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 March 31, 1997
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 Principal Executive Office) (Zip Code)
(561) 395-5402
(Issuer's telephone number including area code)
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 July 18, 1997 was 5,888,898.
Transitional Small Business Disclosure Format
Yes No X
<PAGE>
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1997 1
and December 31, 1996
Consolidated Statement of Operations -
Three Months Ended 2
March 31, 1997 and 1996
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
Liquidity and Capital Resources 11 - 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13 - 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
<PAGE>
<TABLE>
APOLLO EYE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 0 $ 75,462
Accounts receivable 400,719 541,709
Inventory 582,428 551,291
Other current assets 6,404 49,303
Total current assets 989,551 1,217,765
Property and equipment, net 3,405,745 3,589,853
Intangible assets, net 472,680 520,768
Restricted cash 50,000 50,000
Other assets 142,584 151,304
Total assets $5,060,560 $5,529,690
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Cash overdraft $ 12,538 $ 0
Current portion of long-term debt 33,754 33,754
Current portion of capital
lease obligations 184,398 184,398
Accounts payable 776,195 735,874
Accrued liabilities 2,260,940 2,301,284
Deferred revenue 118,058 111,118
Total current liabilities 3,385,883 3,366,428
Notes payable to shareholder 2,305,000 1,755,000
Long-term debt, net of
current portion 87,102 96,364
Capital lease obligations,
net of current portion 78,406 121,883
Total liabilities 5,856,391 5,339,675
Equity (Deficit):
Common stock 5,889 5,889
Additional paid-in capital 9,830,245 9,830,245
Accumulated deficit and fund
balance (10,631,965) (9,646,119)
Total equity (deficit) (795,831) 190,015
Total liabilities and equity
(deficit) $5,060,560 $5,529,690
<FN>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
<TABLE>
APOLLO EYE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended (Unaudited)
March 31, March 31
1997 1996
<S> <C> <C>
Revenue:
Premium $ 1,111,157 $ 989,957
Practice 1,024,359 1,432,982
Other 89,484 88,124
Total revenue 2,225,000 2,511,063
Operating costs and expenses:
Cost of goods and services sold 546,314 649,234
Depreciation and amortization 237,652 211,664
Selling general and administrative
expenses 2,357,483 2,401,254
Total operating costs and expenses 3,141,449 3,262,152
Loss from operations (916,449) (751,089)
Interest, net (69,397) (65,041)
Loss before provision for income
taxes (985,846) (816,130)
Provision for income taxes 0 0
Net loss $ (985,846) $ (816,130)
Net loss per share $ (.17) $ (.37)
Weighted average number of shares used in
computing per share amount 5,888,898 2,179,861
<FN>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
<TABLE>
APOLLO EYE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended (Unaudited)
March 31, March 31,
1997 1996
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (985,846) $ (816,130)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 237,652 211,664
Bad debt expense 3,000
Changes in operating assets and
liabilities:
Accounts receivable 137,990 (250,977)
Inventory (31,137) (46,391)
Other current assets 42,899 (63,444)
Accounts payable and accrued
liabilities (22) (423,029)
Deferred revenue 6,940 0
Net cash used in operating
activities (588,524) (1,388,307)
Cash flows from investing activities:
Purchase of property and equipment (5,457) (321,473)
Disposal (acquisition) of other assets 8,720 (6,533)
Net cash provided (used) in
investing activities 3,263 (328,006)
Cash flows from financing activities:
Cash overdraft 12,538 121,498
Payments on long-term debt and
capital lease obligations (52,739) (55,185)
Proceeds from notes payable to
shareholder 550,000 1,650,000
Net cash provided by financing
activities 509,799 1,716,313
Net (decrease) in cash (75,462) 0
Cash, beginning of period 75,462 0
Cash, end of period $ 0 $ 0
<FN>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
APOLLO EYE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
1. ORGANIZATION, LIQUIDITY AND 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, 1996 have been derived from audited financial statements.
Operating results for the three month period ended March 31,
1997 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, 1996.
The accompanying financial statements have been
prepared assuming the Company will continue as a going concern.
