issued Series B Preferred Stock and options to acquire
482,503 shares of the Company's Common Stock. Each share of
Series B Preferred Stock was convertible into 100 shares of the
Company's Common Stock. Prior to the merger, the Company's
previously outstanding Series A Preferred Stock was converted
into 612,024 shares of Common Stock. Also prior to the merger,
two of the Company's four members of the Board of Directors
resigned, and immediately following the merger, four former
partners of the Partnership were elected to the Board.
The series of transactions described above resulted in the
Apollo shareholders controlling the Company's Board of Directors
and having an approximate 75% beneficial ownership of the
Company upon conversion of the Series B Preferred Stock and the
exercise of the common stock options. Accordingly, the
transactions have been treated as a reverse acquisition for
financial reporting purposes as if Apollo recapitalized its
ownership interest into 33,315.9185 shares of Preferred Stock
and then acquired the Company under the purchase method of
accounting by the issuance of 1,191,367 shares of Common Stock.
Such stock was valued at approximately $1,511,000 which
represented the estimated market value of the Company's net
assets acquired. The purchase price was allocated to the net
assets acquired and liabilities assumed based upon their
estimated fair values, resulting in an excess of purchase price
over the estimated value of net
<PAGE>
APOLLO EYE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
1. BASIS TO PRESENTATION - continued
assets acquired, which is included in intangible assets in the
accompanying financial statements. The historical results of
the Partnership became the operating results of the Company.
The operations of the Company are included in the results of
operations in the accompanying financial statements from August
1, 1995, which was the effective date of the merger.
On March 4, 1996, the Certificate of Incorporation of the
Company was amended to increase the number of authorized common
shares from 10 million to 30 million. Concurrently, the
33,315.9185 shares of Series B Preferred Stock were converted to
3,331,592 shares of the Company's Common Stock.
On October 7, 1996, the shareholders approved a one-for-five
reverse split of the Company's Common Stock. As a result, the
number of common shares outstanding has been reduced from
29,444,454 to 5,888,891 as of the November 1, 1996 effective
date.
The following unaudited pro forma summary presents the combined
results of operations as if the reverse acquisition had occurred
at the beginning of the period presented and does not purport to
be indicative of what would have occurred had the reverse
acquisition been made as of that date or of results which may
occur in the future.
Nine Months Ended
September 30, 1995
Revenue $5,617,751
Net loss $(3,922,408)
Net loss per share $ (0.87)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries and the accounts
of Optiplan based on their related business activities and the
Company's unilateral and perpetual management control. The
consolidated financial statements for 1995 include the accounts
of the Partnership and Medricon, Inc. Material intercompany
balances and transactions have been eliminated.
<PAGE>
APOLLO EYE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
REVENUE RECOGNITION
Revenue from professional services is recognized when the
service is performed. Revenue from optical sales is recognized
upon order by the customer. Consulting subscriptions are
deferred and recognized when the service is delivered. Revenue
from managed care plans is recognized ratably over the life of
the related contract.
INVENTORIES
Inventories, consisting primarily of eyeglass frames, contact
lenses, lens blanks and accessories are stated at the lower of
cost or market. Cost is determined using the FIFO (first-in,
first-out) method.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an
original maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The cost of
equipment held under capital lease is equal to the lower of the
net present value of the minimum lease payments or the fair
value of the leased equipment at the inception of the lease.
Additions and improvements are capitalized while maintenance and
repairs are expensed when incurred. Asset and accumulated
depreciation accounts are reduced for dispositions with
resulting gains or losses recorded in the statement of
operations. Depreciation and amortization are computed on a
straight-line basis over the estimated useful lives of the
property and equipment or over the lesser of the lease term or
the asset's useful life for leasehold improvements.
