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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
(Amendment No. 3)
General Form for Registration of Securities
Of Small Business Issuers Pursuant to Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
EYE CARE INTERNATIONAL, INC.
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(Name of Small Business Issuer in its Charter)
Delaware 59-3206480
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1511 North Westshore Boulevard, Suite 925
Tampa, Florida 33607
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(Address of principal executive offices) (Zip Code)
(813) 289-5552
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None None
Securities to be registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.001 par value
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(Title of Class)
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Item 1. Description of Business.
Our Business
We market memberships in a comprehensive national non-insurance based
quality discount eye care/eyewear plan. The memberships entitle plan
participants to obtain eye care service and products from our network of
providers at rates which range from 20% to 60% below retail. Additional details
regarding these discounts are presented in the remaining part of this section
and in the section entitled "Our Vision Plan".
We believe that we are the only national discount vision network with
ophthalmologists who have agreed to discount all of their medical services, as
well as the nation's largest optometric discount vision network. This would make
ECI the only national discount vision network which combines ophthalmology
services provided by medical doctors with optometric products and services
provided by optometrists, opticians and optical locations. Our network has
providers at over 11,000 locations, and is comprised of over 1,600
ophthalmologic practices and nearly 10,000 optometric, optician and optical
locations. Ophthalmologists, optometrists and opticians participating in our
vision care network are located within reasonable proximity to all major
metropolitan areas within the United States. As a general guideline we have
providers in nearly every city in the U.S. with a population of 100,000 or more.
As explained in the section entitled "Our Vision Plan" every surgical procedure
including all types of laser surgeries (lasik, RK, CD2 laser), are discounted.
We also have approximately 160 provider locations, or 1.4% of the network,
outside the U.S.-Canada, Hong Kong, and the CIS (former Soviet republic). In
addition to members living in the U.S., we have about 100 members living in the
United Kingdom and Canada. The composition of our optometric network is both
large chain companies and a wide variety of boutiques and specialty shops. Most
other discount vision networks only offer discounts on optometric products and
services.
By offering a full range of eye care/eyewear services, members of our
vision care plan are able to obtain a comprehensive eye care service package,
including elective cosmetic surgical procedures such as lasik or vision
correction surgery, CO2 laser skin resurfacing or wrinkle removal surgery, and
other laser surgical procedures performed by ophthalmologists. These procedures
are traditionally not covered by insurance or Medicare and are generally
expensive. ECI members can obtain these elective procedures from our providers
at a discount of 20% from an ophthalmologist's usual and customary rate. As
illustrated under the caption "Our Vision Plan," members not eligible for
Medicare may receive greater discounts for surgical procedures, such as cataract
surgery, that are typically covered by Medicare, since the 20% discount applies
to the Medicare allowable cost of procedures, rather than the optholmologist's
usual and customary rate, which is generally significantly higher. Although
individuals eligible for Medicare may participate in our vision care program,
they only receive discounts on surgical procedures not covered by Medicare.
Surgical procedures covered by Medicare are performed at the Medicare allowable
rate.
ECI providers offer eyewear products to our members at nationally
listed wholesale prices, plus a $30 to $50 dispensing fee paid to the provider.
This generally creates a savings in the range of 40% to 60% off retail prices.
We also offer a mail order program through which members of our vision care
network may order replacement contact lenses and designer or non-designer
sunglasses at nationally listed wholesale prices.
Our revenues are derived from membership fees paid to us by individual
subscribers and sponsoring organizations that offer our vision care program to
their employees or members. Additional information concerning membership fees
is presented under the caption "Marketing". We have experienced losses since we
commenced operations in 1994, including a net loss of approximately $1,693,000
for 1997, $2,779,000 for 1998 and $2,293,000 for 1999. The report of our
independent auditor on our financial statements contains an explanatory
paragraph indicating that there is substantial doubt as to our ability to
continue as a going concern because of recurring losses from operations. Our
ability to operate profitably depends upon market acceptance of our vision care
plan and the development of an effective sales and marketing organization.
Although we believe that marketing arrangements entered into since September
1999 will produce significant revenues commencing in the third quarter of 2000,
we are unable to predict when and if we will generate sufficient revenues to
become profitable.
Our Target Market
We market our vision care plan to corporations, large sales
organizations and affinity groups which are groups created because of a common
relationship or interest for example, religious, fraternal, trade and
professional organizations. We are involved in all stages of product development
from training individual sales agents to the design and implementation of a
specific marketing program at the corporate and affinity group level. These
organizations can either purchase our vision care plan for, or offer it to,
their employees or members as a supplement to existing health care insurance
plans or other benefit programs or as a stand-alone benefit. Sponsors of
healthcare programs, including other discount vision plans, may secure for their
members the right to use the providers in our vision care network. This is a
particularly significant aspect of our marketing plan due to the national scope
of our network and the ophthalmology services offered.
Our History
We are a Delaware corporation incorporated on May 31, 1994, and a
successor by merger to Eye Care International, Inc., a Florida corporation. Our
principal executive offices are at 1511 North Westshore Boulevard, Suite 925,
Tampa, Florida 33607 and our telephone number is (813) 289-5552.
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Industry Overview
Approximately $20 billion is spent on eye care products and services each year
in the United States.
o Approximately $11 billion is spent on eyeglasses
o Approximately $2 billion is spent on contact lenses.
o Approximately $4 billion is spent on eye examinations and related
services
o Approximately $3 billion represents the costs of related surgical
procedures performed by ophthalmologists.
Ophthalmologists (eye M.D.'s) perform more than three million surgical
procedures in the United States annually.
Eye care products and services in the United States are delivered
through a fragmented system of providers composed of approximately 10,500 Board
certified ophthalmologists, 31,000 optometrists and 65,000 opticians.
o Opticians make and adjust eyewear using prescriptions supplied by
optometrists or ophthalmologists
o Optometrists specialize in examination, diagnosis and treatment
of conditions of the vision system, including fitting and
prescribing contact lenses
o Ophthalmologists are medical doctors who have at least three
years of hospital-based training in the diagnosis and medical and
surgical treatment of eye disorders
The optical dispensing industry in the United States is highly
fragmented with the top 100 optical chains accounting for less than 27% of
total retail sales in 1995. The retail optical industry is consolidating and
will continue to consolidate. Concerns about accelerating healthcare costs have
resulted in the increasing prominence of managed care in the eye care industry.
However, concerns about the quality of care received under managed care
programs and patient access have similarly created a renewed interest in fees
for services based programs. Concerns about costs of these programs and
services remain, thus giving rise to a type of fee for services programs.
Most optometric locations offer basic eye care services, including eye
examinations and contact lens fittings in order to increase sales. This has had
a significant impact on the number of individuals who have begun to use
optometrists, instead of ophthalmologists, for general eye care.
While approximately 90% of general health maintenance organizations
cover routine eye examinations, fewer than 15% cover corrective lenses and none
effectively cover cosmetic-type surgeries, including lasik or vision correction
surgery, CO2 laser skin resurfacing or wrinkle removal surgery and other laser
surgical procedures. Comprehensive eyecare/eyewear benefit programs are
generally not offered as an employee benefit.
We have designed our plan to be suitable as a stand-alone product, as
a supplement to existing insurance programs or within existing
insured/indemnity corporate programs currently being offered by insurance
companies, as well as packagers of insurance-type programs, such as health
maintenance organizations and preferred provider organizations. Our plan is
particularly attractive to sellers of health care insurance and packagers of
broad-based health care programs, since we provide substantial national
coverage
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and the only discount network combining ophthalmology with optometric products
and services. Because of the availability of ophthalmology services under our
plan and the fee structure agreed to by our M.D. providers, by using the ECI
network, costs otherwise being incurred by insurance companies, health
maintenance and preferred provider organizations and self-insured entities can
be substantially reduced. Furthermore, since our discount vision plan is not
insurance based, it may be added to existing health care benefits packages.
Market
In 1995, approximately 157 million of the 263 million people in the
United States needed, but only 96 million people wore, some form of corrective
eyewear. Therefore, there are approximately 60 million people who need
corrective lenses but do not have them. We estimate that in excess of 90% of
all American families have a member who wears some form of glasses,
prescription and/or non-prescription. The market for corrective eyewear has
grown steadily and the demographic trends of an aging population are expected
to generate increased demand for corrective eyewear and optical services. As
"baby boomers" move further into the 40-64 age bracket, the market for eye wear
and eyecare is expected to expand significantly. This is the age group when
most people experience presbyopia, difficulty in reading small print. Treatment
for diseases predominantly affecting elderly patients such as cataracts and
glaucoma, as well as eyewear designed to appeal to mature customers, also is
increasing. People over the age of 40 typically require more complex lenses and
more expensive prescriptions than younger people. In addition, the increasing
use of video display terminals in the workplace has created a further need for
eyecare and eyewear. Consequently, the aging of the "baby boom" generation and
technology driven advances in the workplace are expected to further expand the
size of the optical industry.