The Company's significant losses in 1996 and projected cash flow
deficiency raise substantial doubt about its ability to continue
as a going concern. The financial statements do not include any
adjustments that might arise should the Company be unable to
continue as a going concern. Previously, the Company has relied
upon the principal shareholder to fund the Company's working
capital needs. The principal shareholder agreed in January 1997
to a revolving loan arrangement providing for loans not
exceeding $1,000,000 collateralized by accounts receivable and
inventory. In June 1997, the Company entered into an agreement
with a company controlled by the principal shareholder for a
$3,000,000 five year term loan collateralized by property and
equipment. This loan will be used in part to repay $1,755,000
of demand loans payable to the principal shareholder. The
Company is exploring the possibility of raising cash through
debt financing or selling equity in a private placement. There
can be no assurances that these activities will be likely to
occur.
<PAGE>
APOLLO EYE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries which
are combined with the accounts of Optiplan based on their
related business activities and the Company's unilateral and
perpetual management control. Material intercompany balances
and transactions have been eliminated.
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.
<PAGE>
APOLLO EYE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
continued
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 the Company's
subsidiary, Medricon, Inc. 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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the
Company to concentrations of credit risk consist principally of
trade accounts receivable. The risk is limited due to the large
number of the Company's customers. The Company does not require
collateral for its accounts receivable.
RESTRICTED CASH
Under Florida Statutory Law, the Company is required
to maintain a $50,000 certificate of deposit with the Treasurer
and Insurance Commissioner.
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.
Prior to the merger date, the Company filed a
consolidated return. For the year ended December 31, 1996, the
Company will file 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.
<PAGE>
APOLLO EYE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
continued
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 5,888,898 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1996, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The adoption of SFAS No. 121 did not have a
material impact on the Company's financial position, operating
results or cash flows.
In February 1997, SFAS No. 128, "Earnings Per Share"
was issued. SFAS No. 128 establishes new standards for
computing and presenting earnings per share ("EPS"). This
statement replaces the presentation of primary EPS and will
require a dual presentation of basic and diluted EPS. SFAS No.
128 is effective for financial statements issued for periods
ended after December 15, 1997 and requires restatement of all
prior-period EPS data presented. The adoption of SFAS No. 128
is not expected to have a material impact on the Company's
financial statements.
3. CONTINGENCIES
The Company is a party to various lawsuits arising in
the ordinary course of business. During the year ended December
31, 1996, estimated litigation settlements of $300,000 were
charged to operations based on review of such litigation with
legal counsel.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents the
significant changes in the financial condition and results of
operations of the Company for the three months ended March 31,
1997.
QUARTER ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a
going concern. The Company had negative working capital of
$2,071,463 and equity had been reduced to $190,015 at December
31, 1996. At March 31, 1997, working capital was further
reduced to a negative $2,396,332 and equity was reduced by
$985,846, to a deficit of $795,831. There are no assurances
that the Company will be able to increase premium revenue with
additional managed care contracts or that practice revenue will
increase to meet cash requirements. As a result, substantial
doubt exists about the Company meeting its liquidity needs and
continuing as a going concern. (See Liquidity and Capital
Resources.)
Gross revenues for the three months ended March 31,
1997 were $2,225,000 versus $2,511,063 in the three month period
ending March 31, 1996. Revenue from premiums (Capitation
Payments) were $1,111,159 for the three months ended March 31,
1997, compared with $989,957 in 1996. The increase results from
managed care contracts effective July 1996 in Puerto Rico and
managed care contracts renewed in October 1996 at higher
capitated rates. Practice revenue decreased to $1,024,359 for
the three months ended March 31, 1997 from $1,432,982 for the
three month period ending March 31, 1996. The decrease in
practice revenue was attributable to a decrease in professional
services and optical sales resulting from the loss of a third
party contract effective February 1, 1997.
Total revenue is expected to decline in 1997
compared with 1996. Premium revenue is expected to be reduced
as a result of the termination of a contract for vision care in
South Florida received from one of the managed care sponsors
effective February 1997 and the termination of two contracts for
vision care in Puerto Rico effective July 1, 1997. The loss of
the three contracts represents approximately $185,000 of monthly
premium revenue. The loss of premium revenue will be partially
offset by the renewal of a contract negotiated in December 1996
with a managed care sponsor for increased premium revenue
effective October 1996. In addition, the Company entered into
an agreement to provide vision benefits on a discounted fee for
service in South Florida effective June 1, 1997. The Company
believes that as a result of these changes, total premium
revenue in 1997 will be below the 1996 premium revenue. The
cancellation of the South Florida vision care contract is
expected to negatively impact practice revenue due to a decrease
in the number of patients that will be seen in the Apollo
practices. The terminated contract represented approximately
40% of the patients seen by the Apollo practices. While it is
not possible to quantify the loss of practice revenue that will
result from the termination of the
<PAGE>
vision care contract, the
Company believes that practice revenue in 1997 will be
significantly below the 1996 practice revenue.