INTANGIBLES
Goodwill related to the reverse acquisition of the Company is
amortized on the straight-line method over four years. Goodwill
related to the acquisition of Medricon is amortized on the
straight-line method over 15 years. The Company periodically
evaluates the carrying value of goodwill to measure and
recognize the possible impairment of this asset. Other
intangibles resulting from the acquisition of Medricon,
consisting of research materials, subscription lists, and
customer lists, are amortized on the straight-line method over
their estimated useful lives of 5 to 7 years. Other intangible
assets, consisting of computer software costs, licenses and
organization costs are recorded at cost and amortized on the
straight-line method over five years.
RESTRICTED CASH
Under Florida Statutory Law, the Company is required to maintain
a $50,000 certificate of deposit with the Treasurer and
Insurance Commissioner.
<PAGE>
APOLLO EYE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
INCOME TAXES
Prior to the merger date, the Partnership was not subject to
Federal and State income taxes; instead, the Partnership's
operations were the responsibility of the partners. Effective
on the merger date, the Partnership was terminated. Medricon
filed a separate return and utilized the liability method of
accounting for deferred income taxes.
Prior to the merger date, the Company filed a consolidated
return.
For the year ended December 31, 1995, the Company filed
consolidated Federal and State income tax returns which includes
all of the members of the group except Optiplan, which is a
non-profit entity required to file a separate return.
The Company utilizes the liability method for accounting for
deferred income taxes. Under this method, deferred tax assets
and liabilities are established based on the differences between
financial statement and tax bases of assets and liabilities
using the rates in effect for the year in which the differences
are expected to reverse.
REVERSE STOCK SPLIT
On October 7, 1996, the shareholders approved a one-for-five
reverse split of the Company's Common Stock. As a result, the
number of common shares outstanding has been reduced from
29,444,454 to 5,888,891 as of the November 1, 1996 effective
date. All references in the financial statements to the number
of shares and per share amounts of the Company's Common Stock
have been retroactively restated to reflect the reduced number
of common shares outstanding.
PER SHARE DATA
Per share data is based on the weighted average number of shares
of Common Stock outstanding during the period.
3. CONTINGENCIES
The Company is a party to various lawsuits arising in the
ordinary course of business. During the year ended December 31,
1995, estimated litigation settlements of $351,000 were charged
to operations based on review of such litigation with legal
counsel. In the quarter ended June 30, 1996, $71,000 was
charged to operations as estimated settlement for claims arising
in the quarter. In July 1996, two lawsuits were settled for
aggregate payments of $204,000 which previously had been
provided for in the estimated litigation settlements.
<PAGE>
APOLLO EYE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
4. SUBSEQUENT EVENTS
On October 7, 1996, at the Company's annual meeting, the
shareholders, not including the vote of shares held by James R.
Cook, M.D., the Company's Chairman and majority shareholder,
approved the conversion of $4,000,000 of loans from Dr. Cook at
the conversion rate of $0.59 per share for 6,779,661 shares of
Common Stock representing 1,355,932 shares of Common Stock after
the November 1, 1996 one-for-five reverse stock split. The
following unaudited proforma summary presents the balance sheet
as if the conversion of the shareholder loans had occurred at
September 30, 1996.
ASSETS
Current Assets $1,466,333
Property and Equipment 3,728,813
Intangible Assets 631,832
Other Assets 109,029
Total Assets $5,936,007
LIABILITIES AND EQUITY
Current Liabilities $3,324,410
Shareholder Loans 955,000
Long Term Debt and Leases 274,846
Equity 1,381,751
Total Liabilities and Equity $5,936,007
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
On August 7, 1995, pursuant to a Merger Agreement dated August
4, 1995, Apollo Eye Group, Inc. (formerly United Vision Group,
Inc., the "Company" or "AEG") acquired Apollo Eye Associates,
L.P., a Delaware limited partnership, and Apollo Eye
Corporation, its General Partner (together, the "Partnership").
The Partnership was merged (the "Merger") into a wholly owned
subsidiary of Apollo Eye Group, Inc., Apollo Acquisition
Corporation, which was renamed Apollo Eye Associates, Inc.