U.S. Population Needing Some Form of Vision Correction
(in Millions)
Percentage of
Number of People Population
1995 Wearing Wearing
Age Population Corrective Lens Corrective Lenses
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0-14 57.5 8.9 15%
15-24 35.9 15.0 42%
25-44 83.4 52.4 63%
45-64 52.2 49.6 95%
65 and over 33.6 31.2 93%
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Total 262.6 157.1 60%
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We have opthalmologists as well as optometrists and opticians in each
of the fifty states except Maine where we have no opthalmologists. We have
conducted geo-access studies (studies that compare the proximity of our
providers to the employees of regional/national companies) and we generally
have a coverage of 90% or better; that is 90% of all employees have at least
one provider within twenty miles of their residences. This is usually
acceptable to the companies. We also attempt to recruit additional providers in
locations specifically requested by our customers or potential customers.
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Our Vision Plan
Our vision plan offers members the following services and products:
o One free eye exam, annually, for prescription glasses (contact
lens exam excluded) per membership at participating provider
locations.
o Network ophthalmologists offer discounts to members for eye
examinations and medical and surgical procedures.
Procedures typically covered by Medicare ("coded") are discounted to
our members who are not eligible for Medicare by 20% of the allowed Medicare
rate. For example, a physician's usual and customary fee for cataract surgery
may be $2,500. Medicare may allow only $1,000. An ophthalmologist participating
in our vision network would charge our member only $800 as full payment,
resulting in a $1,700 savings, or 68% less than the usual and customary rate.
However, members eligible for Medicare pay the Medicare allowable rate.
Procedures not coded by Medicare, such as lasik or vision correction surgery,
CO2 laser skin resurfacing or wrinkle removal surgery and other laser surgical
procedures, are discounted by 20% of the physician's usual and customary fee
for all of our members, including those eligible for Medicare.
o Network optical locations and other dispensers of eyewear offer
discounts of up to 60% off of the retail price of prescription
glasses. Network optical locations dispense prescription
eyeglasses and safety glasses at the nationally listed wholesale
price, plus a dispensing fee paid by the patient to the
prescribing physician of $30 to $50, depending upon the
complexity of the lenses; contact lenses (other than disposable
brands) and sunglasses at prices 20% below retail; and sundry
eyewear products at 30% below retail.
o Through our mail-order program, members can purchase replacement
contact lenses, sunglasses, including most national and designer
brands such as Revo, Ray-Ban, Serengeti and Bolle', and safety
glasses at wholesale prices, plus a small shipping and handling
fee.
o We maintain a 24-hour toll-free customer service line and a
database of a member's prescription, that allows us to transmit a
member's prescription to any network provider, at any time, in
case of an emergency.
o Members have unlimited access to all providers in the network and
their services and products.
o We do not have any exclusions for pre-existing conditions, or
restrictions on a member's purchase selections, and we do not
require members to complete forms when purchasing services or
goods.
o We guarantee members that as long as they use our plan in good
faith during the year, they will save at least the cost of their
membership. If they do not realize the savings, we will refund
the difference.
o We offer our members an unconditional, 30-day money-back
satisfaction guarantee.
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Each person in a participating member's immediate family also is
entitled to the benefits offered by the plan upon presentation of a membership
card bearing our name or logo. One membership card is provided to each family
enrolled in the plan. Additional membership cards will be furnished, upon
request, to family members for a small processing fee for each additional card.
Providers
We believe we are the only national vision care network that offers
its members access to ophthalmologists who discount all of their services. Our
network includes over 1,600 ophthalmic practices, and almost all of our
participating ophthalmologists are either Board certified or Board eligible for
certification. Approximately 20% of all Board certified ophthalmologists in the
United States are part of our network, and most of these ophthalmologists have
agreed to not join any other national discount vision plan. Ophthalmologists
participating in our network discount their usual and customary fees by 20% for
procedures not coded by Medicare. Each ophthalmologist establishes his own
usual and customary rates for elective surgical procedures. Members in our
vision care plan can compare the rates charged by ophthalmologists
participating in our vision care plan with those of other ophthalmologists in
the same area by asking those ophthalmologists for the rates they charge for
performing the same surgical procedures. We do not offer rate comparisons or
provide members with advice concerning the rates charged by ophthalmologists
participating in our vision care plan or any others. Medicare coded procedures
are discounted by 20% off of the Medicare allowable rate for members not
eligible for Medicare. As illustrated under the caption "Our Vision Plan,"
members not eligible for Medicare may receive greater discounts for Medicare
coded procedures such as cataract surgery. Members eligible for Medicare pay
the Medicare allowable rate for Medicare coded procedures.
Our plan has nearly 10,000 optometric, optician and optical locations
composed of both large chain companies and a wide variety of boutiques and
specialty shops.
Marketing
Over the first two and one-half to three years of operation we
concentrated our efforts on the development of our vision care network, in
particularly, the establishment of the first national discount network of
ophthalmologists who would agree to discounts on all of their services. We made
little to no effort to market the "combined" network until such time as we
believed we had achieved material coverage in all 50 states. Once we believed
this to have been accomplished, we commenced the marketing of our plan to a
select number of employer organizations, including major corporations and small
to medium-sized business entities. During that period, our objective was to
demonstrate the market acceptability of our plan and to establish relationships
with large national sales and benefit consulting organizations, insurance
companies, health maintenance and preferred provider organizations and third
party administrators.
It was, and remains, our belief that once we could establish market
acceptability of our plan, it would ultimately be marketed primarily through
health care consultants and other organizations marketing health care programs
at retail and, to a much lesser extent, our own sales efforts. We believe this
strategy has proven, and will continue to prove, itself to be effective,
especially in view of our continued unique position in the vision care industry
as not only being easily "affordable" at both a wholesale and retail price
level, but also as a result of our continued position as the only national
discount vision plan combining the services of ophthalmologists with optometric
providers.
Through the marketing vehicles described above, the ECI plan is
marketed, directly and indirectly, to businesses, affinity groups, individuals
and packagers of other health care programs. It may be offered as a supplement
to already existing forms of health care coverage or may be purchased on a
free-standing basis. A corporation or individual need not have insurance
coverage to access our plan. Also, by reason of the breadth of our provider
network, our plan can usually match all of the geographic requirements of any
national insurance program and certainly meets the needs of migratory
populations, such as retirees. We believe this makes our plan particularly
attractive to large health care insurance companies, health maintenance and,
preferred provider organizations and other packagers of
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various health programs who market their health care programs over a large
geographical area. Our plan is currently being so marketed by several such
entities that have commenced marketing our plan through their own sales forces.
As part of our marketing efforts, we work closely with our customers'
internal benefits departments on the design and implementation of a specific
marketing program. Once the "sale" is made, we generally receive from our
customer a computer disk with all of the pertinent personnel information (name,
social security or identification number and address) of the employees/members
and/or retirees that will be covered by the plan. We are then able to upload
all of this information and within approximately ten business days, send out
customized "Welcome Packs" which outline the benefits of the plan, as well as a
list of providers in the new member's zip code. The "Welcome Pack" also
includes a personalized ECI membership card, listing the member's name,
identification number and plan expiration date. Depending on the requirements
of the client, we either send the "Welcome Packs" directly to the individuals,
or bulk ship them to a designated location.
When marketed as a stand-alone product, we maintain two pricing
structures: an individual/family annual membership price of $39.95; and a
corporate/affinity group annual membership price of $28. We have a "sliding
scale" purchase price ranging from $16 to $28, in order to provide discounts to
large quantity purchasers of our plan. Additionally, we maintain a "private
label" pricing structure. When our plan is sold through an existing insurance
agency or packager, the insurance agency or packager incurs practically no
additional overhead. This enhances the attractiveness of our plan to such
selling entities, providing them with a relatively inexpensive product that
fills an otherwise overlooked need in health care. There are no record keeping
burdens on corporate/affinity group clients. We handle all clerical
administrative functions.
We intend to strengthen and broaden our overall marketing efforts by:
o establishing a dedicated regional support staff that will work
directly with our independent sales agents, corporate/affinity
accounts and marketing partners to facilitate and encourage sale
of our vision plan
o instituting targeted public relations campaigns on both national
and local levels
o enhancing promotional support programs, including image promotion
and sales incentives
o establishing and maintaining, through personnel and computer
software programs, the capability of functioning as a third party
administrator, either through the establishment of a wholly-owned
subsidiary or otherwise.