The Company is working to secure new contracts with
managed care sponsors for both vision care and ophthalmology
services. There are no assurances that the Company will be
successful in obtaining new contracts, or that the contracts, if
obtained, will replace the premium and practice revenue lost as
a result of the contract termination discussed above.
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 (participating providers not associated
with the Company). 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 decreased to $546,314
during the quarter ended March 31, 1997 versus $649,234 during
the same 1996 period. This decrease is due to a decline in the
cost of eyewear resulting from decreased optical revenue and a
reduction in 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 $551,291 at December 31, 1996 to
$582,428 at March 31, 1997. The increase results from a change
in the mix of frames. The Company expects to improve inventory
utilization as a result of the 1996 consolidation of its
laboratory operations into a single location in Broward County,
Florida.
SG&A expenses decreased to $2,357,483 during the
three months ended March 31, 1997 from $2,401,254 for the three
months ended March 31, 1996. The decreases in SG&A were
primarily related to the reduction in salaries, benefits, and
advertising offset by increases in rent and telephone expenses
due to the expanded number of facilities.
Depreciation and amortization expenses for the three
months ended March 31, 1997 increased to $237,652 from $211,664
in the same period last year. The increased expense results
from depreciation of equipment acquired in June 1996 from Focus
Fashion Optical and a full quarter of depreciation on Apollo
equipment placed in service in 1996. Property and Equipment
increased to $5,433,900 at March 31, 1997 from $5,428,444 at
December 31, 1996.
NET LOSS
The Company's losses increased to $985,846 ($0.17
per share) for the quarter ended March 31, 1997 from $816,130
($0.37 per share) for the quarter ended March 31, 1996. Per
share data is based on the Company's weighted average of shares
outstanding in the period of 5,888,898 and 2,179,861,
respectively, for the three months ended March 31, 1997 and
1996, with the total shares outstanding at March 31, 1997 being
5,888,898.
<PAGE>
BALANCE SHEET DATED MARCH 31, 1997
The Company's cash decreased to an overdraft of
$12,538 at March 31, 1997 from a balance of $75,462 at December
31, 1996.
The Company's accounts receivable (net of allowance
for doubtful accounts) decreased from $541,709 at December 31,
1996 to $400,719 at March 31, 1997. This decrease is due to the
decreased practice revenue of the Company and the receipt of
managed care premiums outstanding at December 31, 1996. The
total current assets of the Company decreased to $989,551 on
March 31, 1997, from $1,217,765 at December 31, 1996.
The Company's property and equipment (net of
accumulated depreciation) decreased from $3,589,853 at December
31, 1996 to $3,405,745 at March 31, 1997. The decrease results
from depreciation expense for the three months ended March 31,
1997. The total assets of the Company decreased from $5,529,690
at December 31, 1996 to $5,060,560 at March 31, 1997 due to
decreases in accounts receivables, property and equipment (net),
and intangible assets.
The Company's Notes Payable and Capital Lease
obligations decreased from $436,399 at December 31, 1996 to
$383,660 at March 31, 1997. These decreases are associated with
repayment of borrowing. Accounts Payable and Accrued
Liabilities at March 31, 1997 were $3,037,135 compared with
$3,037,158 at December 31, 1996.
In January 1997, the Company entered into a
revolving loan agreement with James R. Cook, M.D., the majority
shareholder, providing for loans not to exceed $1,000,000
secured by accounts receivable and inventory and bearing
interest at prime. In the three month period ending March 31,
1997, the Company borrowed $550,000 under this agreement. At
March 31, 1997, total notes payable to James R. Cook, M.D. were
$2,305,000. Of this amount, $1,755,000 is unsecured and was
outstanding as of December 31, 1996 and $550,000 is secured and
loaned to the Company in the first quarter of 1997.
The Company's equity decreased in the period from
$190,015 at December 31, 1996 to a deficit of $795,851 at March
31, 1997. This decrease is directly related to operating losses
in the period.
CASH FLOW STATEMENT FOR THE THREE MONTH PERIOD ENDING
MARCH 31, 1997
Net Cash Flows used in Operating Activities
decreased to $588,524 for the three month period ending March
31, 1997 from $1,388,307 for the three month period ending March
31, 1996. The decreased cash used resulted from increased
operating losses offset by increased depreciation and
amortization and a decrease in accounts receivables.