("Apollo"). The Merger was accounted for as a "reverse
acquisition" whereby the Partnership was deemed to have acquired
Apollo Eye Group, Inc. for financial reporting purposes. Apollo
Eye Group, Inc. remains the continuing legal entity and
registrant for Securities and Exchange Commission filing
purposes. Under the terms of the acquisition, the former
holders of the Partnership received preferred stock and common
stock options which were collectively convertible into 75% of
the total outstanding common stock of the Company on a fully
diluted basis.
The following discussion and analysis presents the significant
changes in the financial condition and results of operations of
the Company for the quarter and nine months ended September 30,
1996. Consistent with the reverse acquisition accounting
treatment, the historical financial statements of the Company
used for this discussion are consolidated financial statements
which include the Partnership for the quarter and nine months
ended September 30, 1995 and Apollo Eye Group, Inc. (formerly
United Vision Group, Inc.) for the period of August 7, 1995 to
September 30, 1995. These statements differ from the
consolidated financial statements of Apollo Eye Group, Inc.
which were previously reported. The financial statements for
the three and nine months ended September 30, 1996 includes the
consolidated operations of the Company, including both Apollo
Eye Associates, Inc. and Apollo Eye Group, Inc. Prior
information may not be comparable to the Company's current
operations due to the reverse acquisition accounting. This
discussion should be read in conjunction with the financial
statements and related notes thereto of the Company and the
Partnership.
Quarter Ended September 30, 1996
General
As discussed above, in accordance with accounting for the
transaction as a reverse acquisition, financial reports reflect
the Partnership's operations during the quarter and nine months
ended September 30, 1995 and Apollo Eye Group, Inc. for the
period of August 7, 1995 to September 30, 1995, and the
Company's operations for the quarter and nine months ended
September 30, 1996. The Partnership was formed on July 1, 1994.
As a part of the startup, the Partnership acquired Medricon
Inc., a health care consulting firm specializing in ophthalmic
consulting, on July 1, 1994. During 1994 and 1995, the
Partnership was in a startup phase and was in the process of
building and completing five ophthalmology practices with
expenditures being related to initial marketing and facility
opening, and accordingly during the period the Partnership had
limited revenue and significant operating losses. The
Partnership commenced providing medical services with the
opening of its first ophthalmology practice in Boca Raton in
October 1994 with a second practice opening in Boynton Beach in
December 1994. During the
<PAGE>
first quarter of 1995, the Partnership opened three additional
practice locations: Coral Springs in January 1995, Lake Worth
in February 1995 and Pompano Beach in April 1995, and promoted
the services of these newly opened practices along with
incurring the associated expenses with the openings.
Results of Operations
Gross revenues for the three months ended September 30, 1996
were $2,633,385 versus $1,298,327 in the three month period
ending September 30, 1995. This increase was due to the limited
operations of the Partnership in 1995 as compared with the
Company's 1996 results that includes the merger with AEG. Also
included in gross revenues for the three months ended September
30, 1996 is $185,000 of revenue from a disputed amount received
from one of the Company's third party payors related to a total
of $24,000 of services and product provided by the Company in
1995 and $161,000 during the first nine months of 1996. Revenue
from premiums (Capitation Payments) were $1,352,146 for the
three months ended September 30, 1996, up from $503,219 in 1995
representing the inclusion of a full quarter of AEG's capitated
revenue, the settlement described above, and new managed care
contracts in Puerto Rico, and the settlement received from the
third party payor. Premium revenue increased by $406,384 in the
third quarter of 1996 to $1,352,146 from $945,762 in the second
quarter due to the new managed care contracts in Puerto Rico and
the settlement received from the third party payor. Practice
revenue increased to $1,198,996 from $705,959 for the three
month period ending September 30, 1995. The increase in practice
revenue was attributable to an increase in professional
services, increased optical sales due to the Merger and
resultant full quarter's operations and growth in the Apollo Eye
Associates practices. Other revenue, composed primarily of
consulting provided by the Company's Medricon subsidiary,
decreased to $82,243 from $89,149 for the same quarter in 1995.