We have retained the services of a public relations firm to increase
public awareness of our network. In addition, Clark Marcus, our president, has
made a number of speaking appearances, published various articles in health
care magazines and participated as a guest speaker on several nationally
broadcasted radio talk shows, all of which serve to bring our company to the
forefront of both the ultimate consumer and corporate/affinity group health
care managers.
Competition
We are not aware of any other national entity that offers a
non-insurance based, discount eye care/eyewear program which has, as an
integral part of the program, ophthalmologists who have agreed to discount all
of their services to members. There are currently a number of national
non-insurance based discount eyewear programs, but to our knowledge, no program
offers the national eye care feature of our discount vision plan. On a general
level, we compete in the highly competitive field of health care service
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against established organizations, including health maintenance and preferred
provider organizations that provide group health care on a discount basis to
their members. These organizations are insurance related, and individuals must
therefore be members of the insured group to participate in discounts. Although
these types of organizations may represent competition, they also represent a
viable market for the sale of our vision care plan, since our vision care plan
can be sold as a supplement to an insurance program, or may be used to decrease
these entities' costs through utilization of our lower price structure with our
ophthalmological providers and our serving as a third party administrator. To a
lesser extent, we compete against individual ophthalmologists who do not offer
discounts to their patients but who may have a loyal patient base. Our success
in the marketplace will depend, in part, upon our ability to attract and retain
a large number of ophthalmologists in our network.
Although other entities offer discount vision programs, we are not
aware of any that maintain a national medical network of ophthalmologists who
discount all of their services. The following entities offer vision programs
that compete with the ECI plan:
o Vision Service Plan, Inc. offers an optometric insurance-based
program.
o Cole National Corp. owns or operates optical locations located at
JC Penney, Sears, Montgomery Ward and Pearle, Inc.
o MemberWorks, a packager of various affinity programs having in
the aggregate over 4 million members, offers a discount vision
plan (optometric only) which, until recently, was serviced by
Cole National Corp. and Outlook Vision. We are the vision eye
care/eyewear provider for various MemberWorks private label
programs.
o Spectera, Inc., a health care insurer, offers a discount vision
benefit as part of its benefit programs.
Although ECI competes with these and other entities, as part of our
marketing strategy we seek to attract our competitors as customers since our
program includes ophthalmologists who discount all of their services
substantially below Medicare allowable rates which are usually substantially
below the rates that our competitors are able to negotiate. As an indication of
the effectiveness of ECI's marketing strategy, although we continue to compete
with those entities described above, we have recently entered into
relationships with both MemberWorks and Spectera which gives those entities the
right to use our provider network and entitles their members to receive the
discounts offered by our providers, thus making those entities ECI's customers.
We expect this trend to continue and, indeed, accelerate since these entities
continue to compete not only against ECI but themselves as well, and now, at
least some of them can promote the fact that they too, are in a position to
offer discounts on ophthalmology services.
Notwithstanding the fact that ECI now services, in whole or in part,
some of its vision care competitors, ECI believes it has a number of
competitive advantages over all other vision care plans.
o We offer the only national discount eye care/eyewear network that
combines ophthalmologic and optometric services on a discount
fee-for-service basis. No other national discount program offers
a full range of ophthalmologic services, all of which are
discounted. All of our participating ophthalmologists contract
exclusively with us and agree not to provide their services to
any other national, non-insurance based, discount fee-for-service
network.
o All ECI programs carry with it one eye exam at no additional
cost, per family membership.
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o Our network is the largest national discount vision network in
the U.S.
o We maintain a nationally recognized fee schedule for both
ophthalmologic and optometric services and products.
o We offer a discount on traditionally non-covered surgical
procedures such as vision correction surgerys, CO2 laser skin
resurfacing or wrinkle removal surgery and other laser surgical
procedures.
o We market to major insurance companies, health maintenance and
preferred provider organizations, which may offer our vision plan
as part of, or as a supplement to, their existing programs.
o Our network is not dependent on any one or several retail chains.
The nationwide breadth and density of our network provides
members with the convenience of having a provider nearby, and
protects both our members and us from loss of service because of
retail closures.
o We do not require that our corporate customers attain minimum
employee participation to implement the plan.
o We have a mail-order program for replacement contact lenses and
sunglasses at wholesale prices.
o We have exclusive contracts directly with 100% of our
ophthalmologists and approximately 65% of the optometric
locations in our network. This direct contact has a positive
impact on our ability to handle customer grievances.
Medical Advisory Board
We have organized a panel of prominent physicians to serve as our
Medical Advisory Board. Members of this panel periodically report on new
developments in ophthalmologic treatment. All members of the Medical Advisory
Board have served since inception.
Ira A. Abrahamson, M.D. is an Associate Professor of Ophthalmology and
Assistant Clinical Professor of Family Medicine at the University of Cincinnati
College of Medicine, Cincinnati, Ohio. He received his medical degree from the
University of Cincinnati School of Medicine and performed his Ophthalmology
residency in Chicago at the Illinois Eye and Ear Infirmary and at Cook County
Hospital. Dr. Abrahamson has been on several Ophthalmic Editorial boards and
has been a member of the editorial advisory board of the American Family
Physician Journal since 1974. He has authored more than 95 scientific
publications and four textbooks. Dr. Abrahamson specializes in cataract and
anterior segment surgery. Dr. Abrahamson also serves as special consultant to
the Company.
Leo D. Bores, M.D. received his medical degree from Wayne State University,
College of Medicine and completed his ophthalmologic residency at Detroit
Medical Center. He is a Fellow of the American Academy of Ophthalmology,
founding member and past-President of the Keratorefractive Society, and has
served as Chairman of several educational and scientific committees, as well as
being a member of the International Society for Refractive Keratoplasty, and
American Society for Cataract and Refractive Surgery. Dr. Bores has lectured,
written and taught extensively both in this country and abroad. He has authored
in excess of thirty papers and books. Dr. Bores is the founder of and practices
at the Bores Eye Institute in Scottsdale, Arizona.
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Warren D. Cross, M.D. graduated from the University of Southern California,
attended Baylor College of Medicine and did his residency in eye surgery at the
University of Texas Medical Branch, Houston. He has been Chief of Staff at the
institute of Eye Surgery, Houston, Texas, since 1984. Dr. Cross has been
performing refractive surgery since 1979 and has done over 14,000 cases. He
also speaks and teaches at numerous professional meetings and courses on both
cataract and refractive surgery. He authored the "Complications of Radial
Keratotomy" chapters in two surgical test books.
David B. Davis, M.D. received his medical degree from the University of Texas,
Medical Branch, Galveston, Texas, and performed his ophthalmology residency at
the United States Naval Hospital. Dr. Davis has served on numerous elected and
appointed boards, including the International Committee for standards of
Ophthalmic Devices and Instruments, American Society of Cataract and Refractive
Surgery; Board of Directors, American College of Eye Surgeons; International
Scientific Advisory Board, American Society of Cataract and Refractive Surgery.
He is a member of numerous professional organizations and also participates in
extensive speaking engagements. Dr. Davis practices medical surgery at the
Davis/Mandel Eye Center in Hayward, California.
Robert H. Marmer, M.D. received his medical degree from the University Autonoma
de Guadalajara and completed his ophthalmic residency program at the Mayo
Clinic in Rochester, Minnesota. Prior to beginning his private practice in
Atlanta, Georgia, he served as a Professor of Ophthalmology at Ahmadubello
University in Kaduna and Zaria, Nigeria, West Africa. Dr. Marmer was the first
surgeon to introduce and perform Radial Keratotomy surgery in Georgia. Dr.
Marmer is a member of numerous professional associations, including the
American Academy of Ophthalmology, the American College of Eye Surgeons and the
International Association for Ocular Surgeons. He has been the official team
ophthalmologist for the NBA Atlanta Hawks for over 15 years, and is the
official team ophthalmologist of the International Hockey League Atlanta
Knights.
Lee T. Nordan, M.D. received his medical degree from the University of New
Mexico School of Medicine, Albuquerque, New Mexico, and did his ophthalmic
residency at West Virginia University Hospital, Morgantown, West Virginia. Dr.
Nordan serves on numerous professional boards including the Scientific Advisory
Board, American Society of Cataract and Refractive surgery, and the Board of
Directors of the International Society of Refractive Keratoplasty. He has
authored numerous scientific publications and is in private practice in La
Jolla, California.
