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, 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 November 12, 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 Sheets as of September 1
30, 1997 and December 31, 1996
Consolidated Statements of Operations for the 2
three and nine months ended September 30,
1997 and 1996
Consolidated Statements of Cash Flows for 3
the nine months ended September 30,
1997 and 1996
Notes to Consolidated Financial Statements 4 - 7
Item 2. Management's Discussion and Analysis 8 - 13
of Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14 - 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
<PAGE>
<TABLE>
APOLLO EYE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 269,052 $ 75,462
Accounts receivable 331,828 541,709
Inventory 526,082 551,291
Other current assets 76,248 49,303
Total current assets 1,203,210 1,217,765
Property and equipment, net 3,064,625 3,589,853
Intangible assets, net 376,117 520,768
Restricted cash 50,000 50,000
Other assets 127,521 151,304
Total assets $4,821,473 $5,529,690
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term
debt $ 30,854 $ 33,754
Current portion of capital
lease obligations 184,398 184,398
Accounts payable 686,803 735,874
Accrued liabilities 2,221,945 2,301,284
Deferred revenue 108,455 111,118
Total current
liabilities 3,232,455 3,366,428
Notes payable affiliate 3,000,000 0
Notes payable to shareholder 725,000 1,755,000
Long-term debt, net of current
portion 73,650 96,364
Capital lease obligations, net of
current portion 14,644 121,883
Total liabilities 7,045,749 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 (12,060,410) (9,646,119)
Total equity (deficit) (2,224,276) 190,015
Total liabilities and equity
(deficit) $4,821,473 $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 Nine Months Ended
(Unaudited) (Unaudited)
September September September September
30, 1997 30, 1996 30, 1997 30, 1996
<S> <C> <C> <C> <C>
Revenue:
Premium $734,810 $1,352,146 $ 2,896,463 $ 3,287,865
Practice 952,273 1,198,996 2,981,880 3,806,240
Other 56,772 82,243 239,092 231,785
Total
revenue 1,743,855 2,633,385 6,117,435 7,325,890
Operating costs and expenses:
Cost of goods and
services sold 369,241 741,380 1,501,125 2,209,735
Depreciation and
amortization 236,874 231,931 694,746 682,654
Selling general and
administrative
expenses 1,819,477 2,294,643 6,092,673 7,385,193
Total operating costs and
expenses 2,425,592 3,267,954 8,288,544 10,277,582
Loss from
operations (681,737) (634,569) (2,171,109) (2,951,692)
Other income (expenses):
Other income
(expense) (3,478) 0 (3,414) 4,945
Interest, net (91,342) (119,558) (239,768) (290,200)
Other income (expense),
net (94,820) (119,558) (243,182) (285,255)
Loss before provision
for taxes (776,557) (754,127) (2,414,291) (3,236,947)
Provision for income
taxes 0 0 0 7,654
Net loss $(776,557) $(754,127) $(2,414,291) $(3,244,601)
Net loss per share $ (.13) $ (.17) $ (.41) $ (.72)
Weighted average number
of shares used in
computing per share
amount 5,888,898 4,532,959 5,888,898 4,526,718
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
APOLLO EYE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
Nine Months Ended (Unaudited)
September 30, September 30,
1997 1996
[S] [C] [C]
Cash flow from operating
activities:
Net loss $ (2,414,291) $ (3,244,601)
Adjustments to reconcile
net loss to net cash used in
operating activities:
Depreciation and
amortization 694,746 682,654
Common stock issued for
services 0 25,000
Bad debt expense 52,000 12,484
Loss on disposal of assets 3,478 1,713
Changes in operating assets and liabilities
exclusive of net assets acquired:
Accounts receivable 157,881 (302,290)
Inventory 25,209 (158,100)
Other current assets (26,945) (92,078)
Other assets 23,783 0
Accounts payable and accrued
liabilities (128,410) (168,636)
Deferred revenue (2,663) 29,109
Net cash used in operating
activities (1,615,212) (3,214,745)
Cash flows from investing activities:
Purchase of property and
equipment (28,345) (617,058)
Proceeds from sale of asset 0 18,900
Net cash used in investing
activities (28,345) (598,158)
Cash flows from financing activities:
Cash overdraft 0 (3,528)
Payments on long-term debt and
capital lease obligations (132,853) (185,524)
Proceeds from notes payable 3,000,000 0
Repayment from notes payable
to shareholder (1,755,000) 4,155,000
Proceeds from notes payable to
shareholder 725,000 0
Net cash provided by financing
activities 1,837,147 3,965,948
Net increase in cash 193,590 153,045
Cash, beginning of period 75,462 0
Cash, end of period $ 269,052 $ 153,045
[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, 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 and
nine month periods ended September 30, 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 1997 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.