In late June 1996, the Company acquired certain net assets of
two practice locations in Broward County, Florida from Focus
Fashion Optical, Inc. The Apollo Eye Associates name was added
to the locations and the Focus Fashion Optical name will be
retained for twelve months. Purchase accounting was used to
record the acquisition at cost.
Premium revenue increased in the third quarter as the result of
new managed care contracts in Puerto Rico and the settlement
with one of the Company's third party payors. The Company has
entered into a letter of intent to acquire an ophthalmology
practice in Broward County, Florida, which, if completed, would
increase practice revenues in excess of $1,500,000 per annum
beginning in 1997. Management also believes that increased
benefit levels in two of its major plans continues to result in
increased utilization, although these increased benefit levels
and utilization are expected to be compensated for by a third
party payor from October 1, 1996 onward. This increased level
of premium revenue may be offset by a termination of another
third party contract expected as of February 1, 1997.
Management expects that the practice revenue trends will not
change significantly in the fourth quarter of 1996.
During the Merger it was noted that the Apollo Eye Associates
practice locations were in direct competition with certain
Optiplan participating outside provider (third party providers
not associated with the Company) locations. Consistent with
reducing the reliance on outside providers and increasing
internal revenue, the Company focused on eliminating outside
providers
<PAGE>
in close proximity to its practice locations. In January 1996
management reduced the number of outside Participating Providers
by 17% based on proximity to the Apollo practice locations and a
variety of other factors. These reductions resulted in reduced
outside provider payouts and increased utilization of the Apollo
practices resulting in increased service and optical sales. As
most eye care benefits in Florida renew annually on January 1st,
the utilization of services by members in the first few months
of 1996 increased the optical revenue in the first quarter of
1996. In the three months ended September 30, 1996, lessened
utilization of benefits yielded lower optical sales resulting in
a decline in revenue. The seasonal trend is unclear and
management will monitor the situation during coming periods.
Costs of Goods and Services Sold (COGS) is computed as
including the costs of eyewear, including eyeglass frames,
lenses and contact lenses, along with the fees paid for services
to outside providers. The cost of services provided by internal
providers (employed or contracted by the Company) are reported
as part of Selling, General and Administrative (SG&A) expenses.
The Costs of Goods and Services Sold increased to $741,380
during the quarter ended September 30, 1996 versus $614,772
during the 1995 period. This increase is due to the reporting
of a full quarter of COGS for the AEG consolidated business
compared with the same period in 1995 that included two months
of AEG business and Apollo in the start up phase. Increased
costs include the increased optical component with its
associated costs in lenses and eyeglass frames and HMO contracts
with sponsors creating the need for external provider payments.
Management has focused its efforts in the eyewear product area
on inventory management including automating inventory systems,
consolidating purchasing and quarterly inventory reviews to
decrease obsolescence. Inventory (net of reserves) increased
from $401,894 at December 31, 1995 to $559,994 at September 30,
1996. The increase includes inventory purchased for two
practice locations acquired in June 1996, a change in the mix of
frames, an increase in contact lens inventories, and an increase
in laboratory inventories to facilitate the closing and
relocation of the Texas laboratory. The Company expects to
improve inventory utilization with the consolidation of its
laboratory operations into a single location in Florida in the
fourth quarter of 1996.
SG&A expenses increased from $1,955,262 during the quarter
ended September 30, 1995 to $2,294,643 for the quarter ended
September 30, 1996, representing the period expenses for both
the Partnership and AEG. The increases in SG&A were primarily
related to the costs of operating the combined businesses of the
practices of AEG and Apollo as compared to a year earlier, plus
the two additional practice locations acquired in June 1996 from
Focus Fashion Optical and the start up of a pediatric ophthalmic
practice in the Company's Coral Springs location in August 1996,
compared to the September 30, 1995 costs of AEG for two months
and Apollo while still in start up. Contributing to the cost
increases are payroll including professional medical staff,
increased rental expenses due to the expanded number of
facilities, legal settlements, and accounting and legal costs.