Spencer P. Thornton, M.D. earned his medical degree from the Bowman Gray School
of Medicine of Wake Forest University, Winston-Salem, North Carolina, and
completed his residency in Ophthalmology at Vanderbilt University School of
Medicine, Nashville, Tennessee. Dr. Thornton is certified by the American Board
of Ophthalmology, Fellow of the American Academy of Ophthalmology, Fellow of
the American College of Surgeons, and is President of the Board of Directors of
the American Society of Cataract and Refractive Surgery and serves as Chairman
of the International Committee of Standards and Quality Control for Ophthalmic
Instruments and Devices. Dr. Thornton has served on several publication
editorial boards, has co-authored and been a contributor to twelve textbooks on
ophthalmic surgery and is the author of more than 100 published papers on
cataract and refractive surgery. He has lectured in 27 countries and been
adjunct or guest professor in universities in ten countries. Dr. Thornton is a
member of the Board of Visitors of Baylor University and Director of the
Thornton Eye Surgery Center in Nashville, Tennessee. Dr. Thornton also serves
as special consultant to us.
Special Consultants
Herbert Gould, M.D., In addition to advising us on new developments in the
field of ophthalmology, Dr. Gould writes a regular column in a number of
publications throughout the United States directed toward the senior market.
This is through arrangements made by ECI as part of our marketing efforts. Dr.
Gould is
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widely recognized throughout the United States as a pioneer in the delivery of
refractive surgery and aesthetic laser treatment and training. He currently is
President of the New York Keratorefractive Society and is past-President of the
New York Intraocular Lenses Society. Dr. Gould was also awarded the Bronze
Medal of the Cannes Film Festival for his film on intraocular transplantation.
He has performed over 6,000 refractive procedures, trained hundreds of
physicians in the refinement of the procedures and is considered a leader in
his field. Dr. Gould serves as Special Consultant to the Company and is active
in a number of the Company's promotional marketing activities.
Philip J. Shelton, M.D., J.D.,F.A.C.S., F.C.L.M., practices both ophthalmology
and law in West Hartford, CT. He received his medical degree from New York
University and completed his ophthalmology training at the Mount Sinai Hospital
in New York City. He earned his J.D. degree from the University of Connecticut
School of Law. Dr. Shelton has authored numerous publications and lectures
internationally on managed care and other medical legal topics. He is presently
Assistant Clinical Professor at the University of Connecticut Medical School, a
guest professor at Yale University, and a lecturer in ophthalmology at Tufts
University. Dr. Shelton is certified by the American Board of Ophthalmology and
specializes in the treatment of cataracts and glaucoma. One of the first
ophthalmologists in the Hartford area to implant intraocular lenses, Dr.
Shelton has always been at the forefront of his field. Dr. Shelton is President
of the New York Intraocular Lens Implant Society and has served as an officer
of several professional organizations. He is on the Board of Governors of the
American College of Legal Medicine and was a founding director, as well as past
Chairman and past President, of ConnectiCare, one of the State's largest HMO's.
Employees
As of March 1, 2000, we had twelve full-time employees, including
three in sales and marketing, and nine in customer service and administration.
10
<PAGE> 12
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis of our financial condition and
results of operation should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Sales. Memberships in the Company's program are sold primarily through
independent agents and employee benefit consulting firms either directly to the
employer, or to the employees through the employer's open enrollment process for
benefits. Some sales are made by the Company soliciting enrollments of members
of affinity groups with whom the Company has made arrangements to do so. Other
sales are made by other companies that market multi-discount cards (such as
combining dental and prescription with vision) to the general public, employer
and affinity groups. Sales for the year ended December 31, 1999, of $532,677
were nearly $105,000, or 17%, less than the $637,941 recorded during the same
time period in 1998. This decrease was primarily due to reduced sales of
approximately $178,000 by one of our clients who packages and sells discount
multi-health care programs that includes ECI as the vision care provider,
partially offset by sales to two new clients totaling approximately $79,000.
Selling, General and Administrative Expenses. The major components of selling,
general and administrative expenses (G&A) are payroll, commissions, business
travel postage and printing, and profession/consulting fees. G&A expenses of
$2,453,865 were approximately $124,000, or about 5%, lower than the $2,577,728
for the year ended December 31, 1998. A $39,000 decline in commission expenses,
as well as a $71,000 decline in telephone expenses and a $69,000 decline in
professional/consulting fees, was partially offset by an $52,000 increase in
payroll and related payroll expenses.
Commissions declined by approximately $39,000, from $318,012 in 1998 to $278,606
in 1999, because of reduced sales in 1999.
Telephone expenses decreased by nearly $71,000 to $40,960 in 1999 because lower
rates were negotiated in early 1999 and allowed credits were used to offset
1999 charges.
11
<PAGE> 13
Consulting/professional expenses declined from $421,288 in 1998 to $351,838 in
1999, a decrease of approximately $69,000, mainly due to an extraordinary level
of legal activity in 1998 and the company's efforts to reduce 1999 spending.
Payroll and employee expenses increased by $52,000 to $1,025,975 in the year
1999 because of the addition of 4 employees in late 1998 and early 1999. and
general payroll increases.
Business travel and postage and printing expenses were nearly the same level in
1999 as in 1998.
Interest Income. Interest income for 1999 of $11,463 was about $40,000 lower
than the interest earned in 1998. As a result of a private equity placement in
late 1997 and 1998, we maintained a cash balance significantly higher in 1998
than in 1999 and we were thus able to invest more principal in interest bearing
securities.
Interest Expense. During 1999, interest expense of $4,699 was nearly the same as
in 1998.
Depreciation and Amortization Expense. Since no major depreciable assets were
added during 1999, with amortization of deferred finance costs of warrants
completed in 1998, and with the January 1, 1999 adoption of Statement of
Position 98-5, "Reporting on the Cost of Start-up Activities", depreciation and
amortization expense of $31,739 was nearly $232,000 lower in 1999 than in 1998.
Change in Accounting Principle. Effective January 1, 1999, we adopted Statement
of Position 98-5, "Reporting on the Costs of Start-up Activities",. This
statement requires that certain costs of start-up activities and organization
costs be expensed as incurred rather than capitalized and amortized under
previous accounting principles. The cumulative effect of the change on net
income was $749,433, net of taxes in the amount of $0, since we had loss
carryforwards.
12
<PAGE> 14
Liquidity and Capital Resources
Since inception, our expenses have consistently exceeded our revenues.
Operations have primarily been funded from the issuance of debt and equity
securities aggregating approximately $7 million. All debt and related interest,
except for $50,000 of debt, was converted into equity in 1997 at a conversion
rate of $1.00 per share of common stock; there was no gain nor loss on the
conversion. We used cash for operating activities of approximately $1.5 million
and $2.2 million in 1999 and 1998, respectively, primarily for payroll,
business travel and professional/consulting fees.
We invested $2,472 and $65,933 in 1999 and 1998, respectively, to acquire
computers and office furniture. During 1999 and 1998 we raised $977,500 and
$2,466,599, respectively, through financing activities, primarily the sale of
common stock at a price of $1 per share.
Going Concern
Note F to the audited financials expresses the uncertainty of our ability to
continue as a going concern. We believe that significant revenues will be
generated commencing in the fourth quarter of 2000 as a result of marketing
arrangements entered into since September 1999. During the year 2000 the
Company has secured major marketing arrangements with large member-based
companies and/or sellers of various health care programs such as Rewards Plus,
Zurich Group Insurance, First in Health, Intersections Inc., New York Business
Group, Pennsylvania State Chamber of Commerce and Home Shopping Network. These
groups collectively have in excess of fifty million members and/or employees
and/or individual accounts who subscribe to or purchase their various health
care plans. Each of these groups, in the fourth quarter of 2000, commence
marketing the Company's vision plan to their members, employees or individual
accounts. Since these selling/marketing groups have proven selling track
records in the health care field, the Company believes it is reasonable to
anticipate that these groups will produce material sales of the Company's
vision plan, along with the groups continued sales of their other health care
programs. The Company believes that in excess of $5 million in sales will
result from these arrangements and will eliminate the uncertainty of the
Company as a going concern.
Forward-Looking Statements
This registration statement includes forward-looking statements that
are not based upon historical facts. These statements, which discuss future
expectations, estimate the happening of future events, or our results of
operations or financial condition for future periods, can be identified by the
use of forward-looking terminology such as "may", "will", "expect", "believe",
"intend", "anticipate", "estimate", "continue", or similar words. These
forward-looking statements are subject to certain uncertainties, and there are
important factors that may cause actual results to differ materially from those
expressed or implied by these forward-looking statements. The forward-looking
statements made in this registration statement relate only to events as of the
date on which the statements are made.
Item 3. Description of Property.
Our executive offices, which consist of approximately 4,400 square
feet, are located in Tampa, Florida. Our lease expires on July 31, 2003 and
provides for a current annual rental rate of $87,576.
