<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended . . . . . . . . . . . . . . . June 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number . . . . . . . . . . . . . . . . . . . . . . 0-11634
STAAR SURGICAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 95-3797439
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1911 Walker Avenue
Monrovia, California 91016
(Address of principal executive offices)
(Zip Code)
(818) 303-7902
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (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 Registrant has 12,772,176 shares of common stock, par value $0.01 per
share, issued and outstanding as of August 4, 1995.
Total number of sequentially numbered pages in this document: 11
1
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STAAR SURGICAL COMPANY
INDEX
<TABLE>
<CAPTION>
PART I PAGE NUMBER
<S> <C>
Item 1 - Financial Information
Condensed Consolidated Balance Sheets - June 30, 1995
and December 30, 1994................................... 3
Condensed Consolidated Statements of Income -
Three and Six Months Ended June 30, 1995 and
July 1, 1994............................................ 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and July 1, 1994......... 5
Notes to Condensed Consolidated Financial Statements.... 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8
PART II
Other Information........................................ 9
Signature Page........................................... 10
</TABLE>
2
<PAGE>
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1995 DECEMBER 30, 1994
------ -------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,915,772 $ 3,203,887
Accounts receivable, less allowance
for doubtful accounts and estimated
returns 6,161,859 5,307,708
Inventories 8,940,597 8,578,646
Prepaids, deposits and other current
assets 917,865 609,623
Deferred income tax 2,400,000 2,400,000
------------ ------------
Total current assets 22,336,093 20,099,864
Investment in joint venture 2,077,144 1,791,485
Property, plant and equipment, net 4,308,074 4,035,562
Patents and licenses, net 2,996,248 1,885,898
Other assets 1,312,277 1,075,392
------------ ------------
Total Assets $ 33,029,836 $ 28,888,201
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $ 2,316,439 $ 1,465,850
Current portion of long-term debt 904,238 326,375
Accounts payable 1,005,620 1,109,364
Other current liabilities 2,964,031 3,032,777
------------ ------------
Total current liabilities 7,190,328 5,934,366
------------ ------------
Long term debt 1,091,045 571,755
Deferred gain on sale of license 237,500 331,250
Other long term liabilities 16,315 21,871
------------ ------------
Total liabilities 8,535,188 6,859,242
------------ ------------
Stockholders' equity:
Common stock $0.01 par value,
20,000,000 shares authorized;
issued and outstanding 12,730,909
at June 30, 1995 and 12,704,461 at
December 30, 1994 127,309 127,045
Capital in excess of par value 40,206,656 41,158,736
Accumulated deficit (13,513,302) (16,930,807)
------------ ------------
26,820,663 24,354,974
Notes and other receivables (2,326,015) (2,326,015)
------------ ------------
Total stockholders' equity 24,494,648 22,028,959
------------ ------------
Total Liabilities and Stockholders'
Equity $ 33,029,836 $ 28,888,201
============ ============
</TABLE>
3
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STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
REVENUES JUNE 30, 1995 JULY 1, 1994 JUNE 30, 1995 JULY 1, 1994
-------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Sales $8,447,741 $6,266,892 $15,755,340 $11,799,890
Royalty Income ---- 321,059 ---- 560,059
---------- ---------- ----------- -----------
Total Revenues 8,447,741 6,587,951 15,755,340 12,359,949
Cost of Sales 2,027,465 1,456,833 3,781,375 2,741,828
---------- ---------- ----------- -----------
Gross Profit 6,420,276 5,131,118 11,973,965 9,618,121
Selling, General and Administrative
Expenses:
General & Administrative 1,180,985 1,207,620 2,210,784 2,522,871
Marketing & Selling 2,875,313 1,983,520 5,072,018 3,582,406
Research & Development 759,632 679,747 1,498,805 1,342,956
---------- ---------- ----------- -----------
Total Selling General & Administrative
Expense 4,815,930 3,870,887 8,781,607 7,448,233
Operating Income 1,604,346 1,260,231 3,192,358 2,169,888
---------- ---------- ----------- -----------
Other Income (Expense)
Equity in Earnings of Joint
Venture 149,820 178,026 379,420 465,547
Interest Expense - Net (102,569) (51,963) (122,733) (79,087)
Other Expense 176,000 (13,991) 83,452 (13,991)
---------- ---------- ----------- -----------