During the second quarter of 1996, the Company initiated a cost
control program to reduce operating expenses. For the three
months ended September 30, 1996, SG&A decreased to $2,294,643
from $2,689,297 for the three months ended June 30, 1996,
despite the addition of two practice locations in late June
1996.
<PAGE>
Depreciation and amortization expenses for the three months
ended September 30, 1996 increased to $231,931 from $175,885 in
the same period last year. The increased expense results from
depreciation of equipment acquired in the merger with AEG and a
full quarter of depreciation on Apollo equipment placed in
service in 1995. The increase results from depreciation of
equipment and amortization of intangible assets and goodwill
associated with the AEG acquisition. Property and Equipment
increased to $5,308,253 at September 30, 1996 from $4,754,337 at
December 31, 1995. The equipment purchased includes the assets
of two practice locations acquired in June 1996, medical
equipment, optical manufacturing equipment, computers and
communications equipment.
Net Loss
The Company's losses decreased from $1,453,914 ($0.32 per
share) for the quarter ended September 30, 1995 to $754,127
($0.17 per share) for the quarter ended September 30, 1996.
For the nine months ended September 30, 1996, the net loss
decreased to $3,244,601 ($0.72 per share) from $3,453,994 ($0.76
per share) for the same period in the prior year. Per share
data is based on the Company's weighted average of shares
outstanding in the period of 4,532,959 and 4,526,718,
respectively, for the three and nine months ended September 30,
1996, with the total shares outstanding at the end of the period
being 4,532,959. Per share data for 1995 is based on 4,520,875
shares outstanding for the three and nine months ended September
30, 1995.
Balance Sheet Dated September 30, 1996
The Company's cash increased to $153,045 at September 30, 1996
from an overdraft of $3,528 at December 31, 1995.
The Company's Accounts Receivable (net of allowance for
doubtful accounts) increased from $280,640 at December 31, 1995
to $570,446 at September 30, 1996. This increase is due to the
increased revenue of the Company and the settlement reached with
one of the Company's third party payors. The total current
assets of the Company increased from $825,087 on December 31,
1995, to $1,466,333 at September 30, 1996.
The Company's Property and Equipment (net of accumulated
depreciation) increased from $3,682,472 at December 31, 1995 to
$3,728,813 at September 30, 1996. The growth reflects increased
capital expenditures including the acquisition of two practice
locations in June 1996, medical equipment, computers and
communications and office equipment. The total assets of the
Company expanded from $5,357,836 at December 31, 1995 to
$5,936,007 at September 30, 1996 due to increases in accounts
receivables, inventory, acquisition of two practices and the
continued investment in computers, communications, and medical
equipment.
The Company's Notes Payable and Capital Lease obligations
decreased by $185,524 from December 31, 1995 to $494,605 at
September 30, 1996. These decreases are associated with
repayment of borrowing. Accounts Payable and Accrued
Liabilities decreased from $3,170,217 to $3,001,581.
<PAGE>
Notes Payable to the major shareholder, James R. Cook, M.D.,
increased in the quarter to $4,955,000 at September 30, 1996 as
a result of additional loans of $945,000 in the third quarter of
1996. On October 7, 1996, the shareholders of the Company
(excluding shares held by Dr. Cook) approved a transaction
whereby $4,000,000 of the shareholder loans have been exchanged
at the conversion rate of $0.59 per share for 6,779,661 shares
of Common Stock representing 1,355,932 shares after the November
1, 1996 reverse split.
The Company's equity decreased in the period from $630,001 at
December 31, 1995 to a deficit of $2,618,249 at September 30,
1996. This decrease is directly related to operating losses in
the period. As discussed above, the Company has restored equity
through conversion of $4,000,000 of its Notes Payable to
Shareholder. (See Liquidity and Capital Resources.)