13
<PAGE> 15
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information concerning the beneficial
ownership of our common stock as of March 1, 2000 by (i) each stockholder known
by us to be a beneficial owner of more than five percent of the outstanding
common stock; (ii) each executive officer whose compensation for 1999 was in
excess of $100,000; and (iii) all directors and officers as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percentage of Common Stock
Ownership (1) Beneficially Owned(2)
---------------------- ----------------------------------------
Class A Class B As a % As a% As a %
Common Common of All of All of All
Name Stock Stock Common Stock Class A Class B
---- ----- ----- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Clark Marcus (3) 75,000 474,100 5.8% * 34.4%
Eva Katzman (3) -- 268,600(4) 2.9% * 19.3%
Sharon Kay Ray (3) 23,000 198,200 2.4% * 14.4%
Richard Abrahamson, MD(3) 72,740 181,800 2.7% * 13.2%
James L. Koenig (3) 24,000 130,000 1.6% * 9.4%
Robert G. Veligdan,DDS(3) 62,500 -- * * --
William Koch (3) -- 25,000 * -- 1.8%
Steven Handwerger(3) 5,000 -- * * --
All officers and directors 262,240 1,009,100 13.5% 3.3% 73.2%
as a group (9 persons)
</TABLE>
------------
* Less than 1%
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated, subject to community property
laws, where applicable. For purposes of this table, a person or group of
persons is deemed to beneficially own any shares that such person has the
right to acquire within 60 days after March 1, 2000.
(2) Calculated as a percentage of the total number of shares of common stock
issued and outstanding without respect to voting power. Each share of class
B common stock is entitled to five votes per share, as compared to one vote
per share of class A common stock. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named above
on March 1, 2000, any shares, which such person or group of persons has the
right to acquire within 60 days after such date is deemed to be outstanding
for the purpose of computing the percentage ownership of such person. As of
March 1, 2000, we had 8,012,604 shares of class A common stock outstanding
and 1,377,700 shares of class B common stock outstanding, or a total of
9,390,304 shares of common stock outstanding.
(3) Address is c/o Eye Care International, Inc., 1511 North Westshore
Boulevard, Suite 925, Tampa, Florida 33607.
(4) Includes 193,600 shares of Class B common stock owned personally by Mrs.
Katzman and 75,000 shares of Class B common stock held in trust the minor
children of Jerry Katzman, M.D., formerly an officer and director. Dr.
Katzman disclaims beneficial ownership or control over all of said shares.
14
<PAGE> 16
Item 5. Directors, Executive Officers, Promoters and Control Persons
The following is a list of our directors and executive officers:
Name Age Position
----- ----- --------
Clark A. Marcus 57 Chairman, President, Chief Executive
Officer and Director
James L. Koenig 52 Senior Vice President, Chief Financial
Officer, Secretary and Director
Richard Abrahamson, M.D. 38 Director
William Koch, M.D. 59 Director
Robert Veligdan, M.D. 50 Director
Steven Handwerger 57 Director
Sharon Kay Ray 41 Director
Clark A. Marcus, one of our founders, has served as Chairman of the Board and
Chief Executive Officer since September 1993. He also has served as President
since February 1996. Mr. Marcus has been a practicing attorney since 1968 and
was senior partner in the New York law firms of Victor & Marcus and Marcus &
Marcus.
James L. Koenig has been Sr. Vice President, Chief Financial Officer and a
member of our Board of Directors since February 1996. He initially joined us as
an independent sales agent in December 1994. Prior to joining us, he worked in
various accounting/management capacities primarily in the utilities industry.
From 1984 to November 1994, Mr. Koenig was employed by Tampa Electric Company
in various executive capacities ranging from Assistant Controller to Director
of Audit Services and Director of Regulatory Affairs.
Richard Abrahamson, M.D., one of our founders, has been a member of our Board
of Directors since August 1995 . Dr. Abrahamson also serves as a member of our
Medical Screening Committee. Since July 1992, Dr. Abrahamson has operated a
private ophthalmology practice specializing in diseases and surgery of the eye.
Dr. Abrahamson advises us on credentials of ophthalmologists, expansion of our
network and sometimes interacts with network providers.
William H. Koch, M.D. has been a member of our Board of Directors since
February 1996. He has been a psychiatrist and child development specialist
since 1974. He is the Founder and Director of Parent and Child Services, Inc.,
New York City; The Parent and Child Consultation Services, New York City; and
the "School for Parents." He is a former member of the faculty of the College
of Physicians and Surgeons, New York City, and Special Consultant to Child
Protective Services, New York City. Dr. Koch also is an author, lecturer and
consultant.
15
<PAGE> 17
Robert Veligdan, D.M.D., has been a member of our Board of Directors since May
1994. He has been a Professor and Instructor at Columbia University since 1977
and lectures on numerous topics relative to dentistry. He is also a staff member
at Columbia University Hospital. He has operated a private dentistry practice
since 1975. Dr. Veligdan is a member of numerous professional associations
including the American Dental Association, the staff of Columbia University
S.D.O.S., Academy of Oral Rehabilitation, Academy of General Dentistry and the
International Congress of Oral Implantologists.
Steven Handwerger has been a member of our Board of Directors since February
1996. He has been employed by Halmode Apparel (a division of Kellwood) since
December 1996, where he is in charge of merchandising and sales for the Plaza
South Division. From December 1991 through December 1996, he was President of
Santa Fe Enterprises, a dress manufacturer.
Sharon Kay Ray, one of our founders, has been a member of our Board of Directors
since inception. Since March 1989, she has served as regional marketing
representative for Novo Nordis Pharmaceuticals, a multi-national pharmaceutical
company and as a special marketing consultant for a number of public and
non-public corporations.
All our directors hold office until the next annual meeting of
stockholders or until their successors are duly elected and qualified, and all
executive officers hold office at the discretion of the Board of Directors. We
do not have an audit committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our officers, directors
and persons who own more than ten percent of our class A common stock to file
certain reports of ownership and changes in ownership with the SEC within
specified time periods. Officers, directors and ten-percent stockholders are
required by regulation to furnish us with copies of all Section 16 (a) forms
they file. We are not aware of any failures to file reports or report
transactions in a timely manner during the fiscal year ended December 31, 1999.
16
<PAGE> 18
Item 6. Executive Compensation
The following table sets forth the compensation paid to, earned by or accrued
for our Chief Executive Officer and each of our other executive officer for whom
more than $100,000 was paid or accrued as compensation for the years ended
December 31, 1999, 1998 and 1997 (collectively, the "Named Executive Officers"):
Annual Compensation
<TABLE>
<CAPTION>
Cash
Name and Principal Position Year Compensation Other Compensation
--------------------------- ---- ------------ ------------------
<S> <C> <C> <C>
Clark Marcus 1999 $254,720 $73,333(1)
Chief Executive Officer and President 1998 $213,745 $81,241(1)
1997 $128,933 $89,034(1)
James L. Koenig 1999 $203,694 $ 6,375(2)
Senior Vice President, Chief Financial 1998 $154,341 $20,200(2)
Officer and Secretary 1997 $113,702 --
</TABLE>
------------------
(1) Includes legal retainer (see Item 7. Certain Relationships and Related
Transactions); auto allowance (1999 - $5,000; 1998 - $5,390); and life
insurance premiums (1999 - $4,971; 1998 - $8,563; and 1997 - $1,339); and
reimbursement for overnight child care expenses while out-of-town on
business (1998 - $22,879; 1997 - $15,727).
(2) Includes auto allowance (1999 - $5,000; 1998 - $18,000) and life insurance
premiums (1999 - $1,375; 1998 - $2,200).
Employment Agreements
Clark Marcus serves as our Chief Executive Officer pursuant to an
employment agreement which expires in September 2002. The agreement provides for
a salary of $150,000 per annum, increased by an amount equal to the greater of
fifteen percent (15%) of the prior year's salary or the increase in the consumer
price index for the Tampa, Florida area, plus a bonus beginning at three percent
(3%) of our pre-tax profits in any year that our revenues exceed $1 million and
increasing up to seven percent (7%) of our pre-tax profits in any year that our
revenues exceed $4 million. His base salary for the fiscal year ending December
31, 1999 is $241,546. We may terminate his employment for gross misconduct in
the performance of his duties. If Mr. Marcus' employment is terminated within 12
months following a change in control, Mr. Marcus will receive his salary, bonus
and additional compensation for a period equal to the greater of the remainder
of the term of the employment agreement or 3 years.