<PAGE>
For the three months ended March 31, 1997, investing
activities provided cash of $3,263 compared with cash of
$328,006 used in investing activities for the three months ended
March 31, 1996.
The Net Cash provided by financing activities
totaled $509,799 for the three month period ending March 31,
1997. The cash was primarily provided by James R. Cook, the
majority shareholder, through $550,000 of loans. (See
Liquidity and Capital Resources.)
LIQUIDITY AND CAPITAL RESOURCES
In 1996, the Company lost $4,464,986 on revenues of
$9,926,280 and used $3,942,143 of cash in operating activities
and used $690,137 in investing activities. Financing activities
provided net cash of $4,707,742 that included $4,955,000 of cash
from Dr. Cook.
As a result of the recent loss of managed care
contracts and continued operating losses, the Company does not
have sufficient cash resources to fund the business in 1997.
Management has taken steps to reduce expenses. Optical
laboratory facilities have been consolidated, personnel
headcount has been reduced by thirty percent since October 1,
1996, compensation of ophthalmologists, optometrists, and
opticians has been changed to a performance based system,
administrative and senior management compensation has been
reduced, operating hours of the Apollo Eye Associates practices
have been reduced, and advertising has been reduced. If the
Company is not successful in obtaining new managed care
contracts with HMOs, further expense reductions will be
necessary.
In addition to cash flow generated from operations,
management believes that approximately $3,500,000 of additional
capital will be needed in 1997 to meet the cash flow shortfall.
In January 1997, the Company entered into a revolving loan
agreement with James R. Cook, M.D., the majority shareholder,
providing for loans not exceeding $1,000,000 collateralized by
inventory and accounts receivables. In the first quarter of
1997, the Company borrowed $550,000 of this revolver, the
maximum loan available based on the present level of inventory
and accounts receivable. In April 1997, the Company entered
into a loan agreement with Chardonnay Enterprises, Inc., a
corporation controlled by James R. Cook, M.D., providing for
loans not exceeding $500,000 collateralized by property and
equipment of the Company. As of May 28, 1997, the Company had
borrowed the $500,000 available under loans secured by property
and equipment.
On May 28, 1997, the Board of Directors authorized
the Company to enter into an agreement with Chardonnay
Enterprises, Inc. to borrow up to $3,000,000 collateralized by
property and equipment of the Company. This loan includes the
$500,000 of borrowings from Chardonnay Enterprises previously
authorized by the Company. The loan carries interest at the
prime rate and has a five-year term with interest only due until
July 1, 1998. After July 1, 1998, the loan agreement requires
59 monthly installments including interest at prime based on a
seven year amortization schedule with the balance of the loan
payable in the 60th installment. The Board further authorized
that the Company repay $1,755,000 of unsecured demand notes due
to James R. Cook, M.D. from the proceeds of the note from
Chardonnay Enterprises.
<PAGE>
As a result of these loan arrangements with James R.
Cook, M.D. or corporations he controls, the Company has obtained
funding in 1997 for $1,795,000 of the estimated $3,500,000 cash
requirements. Management will continue to seek to obtain other
debt and/or equity financing for the balance needed to fund
operations for the current year. If additional funding is not
available, management believes a significant downsizing of the
Company will be necessary to reduce expenses to the level of
cash generated from operations. This downsizing could include
additional personnel and compensation reductions, closing or
further reduction of operating hours at some or all of the
Apollo Eye Associates practices, relocation or consolidation of
office facilities and additional reductions of operating
expenses.
Based on the Company's net loss for 1996 and
anticipated 1997 results, the Company does not anticipate it
will be able to generate sufficient cash to fund operations.
The Company's independent accountants have issued a report
covering the December 31, 1996 consolidated financial statements
containing an explanatory paragraph that states that these facts
raise substantial doubt about the Company's ability to continue
as a going concern. The accompanying consolidated financial
statements of the Company do not include any adjustments that
might arise from the outcome of this uncertainty. See Note 1 to
the Company's consolidated financial statements.
In addition to the cash required for operations, as
much as $2,000,000 of investment may be required for leasehold
improvements and capital equipment purchases to remodel and
expand certain older practice locations. Development of new
practice locations or the acquisition of additional practice
locations will require cash.