Cash Flow Statement for Nine Month Period Ending September 30,
1996
Net Cash Flows used in Operating Activities decreased from
$3,603,501 for the nine month period ending September 30, 1995
to $3,214,745 for the nine month period ending September 30,
1996. The decreased cash used was due to a reduction in
operating losses, increased depreciation and amortization and a
decrease in accounts payables and accrued liabilities offset by
higher accounts receivable and inventory based on increased
revenues.
The Company continued to expand its capital base in 1996 with
the purchase of significant Property and Equipment using
$617,058 of cash which was raised through loans from its
principal shareholder. The net cash used in investing activities
totaled $598,158. In the nine month period ended September 30,
1995, the Company purchased $826,370 of Property and Equipment
substantially with proceeds of $736,365 of maturing marketable
securities.
The Net Cash provided by financing activities totaled
$3,965,948 for the nine month period ending September 30, 1996.
The cash was primarily provided through $4,155,000 of
shareholder loans. (See Liquidity and Capital Resources.)
Liquidity and Capital Resources
Apollo Eye Associates, L.P., a start-up company established in
July 1994, was merged on August 7, 1995 into Apollo Eye Group,
Inc. The Company's revenue was $1,791,203 with a net loss of
$3,453,994 for the nine month period ended September 30, 1995
that includes the business for three months of Apollo and two
months of AEG. During the nine month period ended September 30,
1995, the Partnership consumed $3,603,501 of cash for operating
activities and used $173,643 in investing activities.
For the nine months ended September 30, 1996, the Company's net
revenues were $7,325,890 with a loss of $3,244,601. Net cash of
$3,214,745 was consumed by operating activities with $598,158
used by investing activities. With a total of $3,965,948 cash
provided by financing activities, the net increase in cash for
the nine months ended September 30, 1996 was $153,045.
<PAGE>
During the latter half of 1995, James R. Cook, M.D., the
majority shareholder of the Company, provided short term loans
in the amount of $800,000 in an effort to improve liquidity.
These shareholder loans carried an interest rate of prime plus
one and one-half percent; a total of $13,437 of interest on
these shareholder loans was accrued during 1995.
Through September 30, 1996, total shareholder loans of
$4,955,000 were provided by Dr. Cook with $905,000 provided in
the third quarter of 1996. Interest on the loans of $45,402 was
accrued in the first quarter of 1996 at a rate of prime plus one
and one-half percent. Beginning April 1, 1996, the interest
rate was reduced to prime and an additional $63,220 and $95,024
of interest was accrued respectively in the second and third
quarters of 1996. On October 7, 1996, the shareholders of the
Company (excluding shares held by Dr. Cook) approved a
transaction whereby $4,000,000 of loans from Dr. Cook have been
exchanged for 6,779,661 shares of Common Stock representing
1,355,932 shares after the November 1, 1996 reverse split. Dr.
Cook made additional loans to the Company in October 1996 of
$200,000 for total shareholder loans of $1,155,000 after the
conversion of $4,000,000 of shareholder loans to equity.
In order to restore the equity base eroded in the Company's
start-up phase including the restructuring charge taken during
1995, the Board of Directors believes that equity is needed by
the Company. Dr. Cook, the principal shareholder of the
Company, agreed and the Board of Directors approved, subject to
the appropriate amendments to the Company's Certificate of
Incorporation and either the receipt of a fairness opinion from
a qualified, independent third party or approval by vote of the
Company's disinterested shareholders, that Dr. Cook would make a
$4,000,000 equity investment in the Company with the conversion
of loans to equity. Subject to the approvals outlined above,
Dr. Cook agreed to convert $4,000,000 of shareholder loans to
purchase 6,779,661 shares of the Company's Common Stock at $0.59
per share. These shares are newly issued unregistered
securities subject to the usual holding periods for such
securities. This purchase price was established by calculating
the average trading price of the shares of the Company's stock
in over-the-counter trading for the twenty (20) business days
prior to March 27, 1996, the date Dr. Cook and the Company
agreed to convert his loans to equity. The average trading
price of $0.7385 per share was discounted by 20%, owing to the
fact that the investment is sizable and that the shares are to
be unregistered and, as such, illiquid. (See Item 12, Certain
Relationships and Related Transactions in the Company's 1995
10-KSB.)