James L. Koenig serves as our Senior Vice President and Chief Financial
Officer pursuant to an employment agreement which expires in February 2001. The
agreement provides for a salary of $125,000 per annum, increased by an amount
equal to the greater of ten percent (10%) of the prior year's salary or the
increase in the consumer price index for the Tampa, Florida area, plus a bonus
of three percent (3%) of our pre-tax profits in any year that our revenues
exceed $1 million. His base salary for the fiscal year ending December 31, 1999
is $199,650. We may terminate his employment for gross misconduct in the
performance of his duties. If Mr. Koenig's employment is terminated within 12
months following a change in control, Mr. Koenig will receive his salary, bonus
and additional compensation for a period equal to the greater of the remainder
of the term of the employment agreement or 3 years.
Each of Messrs. Marcus and Koenig have entered into agreements with us
which provide that, for a period of three years following the termination of his
employment, he will not
o engage, directly or indirectly, in a business within the United
States that markets products or services the same as, similar to,
or competitive with, our products or services, whether fully
developed or in the development stage.
o solicit or accept business from any entity within the United
States which is or was a customer of ours during his tenure with
us, if such business involves one of our products.
o solicit the employment of, hire or cause any other entity to hire,
any of our employees.
Stock Options
No stock options have been granted to Messrs. Marcus or Koenig.
17
<PAGE> 19
Stock Option Plan
Our Board of Directors has adopted, and in May 1997 our stockholders
approved, the Eye Care International, Inc. 1997 Stock Option Plan. The stock
option plan is to be administered by the Board of Directors or a committee of
the Board. Pursuant to the plan, options to purchase 500,000 shares of class A
common stock may be granted to directors, employees (including officers) and
consultants.
The plan authorizes the issuance of incentive stock options, as defined
in Section 422 (b) of the Internal Revenue Code of 1986, as amended,
non-qualified stock options and stock appreciation rights ("SARs", and together
with ISOs and NQSOS, "Options"). Consultants and directors who are not also
employees are eligible for grants of only non-qualified stock options or
non-qualified stock options in tandem with stock appreciation rights. The
exercise price of each incentive stock option may not be less than 100% of the
fair market value of the class A common stock at the time of grant, except that
in the case of a grant to an employee who owns 10% or more of our outstanding
stock or outstanding stock of a subsidiary or parent of our company, the
exercise price may not be less than 110% of the fair market value on the date of
grant. The aggregate fair market value of the shares covered by incentive stock
options, or incentive stock options in tandem with stock appreciation rights,
granted under the plan that become exercisable by a participant in the plan for
the first time in any calendar year is subject to a $100,000 limitation. The
exercise price of each non-qualified stock option, or non-qualified stock option
in tandem with a stock appreciation right, is determined by the Board of
Directors or committee, in its discretion, but may in no event be less than 85 %
of the fair market value of a share of class A common stock at the time of
grant.
Subject to the provisions of the plan, the Board of Directors, or the
committee, has the authority to determine the individuals to whom the stock
options are to be granted, the number of shares to be covered by each option,
the type of option, the exercise period, the restrictions, if any, on the
exercise of the option, the terms for payment of the exercise price and other
terms and conditions. No option granted under the stock option plan shall have
an expiration date late than 10 years from the date of grant, and if an
incentive stock option, or a stock appreciation right in tandem with an
incentive stock option, is granted to a person owning 10% or more of our
outstanding stock or the outstanding stock of a subsidiary or of our parent,
such incentive stock option shall not be exercisable after the expiration of
five years from the date of grant. A stock appreciation right may be exercised
at any time during the exercise period of the incentive stock option or
non-qualified stock option with which it is granted in tandem and prior to the
exercise of such incentive stock option or non-qualified stock option. Payments
by holders of options upon exercise of any option may be made (as determined by
the Board of Directors or the committee) in cash, by delivery of shares of
common stock or such other form of payment as may be permitted under the plan.
No options have been granted under the plan.
18
<PAGE> 20
Item 7. Certain Relationships and Related Transactions
We pay Clark Marcus, our President and Chief Executive Officer, a
retainer of $5,000 per month for legal services.
Item 8. Description of Securities.
Common Stock
We are authorized to issue an aggregate of 30,000,000 shares of common
stock, par value $.001 per share, 20,000,000 of which are designated as class A
common stock and 10,000,000 of which are designated as class B common stock. As
of March 1, 2000, 8,012,604 shares of class A common stock and 1,377,700 shares
of class B common stock were outstanding.
Voting. Holders of class A common stock are entitled to one vote per
share on all matters upon which stockholders are entitled to vote, including the
election of directors. Holders of class B common stock are entitled to five (5)
votes per share on all matters upon which stockholders are entitled to vote,
including the election of directors. Holders of the shares of class A common
stock and class B common stock vote together as a single class on all matters.
Class A common stock and class B common stock are otherwise identical in all
other respects. Holders of our common stock do not have subscription, redemption
or preemptive rights.
Dividends. Subject to the rights of holders of preferred stock, holders
of class A common stock and class B common stock are entitled to receive
dividends when, as and if declared by the Board of Directors. We do not expect
to pay dividends on our common stock in the foreseeable future, and intend to
retain earnings, if any, to finance our operations.
Liquidation. Subject to the rights of holders of preferred stock,
holders of common stock are entitled to share ratably in our assets legally
available for distribution to holders of common stock in the event of the
liquidation, dissolution or winding up of the company.
Conversion. Shares of class B common stock will upon transfer by the
initial holder of the class B common stock automatically be converted into one
share of class A common stock.
19
<PAGE> 21
Stock Warrants
The Company issued 32,500 stock purchase warrants in 1996 and 50,000
in 1997 to individuals who made loans to the Company at the rate of one warrant
for each dollar loaned. The warrants, which have an exercise price of $1.00 per
share, expire in the years 2001 and 2002. At the time of issuance, the 1996
warrants had a fair value of $4,550 and the 1997 warrants had a fair value of
$166,500, which were recorded as deferred financing costs and was amortized
over the life of the related loans. Amortization of the deferred financing
costs amounted to $55,500 in 1998 and zero in 1999.
The Company issued 400,000 additional warrants in 1999 to an
individual as an incentive to sign a spokesperson contract for future services.
These warrants have an exercise price of $1.50 per share and expire in 2001. No
compensation expense was recorded because the fair value of the warrants on the
date of issuance was less than the exercise price. Additional information
regarding the stock warrants is presented in the "Stock Warrants" note to the
financial statements.
Preferred Stock
We are authorized to issue 1,500 shares of series A convertible
preferred stock. Each share of Series A convertible preferred stock is
convertible into 2,000 shares of Class A common stock and has a liquidation
preference of $1,000 per share. We have the right to redeem shares of series A
convertible preferred stock commencing on the third anniversary of the date
shares of series A convertible preferred stock were first issued at a redemption
price of $1,200 per share. As of March 1, 2000, 720 shares of series A
convertible preferred stock were outstanding.
We are authorized to issue up to an additional 9,998,500 shares of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by our Board of Directors. Accordingly, the
Board of Directors is empowered, without further stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
that could decrease the amount of earnings and assets available for distribution
to holders of common stock or adversely affect the voting power or other rights
of the holders of our common stock. In the event of issuance, the preferred
stock could be utilized. under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of our company. No
shares of preferred stock are outstanding, we have no present intention to issue
any shares of preferred stock.
PART II
Item 1. Market Price of And Dividends on The Registrant's Common Equity And
Other Shareholder Matters.
Market Information
Our class A common stock is traded on the OTC Bulletin Board under the
symbol "EYCR". Set forth below are the high and low bid and asked prices for our
class A common stock on the OTC Bulletin Board for each quarter since the
beginning of 1998. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
Bid Price Asked Price
------------------ ------------------------
Quarter Ended High Low High Low
------------- ------ ------ ------- ------
March 31, 1998.............. 5.375 2.25 6.25 3.00
June 30, 1998 .............. 5.00 2.00 5.00 2.00
September 30, 1998.......... 3.375 1.6875 4.1875 1.75
December 31, 1998........... 3.25 1.25 3.25 1.3750
March 31, 1999.............. 2.125 0.75 2.375 0.8125
June 30, 1999 .............. 1.0625 0.50 1.125 0.50
September 30, 1999.......... 0.73 0.25 0.8125 0.40
December 31, 1999........... 1.0625 0.25 1.1875 0.34
On March 1, 2000 the closing bid price of one share of our class A
common stock on the OTC Bulletin Board was $0.937.
As of December 31, 1999 there were 229 holders of record of our class A
common stock.
20
<PAGE> 22
Dividends
The payment of dividends is within the discretion of our Board of
Directors and depends in part upon our earnings, capital requirements and
financial condition. We have never paid any dividends on our class A common
stock and we do not anticipate paying such dividends in the foreseeable future.
We intend to retain earnings, if any, to finance our operations.
Item 2. Litigation
We are not a party any litigation, that if adversely determined, would
have a material adverse effect on our business.