A portion of this loan has been used in part to repay $1,755,000
of demand loans payable to the principal shareholder.
<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, Inc. 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 d
ispositions 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
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.
The Company has established a valuation allowance against
its deferred tax assets based on management's belief that
it is not likely such benefits will be realized.
<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 was 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 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. For the nine months ended September 30,
1997 and September 30, 1996, the Company made charges to
operations of $0 and $50,000 respectively for litigation
settlements. The Company believes it has defenses and is
defending these suits vigorously.
<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 and nine month
periods ended September 30, 1997.
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 $2,148,663 and equity had been reduced to $190,015 at
December 31, 1996. At September 30, 1997, working capital
was a negative $2,029,245 and equity was reduced by
$2,414,291, to a deficit of $2,224,276. 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.)
Results of Operations
Total revenues for the three and nine months ended
September 30, 1997 were $1,743,855 and $6,117,435 versus
$2,633,385 and $7,325,890 in the three and nine month
periods ending September 30, 1996. Revenue from premiums
(Capitation Payments) was $734,810 for the three months
ended September 30, 1997, compared with $1,352,146 in
1996. Premium revenue for the first nine months of 1997
was $2,896,463 versus $3,287,865 for the same period in
1996. The decrease results from the loss of managed care
contracts effective July 1997 in Puerto Rico and the loss
of a South Florida managed care contract effective
February 1, 1997. Practice revenue decreased to $952,273
and $2,981,880 for the three and nine months ended
September 30, 1997 from $1,198,996 and $3,806,240 for the
three and nine month periods ending September 30, 1996.
The decrease in practice revenue was attributable to a
decrease in professional services and optical sales
resulting from the loss of the previously mentioned
third party contract effective February 1, 1997.
Revenue is expected to continue 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 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 has been 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 also has negatively impacted practice
revenue due to a decrease in the number of patients that
are 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
<PAGE>
practice revenue that will
result from the termination of the vision care contract,
the Company believes that practice revenue in 1997 will
be significantly below the 1996 practice revenue.
The Company's efforts to secure new contracts with managed
care sponsors in Florida and Puerto Rico for both vision
care and ophthalmology services have not been successful.
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 $361,241 during the quarter ended
September 30, 1997 versus $741,380 during the same 1996
period. For the nine months ended September 30, 1997,
the Cost of Goods and Services was $1,501,125, a decrease
from $2,209,735 for the nine months ended September
30, 1996. The decrease is due to a decline in the volume
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) decreased to $526,082 at September 30, 1997
from $551,291 at December 31, 1996. The decrease results
from a change in the mix of frames and agreements with
certain vendors to consign inventory.
SG&A expenses decreased to $1,819,477 and $6,092,673
respectively during the three and nine months ended
September 30, 1997 from $2,294,643 and $7,385,193 for
the three and nine months ended September 30, 1996. The
decreases in SG&A were primarily related to reductions
in compensation, benefits, consulting, insurance, legal,
telephone and advertising expenses offset by increases
in bad debt and rent expense. In September 1997, the
Company closed two practice locations and relocated to
nearby Apollo locations. Expenses for the three and
nine month periods ended September 30, 1997 include a
provision of $32,000 for the remaining lease liability
for the two closed locations. Both of the vacated
locations have been subleased to third parties beginning
in 1998. The Company also recognized expense of $3,478
for the abandoned tenant improvements.