The Company continued to lose money in the third quarter of
1996 and remains a net consumer of cash. It is unclear exactly
what magnitude of external cash will yet be required to fund
continuing operations. Additionally, close to $2,000,000 of
investment may be required to carry out leasehold improvements
and capital equipment purchases to remodel and expand AEG's
former Family EyeCare Center practices. This may allow the
Company to capitalize on its opportunities to provide medical
and surgical eye care in addition to the routine examinations
traditionally provided in the Family EyeCare Center locations.
Additional practice location development or acquisition will
require cash. To greatly accelerate growth into additional
markets, additional financing in the $10 - 20 million range
would be necessary. The Company is exploring the raising of
additional cash through a possible registered offering or a
private placement. If this additional funding is not available,
the Company's growth plans will be reduced.
<PAGE>
On October 7, 1996, the Company held its annual shareholders'
meeting. At that meeting, the conversion of Dr. Cook's
$4,000,000 of shareholder loans to purchase 6,779,661 shares of
the Company's Common Stock (representing 1,355,932 shares after
the November 1, 1996 reverse split) at $0.59 per share was
approved by a vote of the disinterested shareholders. The
shareholders also voted to approve the one-for-five reverse
split of the Common Stock and the adoption of the Company's 1996
Stock Option Plan, and to change the name of the Company to
Apollo Eye Group, Inc. from United Vision Group, Inc.
Management does not believe that inflation has had a material
effect on the results of the Company's operations.
The words "believe," "expect," "anticipate," "project," and
similar expressions signify forward looking statements. Readers
are cautioned not to place undue reliance on any forward looking
statements made by or on behalf of the Company. Any such
statement speaks only as of the date the statement is made, and
the Company undertakes no obligation to update or revise any
forward looking statements.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Except as noted below, the Company is not party to any material
litigation, nor, to the knowledge of the Company, is any
material litigation threatened.
In August 1994, an action entitled Barry A. Ginsberg, O.D.,
Vista Optical of Pompano, Inc. and Eynayim Investment
Corporation v. J. K. Enterprises of Deerfield Beach, Inc. and
Optiplan, Inc. was filed in the Broward County, Florida District
Court. Mr. Ginsberg, a former employee of the Company, alleged
that the Company, through its subsidiaries, breached an
employment agreement and a written and various oral contracts
concerning the transfer of assets to the Company. In July 1996,
the matter was settled for amounts which had previously been
provided for and the parties exchanged general releases.
In April 1995, an action entitled Dynex Sport Optics, Inc. v.
United Vision Group, Inc. ("Dynex") was filed against the
Company in the United States District Court for the District of
New Jersey in connection with an alleged agreement between the
Company and Dynex. According to Dynex, the Company promised to
issue 1,250,000 shares of its Common Stock in exchange for 100%
of the stock of Dynex and to provide $250,000 in working capital
to Dynex. The Company denies that the alleged agreement is
enforceable and believes that, in any event, Dynex deliberately
concealed or misrepresented the business, assets, rights and
prospects of Dynex. The Company is vigorously defending against
the claim. The Company moved to dismiss the action due to lack
of jurisdiction in New Jersey. In June 1996, the U.S. District
Court for the District of New Jersey ruled in favor of the
Company and dismissed the action. In July 1996, the Company
filed an action for Declaratory Judgment with respect to the
same claims in the United States Federal Court in Palm Beach
County, Florida. In July 1996, Dynex filed an action identical
to its New Jersey action in the United States District Court for
the Southern District of New York.
Apollo Eye Group, Inc. is a defendant in certain other legal
actions in the normal course of business, none of which is
expected to result in a material adverse effect on the Company's
net worth, total cash flows, or results of operations.