Total Other Income - Net 223,251 112,072 340,139 372,469
Income Before Income Taxes 1,827,597 1,372,303 3,532,497 2,542,357
Income Tax Provision 56,061 46,156 114,992 84,527
---------- ---------- ----------- -----------
Net Income $1,771,536 $1,326,147 $ 3,417,505 $ 2,457,830
========== ========== =========== ===========
Income per Share:
Primary $0.13 $0.10 $0.26 $0.19
========== ========== =========== ===========
Fully Diluted $0.13 $0.10 $0.26 $0.19
========== ========== =========== ===========
</TABLE>
4
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STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS JUNE 30, 1995 JULY 1, 1994
------------------------------------------------ -------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,417,505 $ 2,457,830
Adjustments to reconcile operating activities:
Depreciation and amortization 687,051 579,600
Income in equity of joint venture (379,409) (465,547)
Services performed in satisfaction of notes receivable ---- 35,157
Stock issued in exchange for services 325,000 346,125
Other (6,695) 9,658
Change in working capital (1,696,834) (2,353,320)
----------- -----------
Net cash provided by operating activities 2,346,618 609,503
Cash flows from investing activities:
Acquisition of property, plant and equipment (835,943) (824,518)
Increase in patent and licenses (1,469,716) (660,327)
----------- -----------
Net cash used in investing activities (2,305,659) (1,484,845)
Cash flows from financing activities:
Net borrowings under debt financing 1,947,742 (78,869)
Proceeds from exercise of stock options & warrants 239,846 370,870
Payments for repurchase of common stock (1,516,662) ----
----------- -----------
Net cash provided by financing activities 670,926 292,001
Increase (decrease) in cash and cash equivalents 711,885 (583,341)
Cash and cash equivalents at beginning of period 3,203,887 1,401,410
----------- -----------
Cash and cash equivalents at end of period $ 3,915,772 $ 818,069
=========== ===========
</TABLE>
5
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STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
-------------
1. BASIS OF PRESENTATION
---------------------
The accompanying financial statements consolidate the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Assets
and liabilities of foreign subsidiaries are translated at rates of exchange
in effect at the close of the period. Revenues and expenses are translated
at the weighted average of exchange rates in effect during the year. Net
foreign currency translation and transaction gains and losses were not
material. Investments in affiliates and joint ventures are accounted for
using the equity method of accounting.
2. REVENUE RECOGNITION
-------------------
The Company records revenues from product sales to hospitals and physicians
principally upon implant of IOL's from cataract surgery. Revenues from
product sales to distributors (primarily export sales) are recorded upon
shipment. Revenue from license and technology agreements is recorded as
income in accordance with the terms of such agreements.
3. EXPORT SALES
------------
During the six months ended June 30, 1995 and July 1, 1994, the Company had
export sales primarily to Europe and South Africa, South America, Australia
and Japan, of approximately $3,480,000 and $1,594,000.
4. INVENTORIES
-----------
Inventories are valued at the lower of cost (first-in, first-out) or market
(net realizable value) and consisted of the following at June 30, 1995 and
December 30, 1994.
<TABLE>
<CAPTION>
June 30, 1995 December 30, 1994
------------- -----------------
<S> <C> <C>
Raw materials and purchased parts $1,139,988 $ 602,058
Work in process 1,315,717 1,263,943
Finished goods 6,484,892 6,712,645
---------- ----------
$8,940,597 $8,578,646
========== ==========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives, which are generally not greater than five years. Leasehold
improvements are amortized over the life of the lease or estimated useful
life, if shorter.
6. PATENTS AND LICENSES
--------------------
The Company capitalizes the costs of acquiring patents and licenses as well
as the legal costs of successfully defending its rights to these patents.
Amortization is computed on the straight-line basis over the estimated
useful lives, which range from 8 to 12 years.
6
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STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
-------------
7. INCOME PER SHARE
----------------
Income per share computations are based on the weighted average number of
common shares and common equivalent shares outstanding during each period.