Depreciation and amortization expenses for the three and
nine month periods ended September 30, 1997 increased to
$236,874 from $231,931 and to $457,871 from $450,723
respectively 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 decreased to $5,394,733 at
September 30, 1997 from $5,428,444 at December 31, 1996.
<PAGE>
Net Loss
The Company's losses increased to $776,557 ($0.13 per share)
for the quarter ended September 30, 1997 from $754,127 ($0.17
per share) for the quarter ended September 30, 1996. For
the nine month period ended September 30, 1997, the loss
decreased to $2,414,291 ($0.41 per share) from $3,244,601
($0.72 per share) for the nine months ended September 30,
1996. Per share data is based on the Company's weighted
average of shares outstanding in the period of 5,888,898
and 4,532,959, respectively, for the three months ended
September 30, 1997 and 1996, and 5,888,898 and 4,526,718
respectively for the nine months ended September 30, 1997
and 1996. The total shares outstanding at September 30,
1997 was 5,888,898.
Balance Sheet Dated September 30, 1997
The Company's cash increased to $269,052 at September 30,
1997 from a balance of $75,462 at December 31, 1996.
The Company's accounts receivable (net of allowance for
doubtful accounts) decreased to $331,828 at September 30,
1997 from $541,709 at December 31, 1996. This decrease is
due to a decrease in managed care premiums outstanding at
September 30, 1997 on lower premium revenue. The total
current assets of the Company decreased to $1,203,210 on
September 30, 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 $3,064,625 at September 30, 1997. The decrease
results from depreciation expense for the nine months
ended September 30, 1997. The total assets of the Company
decreased from $5,529,690 at December 31, 1996 to
$4,821,473 at September 30, 1997 due to decreases in
accounts receivable, inventory, property and equipment
(net), and intangible assets (net) offset by an increase
in cash.
The Company's Notes Payable and Capital Lease obligations
decreased from $436,399 at December 31, 1996 to $303,546
at September 30, 1997. These decreases are associated with
repayment of borrowing. Accounts Payable and Accrued
Liabilities at September 30, 1997 were $2,908,748 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 collateralized
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.
In June 1997, the Company borrowed $3,025,000 from
Chardonnay Enterprises, Inc., a corporation controlled
by James R. Cook, M.D., the majority shareholder. The
loan is collateralized by property and equipment of the
Company. From the proceeds of the note payable to
Chardonnay Enterprises, the Company used $1,755,000 to
repay shareholder loans payable to James R. Cook, M.D.
At September 30, 1997, the note payable to Chardonnay
<PAGE>
Enterprises was $3,000,000 and balance payable on the
revolving loan agreement with James R. Cook, M.D. was
$725,000. (See Liquidity and Capital Resources.)
The Company's equity decreased in the period from $190,015
at December 31, 1996 to a deficit of $2,224,276 at September
30, 1997. This decrease is directly related to operating
losses in the period.
Cash Flow Statement for Nine Month Period Ending
September 30, 1997
Net Cash used in Operating Activities decreased to $1,615,212
for the nine month period ending September 30, 1997 from
$3,214,745 for the nine month period ending September 30,
1996. The decreased cash used resulted from decreased
operating losses and decreased accounts receivable and
inventory offset by decreased accounts payable and
accrued liabilities.
For the nine months ended September 30, 1997, investing
activities used cash of $28,345 compared with cash of
$598,158 used in investing activities for the nine months
ended September 30, 1996. Investing activities in the
prior year period included the purchase of two practice
locations in June, 1996.
Net Cash provided by financing activities totaled $1,837,147
for the nine month period ending September 30, 1997.
In June 1997, the Company borrowed $3,000,000 from
Chardonnay Enterprises, Inc., a corporation controlled by
James R. Cook, M.D., the majority shareholder. From the
proceeds of the note payable to Chardonnay Enterprises,
the Company used $1,755,000 to repay shareholder loans
payable to James R. Cook, M.D. In the three months ended
September 30, 1997, the Company borrowed $725,000 from Dr.