Item 2. Changes in Securities
In connection with the August 7, 1995 Merger, the Company
issued 33,315.9185 shares of Series B Preferred Stock (the
"Series B Preferred"). On March 4, 1996, the Certificate of
Incorporation of the Company was amended to increase the number
of authorized common shares from 10 million to 30 million. As a
result, the 33,315.9185 shares of Series B Preferred Stock were
converted to 3,331,592 shares of the Company's Common Stock.
For a complete description of the Series B Preferred, see the
Company's Current Report on Form 8-K (Date of Report: August 7,
1995) dated August 17, 1995, which is incorporated by reference
in response to this Item.
<PAGE>
The Company issued 10,000 shares of Common Stock on June 19,
1996 to a consultant in connection with the acquisition of
practice locations in Broward County, Florida. Common Stock was
valued at the closing price on the date of the transaction.
At the October 7, 1996 annual meeting, the shareholders
approved a one-for-five reverse split of the Common Stock. The
reverse split was effective on November 1, 1996. As a result of
the reverse stock split, the number of Common Shares outstanding
is reduced from 29,444,454 to 5,888,891 as of the effective
date. All references in the financial statements and in
Management's Discussion and Analysis of Financial Condition and
Results of Operations to number of shares and per share amounts
of the Company's Common Stock have been retroactively restated
to reflect the decreased number of common shares outstanding.
The shareholders also approved the change of the Company's name
to Apollo Eye Group, Inc. from United Vision Group, Inc.
Also at the October 7, 1996 annual shareholders' meeting, the
conversion of $4,000,000 of loans from Dr. Cook, the principal
shareholder of the Company, was approved by the shareholders
(excluding shares held by Dr. Cook). The conversion results in
the issuance of 6,779,661 Common Shares (1,355,932 shares after
the reverse split) to Dr. Cook, bringing the number of Common
Shares outstanding from 29,444,454 to 5,888,891 after the
reverse split.
In addition, the Board of Directors has approved 2,000,000
shares (before the one-for-five reverse split or 400,000 shares
after the split) for the Apollo Eye Group, Inc. 1996 Stock
Option Plan, subject to shareholder approval. After the reverse
split and the Cook equity investment, a total of 5,888,891
Common Stock shares are outstanding with a total of 980,000
shares committed to the Company's Employee Stock Option Plans
(80,000 shares for the 1994 plan, 500,000 shares for the 1995
Stock Option Plan A, and 400,000 shares for the newly formed
1996 Stock Option Plan). Of the 30,000,000 authorized shares,
approximately 23 million Common Stock shares would remain
authorized but unissued for future sales of equity, warrant
coverage and potential acquisitions. The Board believes that
opportunities exist to acquire additional businesses,
particularly physician practices or managed care networks, in
stock transactions.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
APOLLO EYE GROUP, INC.
Dated: __________________ By:______________________________
J. Richard Damron, Jr.
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The accompanying supplemental data are to be used in conjunction
with the unaudited financial statements and associates notes to
the financial statements for the quarter ended September 30,
1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 203,045 <F1>
<SECURITIES> 12,000
<RECEIVABLES> 570,446 <F2>
<ALLOWANCES> 0
<INVENTORY> 559,994
<CURRENT-ASSETS> 1,466,333
<PP&E> 3,728,813 <F3>
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,936,007
<CURRENT-LIABILITIES> 3,324,410
<BONDS> 0
0
0
<COMMON> 22,665
<OTHER-SE> 5,813,469 <F4>
<TOTAL-LIABILITY-AND-EQUITY> 5,936,007
<SALES> 2,663,385
<TOTAL-REVENUES> 2,663,385
<CGS> 741,380
<TOTAL-COSTS> 3,267,954
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (119,558)
<INCOME-PRETAX> (754,127)
<INCOME-TAX> 0
<INCOME-CONTINUING> (754,127)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (754,127)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
<FN>
<F1> Cash includes Restricted Cash of $50,000
<F2> Receivables are recorded net of allowances for doubtful
accounts
<F3> PP&E is recorded Net of Depreciation
<F4> Other Stockholders Equity includes Additional Paid in
Capital
</FN>
</TABLE>