Item 3. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
Item 4. Recent Sales of Unregistered Securities.
Since January 1, 1997, we have sold the following securities without
registration under the Securities Act. There were no underwriters involved in
these transactions and there were no underwriting discounts or commissions paid
in connection with these transactions. The purchasers of the securities in each
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution of
these securities and appropriate legends were affixed to the certificates for
the securities issued in such transactions. All purchasers of securities in
these transactions had adequate access to information about us and were
sophisticated.
1. During 1997, we issued 2,589,838 shares of class A common stock to
48 investors, 40 of whom were accredited investors, for a total
purchase price of $2,589,838 ($1.00 per share), including 1,234,500
shares issued upon exercise of warrants and 89,838 shares in
payment of accrued interest on promissory notes. These transactions
were exempt from the registration requirements of the Securities
Act under Section 4(2) of the Securities Act or Rule 506 of
Registration D.
2. During 1998, we sold an aggregate of 2,466,599 shares of class A
common stock to 38 accredited investors for a total purchase price
of $2,466,599 ($1.00 per share). These transactions were exempt
from the registration requirements of the Securities Act under
Section 4(2) of the Securities Act and Rule 506 of Registration D.
3. From January through August of 1999, we sold an aggregate of
506,500 shares of class A common stock to 20 accredited investors
for a total purchase price of $506,500 ($1.00 per share). These
transactions were exempt from the registration requirements of the
Securities Act under Section 4(2) of the Securities Act and Rule
506 of Registration D.
4. In November and December of 1999, we sold an aggregate 495 shares
of series A convertible preferred stock to 4 accredited investors
for a total purchase price of $495,000 ($1.00 per share). Each
share of series A convertible preferred stock is convertible into
2,000 shares of class A common stock. These transactions were
exempt from the registration requirements of the Securities Act
under Section 4(2) of the Securities Act and Rule 506 of
Registration D.
Item 5. Indemnification of Directors and Officers.
Article VI of the Registrant's by-laws provides that a director or
officer shall be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (provided such settlement is
approved in advance by the Registrant) in connection with certain actions, suits
or proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation - a "derivative action") if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. A similar standard of care is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
an action, except that no person who has been adjudged to be liable to the
Registrant shall be entitled to indemnification unless a court determines that
despite such adjudication of liability but in view of all of the circumstances
of the case, the person seeking indemnification is fairly and reasonably
entitled to be indemnified for such expenses as the court deems proper.
21
<PAGE> 23
Article 6.5 of the Registrant's by-laws further provides that directors
and officers are entitled to be paid by the Registrant the expenses incurred in
defending the proceedings specified above in advance of their final disposition,
provided that such payment will only be made upon delivery to the Registrant by
the indemnified party of an undertaking to repay all amounts so advanced if it
is ultimately determined that the person receiving such payments is not entitled
to be indemnified.
Article 6.4 of the Registrant's by-laws provides that a person
indemnified under Article VI of the by-laws may contest any determination that a
director, officer, employee or agent has not met the applicable standard of
conduct set forth in the by-laws by petitioning a court of competent
jurisdiction.
Article 6.6 of the Registrant's by-laws provides that the right to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in the Article will not be
exclusive of any other right which any person may have or acquire under the
by-laws, or any statute or agreement, or otherwise.
Finally, Article 6.7 of the Registrant's by-laws provides that the
Registrant may maintain insurance, at its expense, to reimburse itself and
directors and officers of the Registrant and of its direct and indirect
subsidiaries against any expense, liability or loss, whether or not the
Registrant would have the power to indemnify such persons against such expense,
liability or loss under the provisions of Article VI of the by-laws. The
Registrant has applied for such insurance, and expects to have such insurance in
effect on the date this Registration Statement is declared effective by the
Securities and Exchange Commission.
Article II of the Registrant's certificate of incorporation eliminates
the personal liability of the Registrant's directors to the Registrant or its
stockholders for monetary damages for breach of their fiduciary duties as a
director to the fullest extent provided by Delaware law. Section 102(b) (7) of
the DGCL provides for the elimination off such personal liability, except for
liability, (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived any improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
22
<PAGE> 24
PART F/S
Index to Consolidated Financial Statements
Page
Independent Auditor's report F-1
Consolidated balance sheet at December 31, 1999 F-2
Consolidated statements of income and retained earnings
for the years ended December 31, 1999 and 1998 F-3
Consolidated statements of changes in common equity for
the years ended December 31, 1999 and 1998 F-4
Consolidated statements of cash flows for the years ended
December 31, 1999 and 1998 F-5
Notes to consolidated financial statements F-6
<PAGE> 25
PHILIP J. ELENIDIS & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Eye Care International, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Eye Care
International, Inc. and Subsidiary as of December 31, 1999 and the consolidated
statements of income and retained earnings, changes in common equity and cash
flows for the years ended December 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Eye Care
International, Inc. and Subsidiary as of December 31, 1999 and the results of
its operations, changes in common equity and cash flows for the years ended
December 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note F to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note F. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Yonkers, New York /s/ Philip J. Elenidis & Company
March 27, 2000 --------------------------------
984 North Broadway Phone: (914) 965-1002
Yonkers, New York 10701 Fax: (914) 965-8214
F-1
<PAGE> 26
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1999
------------
Current assets
Cash $ 129,482
Accounts receivable 112,002
Miscellaneous receivables and
advances 139,998
-----------
$ 381,482
Fixed assets - net of accumulated
depreciation 60,315
Other assets
Organization expense - net of
accumulated amortization --
-----------
Total assets $ 441,798
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accrued expenses and taxes payable $ 452,978
Notes payable 50,000
-----------
$ 502,978
-----------
Stockholders' equity
Capital stock
- 30,000,000 shares of $.001 par
value common stock authorized:
9,010,304 shares issued and outstanding 9,010
- 10,000,000 shares of $.001 par
value preferred stock authorized:
495 shares issued 1
Paid in capital 6,787,245
Retained deficiency (6,857,436)
-----------
$ (61,180)
-----------
Total liabilities and
stockholders' deficiency $ 441,798
===========
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-2
<PAGE> 27
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED DEFICIENCY
For the years ended
December 31,
1999 1998
----------- -----------
Revenue
Membership fees $ 532,677 $ 637,941
Interest 11,463 51,705
----------- -----------
$ 544,140 $ 689,646
General and administrative expenses 2,453,855 2,577,728
Interest 4,699 5,833
Depreciation and amortization 31,739 264,222
----------- -----------
2,490,293 2,847,783
----------- -----------
Loss from operations (1,946,153) (2,158,137)
Other income - proceeds from lawsuit -- 5,000
----------- -----------
Loss before cumulative effect
of accounting change (1,946,153) (2,153,137)
Cumulative effect of accounting
change to adopt SOP 98-5 (749,433) --
----------- -----------
Net loss (2,695,586) (2,153,137)
Retained deficiency - January 1, (4,161,850) (2,008,713)
----------- -----------
Retained deficiency - December 31, $(6,857,436) $(4,161,850)
=========== ===========
Loss per share $ (0.30) $ (0.26)
=========== ===========
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-3
<PAGE> 28
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN COMMON DEFICIENCY
Common Paid-in Retained
Equity Capital Deficit
------ ---------- ------------
Balance December 31, 1997 $6,297 $3,623,990 ($2,008,713)
Net Income/(Loss) ($2,153,137)
Issuance of Capital Stock $2,207 $2,269,262
Balance December 31, 1998 $8,504 $5,893,252 ($4,161,850)
Net Income/(Loss) ($2,695,586)
Issuance of Capital Stock $ 506 $ 893,993
Balance December 31, 1999 $9,010 $6,787,245 ($6,857,436)
F-4
<PAGE> 29
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 31,
1999 1998
----------- -----------
Cash flow from operating activities
Net loss $(2,695,586) $(2,153,137)
Adjustment to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 31,739 264,222
Accounting change 749,433
Changes in operating assets and liabilities
Decrease in accounts receivables 56,479 146,737
Increase or increase in miscellaneous
receivables and advances 8,303 (116,545)
Increase or decrease in accrued expenses
and taxes payable 428,345 (115,330)
----------- -----------
Net cash used by operating activities (1,421,287) (1,974,053)
Cash flow from investing activities
Purchase of fixed assets (2,472) (65,933)
Cash flow from financing activities
Proceeds from sale of capital stock 894,500 2,271,469
----------- -----------
Increase or decrease in cash (529,260) 231,483
Cash - January 1, 658,742 427,259
----------- -----------
Cash - December 31, 129,482 658,742
----------- -----------
Supplemental disclosures
Interest paid 4,153 5,833
----------- -----------
Income taxes paid -0- -0-
=========== ===========
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-5
<PAGE> 30
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note A - NATURE OF THE ORGANIZATION
Eye Care International, Inc. and Subsidiary (the Company) markets
vision care benefit plans and enhancements to plans provided by others.