Cook, for a net note repayment of $1,030,000 for the nine
months ended September 30, 1997 (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 loss of managed care contracts in February
1997 and July 1997 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. In September 1997, the Company closed two practice
locations in Delray Beach and Plantation and relocated the
practices to nearby Apollo locations. Both of the vacated
locations have been subleased to third parties beginning in
1998. The Company notified the landlord for one of the
North Miami Beach locations that rent payments on a vacant
location
<PAGE>
would stop in July 1997 after requesting a lease
termination in April 1997. Excess facility space at
the Kendall practice was sublet to a third party in November
1997. The Company intends to downsize and relocate the
Hollywood practice prior to December 31, 1997. The Boca
Raton corporate office will be relocated to existing
practice locations in Palm Beach County when the lease
expires in December 1997. 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 $3,000,000 of additional capital is
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 levels of inventory and
accounts receivable available at that time. 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
collateralized 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.
The Company is currently in default on the loan agreement
with Chardonnay Enterprises as the interest expense is accrued
monthly but is not being paid.
James R. Cook, M.D., the majority shareholder, and corporations
he controls have indicated that they are not willing to continue
funding the Company at the current levels of cash requirements
beyond amounts already loaned. Dr. Cook and such entities
reserve all rights to demand repayment of such amounts loaned
in accordance with the terms of the loan documentation.
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 $1,970,000 of the estimated $3,000,000 cash
requirements. Management is continuing 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
<PAGE>
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.
Management is exploring 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.
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, compensatory
and punitive damages and interest in the amount of
$394,000. Plaintiff was also granted reinstatement to
a position similar to the one held prior to termination
with comparable salary and benefits. The remaining
claims were found in favor of the Company. At a hearing
for post-trial motions held July 16, 1997, the Court
denied a motion to enter a judgment in favor of the
Company notwithstanding the verdict. In September 1997,
the Company filed a renewed motion for judgment as a
matter of law and motion for new trial. In November
1997, the Court denied the motion for new trial and
reserved ruling on the motion to vacate the order to
reinstate, pending mediation on that issue. 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. In September 1997,
the Company filed counterclaims in both of these actions.
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. In October
1997, defendant's motion to dismiss the action was
granted with leave to amend. The Company filed an
amended complaint for damages and injunctive relief
in November 1997.
In September 1997, an action entitled Oska Partnership v.
Apollo Eye Associates, Inc. was filed in the Circuit Court
of the Eleventh Judicial Circuit of Dade County, Florida.
The complaint alleges the Company breached a March 1996
lease agreement for premises at 163rd Street in North
Miami Beach, Florida and seeks eviction and damages
against the Company. The Company does not occupy the
subject premises. The lawsuit asks for rents of $4,505.18
for each of the months of August and September 1997 and
the sum of $211,743.46, representing an acceleration of
lease payments to the end of the lease term. The
Company believes it has defenses and is defending this
suit vigorously.
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.
<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: November 25, 1997 By:/s/ J. Richard Damron, Jr.
J. Richard Damron, Jr.
Treasurer and Chief Financial
Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The accompanying supplemental data are to be used in conjunction with
the unaudited financial statments and associated notes to the financial
statments for the quarter ended September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 269,052
<SECURITIES> 0
<RECEIVABLES> 331,282 <F1>
<ALLOWANCES> 0
<INVENTORY> 526,082
<CURRENT-ASSETS> 1,203,210
<PP&E> 3,064,625 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,821,473
<CURRENT-LIABILITES> 3,232,455
<BONDS> 0
0
0
<COMMON> 5,889
<OTHER-SE> 9,830,245 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 4,821,473
<SALES> 6,117,435
<TOTAL-REVENUES> 6,117,435
<CGS> 1,501,125
<TOTAL-COSTS> 8,288,544
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (243,182)
<INCOME-PRETAX> (2,414,291)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,414,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,414,291)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> 0
<FN>
<F1> Receivables 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>