The Company is exploring a private placement to
raise $10 to $20 million. If successful, proceeds of the
offering would be used first to fund the operating cash needs of
the business and current working capital requirements. The
balance of any funds raised would be used to finance the
Company's growth plans. There are no assurances that the
Company will be successful in raising this capital.
Management is also exploring the business
combination opportunities with companies in similar lines of
business in South Florida. There can be no assurance that the
Company will receive any proposal in this connection or that the
terms of any proposal received would be such that the Company's
Board of Directors would accept the proposal and recommend it to
the Company's stockholders (should stockholder action be
required). Additionally, the Company may at any time decide to
discontinue these explorations.
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 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. It is currently expected that this matter will go to
trial in late 1997 or early 1998.
In August 1995, an action entitled Lowinger v.
United Vision Group, Inc., J. K. Enterprises of Deerfield Beach,
Inc., Jan Kaplan and Karen Kaplan was filed against the Company
in the United States District Court for the Southern District of
Florida. Mr. Lowinger, a former employee of the Company,
alleged discrimination on the basis of age and handicap, breach
of contract to pay a bonus, payment owing for employment
benefits including vacation and automobile expenses and
violation of ERISA. In March 1997, the case was tried in the
United States District Court for the Southern District of
Florida. The jury found in favor of Lowinger as to the age
discrimination claim and that the Company acted willfully in the
termination. Lowinger was awarded back pay and compensatory and
punitive damages in the amount of $402,000. The remaining
claims were found in favor of the Company. The Company has
filed motions to reduce the amount of the verdict and to enter a
judgment in favor of the Company notwithstanding the verdict. A
judgment has not been entered against the Company. At a hearing
for post-trial motions held July 16, 1997, the Court denied the
motion to enter a judgment in favor of the Company
notwithstanding the verdict. The Company believes it has
grounds to appeal the jury verdict and plans to file such appeal.
<PAGE>
In May 1997, two actions entitled Jan H. Kaplan v.
United Vision Group, Inc., Apollo Eye Associates, Inc., and
Apollo EyeCare Management Corp. and Karen Kaplan v. United
Vision Group, Inc., Apollo Eye Associates, Inc., and Apollo
EyeCare Management Corp. were filed against the Company in the
County Court for Broward County, Florida. Mr. and Mrs. Kaplan,
both former employees of the Company, allege breach of a
December 1995 contract to pay consulting fees and seek to
recover the amounts of $11,667 and $7,083 respectively for April
1997. The Company believes that it has substantial defenses and
is defending these suits vigorously.
In May 1997, an action entitled Apollo Eye Group,
Inc., Master Vision Plans, Inc., Optiplan, Inc., and J. K.
Enterprises of Deerfield Beach, Inc. v. Joseph P. Antal and
Preferred Vision Care, Inc. was filed by the Company in the
Circuit Court of the Seventeenth Judicial Circuit of Broward
County, Florida. The complaint alleges that Mr. Antal, a former
employee of the Company, is in breach of a covenant not to
compete contained in the employment agreement that existed
between the Company and Antal during his term of employment.
The lawsuit seeks injunctive relief to enjoin Antal from
solicitation of managed care sponsors including those currently
under agreement with Apollo Eye Group of Puerto Rico, Inc.
(formerly Master Vision Plans, Inc.). A hearing for injunctive
relief was held in May 1997 and will be continued in the third
quarter of 1997.
The Company 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 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: July 25, 1997 /s/ J. Richard Damron, Jr.
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 associated notes to the
financial statements for the quarter ended March 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 440,719 <F1>
<ALLOWANCES> 0
<INVENTORY> 582,428
<CURRENT-ASSETS> 989,551
<PP&E> 3,405,745 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,060,560
<CURRENT-LIABILITIES> 3,385,883
<BONDS> 0
0
0
<COMMON> 5,889
<OTHER-SE> 9,830,245 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 5,060,560
<SALES> 2,225,000
<TOTAL-REVENUES> 2,225,000
<CGS> 546,314
<TOTAL-COSTS> 3,141,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (69,397)
<INCOME-PRETAX> (985,846)
<INCOME-TAX> 0
<INCOME-CONTINUING> (985,846)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (985,846)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
<FN>
<F1> Receivalbes are recorded net of allowance for doubtful accounts
<F2> PP&E is recorded net of depreciation
<F3> Other stockholder's equity includes additional paid in capital
</FN>
</TABLE>