The Company's benefit plans and plan enhancements afford its
member/subscribers, and those of its plan sponsors (employers,
associations, etc.) and other licensed organizations, the opportunity
to obtain discounted services from its national network of ophthalmic
physicians. Through contractual arrangements with others, the Company's
plans also provide its member/subscribers with access to providers of
eye wear and other benefits on a discounted basis.
The Company's principal operating revenues consist of annual fees
charged to participating physicians and user fees charged either
directly to its member/subscribers, or indirectly through plan sponsors
or through licensing arrangements with providers of other benefit plans
in exchange for access by their member/subscribers to the Company's
network of ophthalmologists on a similarly discounted basis.
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, National Vision Services,
Inc. All significant intercompany transactions and balances have
been eliminated in consolidation.
2. Revenue Recognition
The Company sells one, two and three year memberships in its vision
plan. At the time of enrollment by the Company (when the Company
enters the membership data into its system), it issues a membership
kit that includes a membership card, network providers and other
materials which completes the Company's obligation during the term
of membership. After thirty days, the membership cannot be
cancelled, therefore membership fees are recognized in full at the
time of enrollment. Membership fees however, can neither be
determined nor estimated until reported to the Company by the
selling organization and are subject to possible subsequent audit by
the Company at its option under the terms of the related agreement.
Accordingly, depending on the timeliness and accuracy of membership
reports received (which are presently beyond the Company's control),
membership income is not recognized in the Company's financial
statements until reported
F-6
<PAGE> 31
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Revenue Recognition (continued)
by the selling organizations, which may be in periods later than
those in which they were earned and subject to adjustment in
subsequent periods. If reports were delayed, revenue and commission
expense would be understated, as well as net income.
3. Fixed Assets and Depreciation
Fixed assets are recorded at cost. Depreciation of fixed assets is
recorded using accelerated and straight line methods over the
estimated useful lives of the related assets.
4. Income Taxes
Income taxes are to be provided for the tax effects of transactions
reported in the financial statements. Provisions will be made for
deferred income taxes, which result from timing differences between
expenses and income as reported for financial statement purposes and
their deductibility or exclusion for income tax purposes, when
appropriate.
5. Stock Warrants
The Company has issued 32,500 stock purchase warrants in 1996 and
50,000 in 1997 to individuals who made loans to the Company at the
rate of one warrant for each dollar loaned. The warrants, which
have an exercise price of $1.00 per share, expire in the years 2001
and 2002. At the time of issuance, the 1996 warrants had a fair
value of $4,550 and the 1997 warrants had a fair value of $166,500,
which were recorded as deferred financing costs and was amortized
over the life of the related loans. Amortization of the deferred
financing costs amounted to $55,500 in 1998 and zero in 1999.
The Company issued 400,000 additional warrants in 1999 to an
individual as an incentive to sign a spokesperson contract for
future services. These warrants have an exercise price of $1.50 per
share and expire in 2001. No compensation expense was recorded
because the fair value of the warrants on the date of issuance was
less than the exercise price.
The fair value of the above warrants at their grant date was zero.
The estimated fair value of each warrant granted is calculated using
the Black Scholes option pricing model. The following summarizes the
assumptions used in the model:
1999
------
Risk-free interest rate 5.87%
Expected years until exercise 2.19
Expected dividend yield 0
Estimated fair market value
Of underlying stock $1.01
The following is a summary of stock warrant activity during the
years 1999 and 1998:
Weighted
Average
Number Exercise
Of shares Price
--------- ---------
Warrants granted and outstanding
December 31, 1997 and 1998 82,500 $1.00
Warrants granted during 1999 400,000 $1.50
Warrants expired in 1999 0
Warrants forfeited during 1999 0
Warrants exercised during 1999 0
--------
Warrants granted and outstanding
December 31, 1999 482,500 $1.41
========
The following table summarizes the status of warrants outstanding at
December 31, 1999:
Weighted
Average
Remaining
Exercise Number Contractual
Price Of shares Life
-------- --------- -----------
1996 Stock Warrants $1.00 32,500 1.35 years
1997 Stock Warrants $1.00 50,000 2.33 years
1998 Stock Warrants $1.50 400,000 1.42 years
-------
482,500
=======
As of December 21, 1999, the Company had reserved 482,500 shares of
common stock for issuance under stock warrants issued in 1996, 1997
and 1998.
F-7
<PAGE> 32
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
6. Preferred Stock
In late 1999, the Company issued 495 shares of convertible preferred
stock at a price of $1,000 per share. Each share of preferred stock
is convertible into 2,000 shares of common stock and has a
liquidation preference of $1,000 per share. We have the right to
redeem shares of series A convertible preferred stock on the third
anniversary of the date shares of series A convertible preferred
stock were first issued at a redemption price of $1,200 per share.
7. Change in Accounting Principle
Effective January 1, 1999, the Company adopted Statement of Position
98-5, Reporting on the Costs of Start-up Activities. This statement
requires that certain costs of start-up activities and organization
costs be expensed as incurred rather than capitalized and amortized
under previous accounting principles. The cumulative effect of the
change on net income was $749,433.
8. Loss Per Share
Loss per share is calculated by dividing net income by the average
weighted number of shares outstanding for the period. Average
weighted number of shares used to calculate loss per share for 1999
and 1998 were 8,905,929 and 8,308,219 shares, respectively. Since
the Company shows a loss for each of the periods presented, no
diluted loss per share calculations have been presented. Showing the
effect of including the outstanding warrants in the loss per share
calculation would have an anti-dilution appearance and would be
misleading.
9. Comprehensive Income
SFAS 130 requires a company to disclose comprehensive income, if
any, in its financial statements. Comprehensive income is defined
as "the change in equity (not assets) of a business enterprise
during a period from transactions and other events and
circumstances from non-owner resources. It includes all changes in
equity during a period except those resulting from investments by
owners and distributions to owners". Since the Company had no such
transactions, the Company's net loss and comprehensive net loss are
the same.
Note C - NOTES PAYABLE
The Company is indebted to two stockholders in the amount of $25,000.00
each. The monies bear interest at the rate of 8% and are payable upon
demand.
Note D - INCOME TAXES
Substantially all of the Company's retained earnings deficit will be
available as an operating loss carryforward to reduce future income tax
obligations as may be incurred through the year 2015. However, because
of the Company's relatively short operating history, the potential tax
benefit of this loss has been valued at zero in the financial
statements and will remain so until realized or until the criterion in
Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes, for recognition of a deferred tax asset has been met.
F-8
<PAGE> 33
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note E - COMMITMENTS AND CONTINGENCIES
The Company leases its present offices under an operating lease
expiring on July 31, 2003 with an option to renew for one year. Rent
expense for the years amounted to $87,576 and $54,416 respectively.
Future minimum rental commitments at December 31, 1999 are as follows:
2000 $ 92,048
2001 96,523
2002 100,992
2003 42,855
--------
$419,994
========
Note F - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company
has sustained substantial operating losses since its inception In
addition, the Company has used substantial amounts of working capital
in its operations. In view of these matters the continuation of the
Company is dependent upon its ability to raise capital and its success
of future operations. Absent an increase in revenue or the sale of
capital stock, there may be uncertainty about the Company's ability to
continue as a going concern. Management believes that the Company will
generate significant new business in the future to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
F-9
<PAGE> 34
PART III
Item 1. Index to Exhibits.
Exhibit No. Exhibit
----------- -------
3.1* Certificate of Incorporation, as amended.
3.2* By-laws
3.3 Certificate of Designation for Series A Convertible Preferred
Stock
10.1 1997 Stock Option Plan
10.2* Employment Agreement with Clark Marcus.
10.3* Employment Agreement with James L. Koenig
21.1* Subsidiaries
27.1 Financial Data Schedule
-----------
*Previously filed
<PAGE> 35
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this amendment to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
EYE CARE INTERNATIONAL, INC.
Date: March 30, 2000 By: /s/ Clark Marcus
-------------------------------------
Clark Marcus
Chief Executive Officer and President
<PAGE> 36
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
3.1* Certificate of Incorporation, as amended.
3.2* By-laws
3.3 Certificate of Designation for Series A Convertible Preferred
Stock
10.1 1997 Stock Option Plan
10.2* Employment Agreement with Clark Marcus.
10.3* Employment Agreement with James L. Koenig
21.1* Subsidiaries
27.1 Financial Data Schedule
-----------
*Previously filed