Common equivalent shares include the dilutive effects from the assumed
exercise of stock options and warrants computed using the treasury stock
method. The shares used to calculate primary earnings per share were
13,333,525 for June 30, 1995 and 12,977,237 for July 1, 1994 . The shares
used to calculate fully diluted earnings per share were 13,333,525 for June
30, 1995 and 12,977,237 for July 1, 1994.
8. CASH EQUIVALENTS
----------------
For purposes of the cash flow statement, the Company considers all highly
liquid investments with an original maturity of three months or less to be
cash equivalents.
9. INTERIM ACCOUNTING POLICY
-------------------------
The accompanying unaudited condensed consolidated financial statements do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements and
should, therefore, be read in conjunction with the audited financial
statements included in the Company's annual report on Form 10-K for the
year ended December 30, 1994.
Certain reclassifications have been made to the July 1, 1994 consolidated
financial statements to conform with the 1995 presentation.
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments (of a normal recurring nature)
necessary to present fairly the Company's consolidated financial position
as of June 30, 1995 and December 30, 1994, its consolidated statements of
income for the three and six months ended June 30, 1995 and July 1, 1994
and its consolidated cash flows for the six months ended June 30, 1995 and
July 1, 1994.
7
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PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS
---------------------
The following table sets forth for the periods: (1) the percentage which certain
items reflected in the financial data bear to sales and, (2) the percentage
increase of such items as compared to the indicated prior period.
<TABLE>
<CAPTION>
Relationship To Total Revenues For Percentage change
Six Months ended for Six Months
June 30, 1995 July 1, 1994 1995 vs 1994
----------------- ---------------- -------------------
<S> <C> <C> <C>
Increase (Decrease)
Total Revenues 100.0% 100.0% 27.5%
Cost of Sales 24.0 22.2 37.9
General & Administrative 14.0 20.4 (12.4)
Marketing & Selling 32.2 29.0 41.6
Research & Development 9.5 10.9 11.6
Other Income 2.2 3.0 (8.7)
Net Income 21.7 19.9 39.1
</TABLE>
REVENUES:
---------
The Company's revenues for the six months ended June 30, 1995 were $15.8 million
compared to $12.3 million for six months ended July 1, 1994, a 27.5% increase.
The primary reason for the increase is expanding international sales in Europe,
South Africa, Australia; and continued acceptance of STAAR's product in the
U.S. The Company did not report royalty payments for the six months ended June
30, 1995 and expect royalties to be minimal, if any, for the remainder of the
year.
COST OF SALES:
--------------
Cost of Sales increased to 24.0% of revenues for the three and six months ended
June 30, 1995 from 22.1% and 22.2% of revenues for the same periods ended July
1, 1994. The primary reason for the increase was reduced pricing of the
Company's products in the domestic market.
GENERAL & ADMINISTRATIVE (G&A):
-------------------------------
G&A expense decreased to 14.0% of revenues for the three months and six months
ended June 30, 1995 from 18.3% and 20.4% of revenues for the same periods ended
July 1, 1994. The decrease is the result of continued focus in controlling G&A
expense.
MARKETING AND SELLING (M&S):
----------------------------
Marketing and selling expenses increased to 34.0% and 32.2% of revenues for the
three months and six months ended June 30, 1995 compared to 30.1% and 29.0% of
revenues for the three and six months ended July 1, 1994. The primary reasons
for the increase are increased staffing internationally in order to achieve
current and expected increases in international revenues as well as a result of
increased advertising costs.
8
<PAGE>
RESEARCH AND DEVELOPMENT (R&D):
-------------------------------
R&D expense decreased to 9.0% and 9.5% of revenues for the three and six months
ending June 30, 1995 compared to 10.3% and 10.9% of revenues for the three and
six months ending July 1, 1994. The Company expects to continue to spend around
ten percent of revenues for the continued development and approval of products
currently in the development stage and for new products in the research stage.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of June 30, 1995, the Company had a current ratio of 3.1:1, net working
capital of $15.1 million and net equity of $24.5 million compared to December
30, 1994 when the Company's ratio was 3.4:1, its net working capital was $14.2
million, and its net equity was $22.0 million.
The Company used approximately $1.5 million of its working capital during the
first six months of 1995 to buy back approximately 176,500 shares of its common
stock. The Company, as management determines feasible, will continue to buy
back up to 1,000,000 shares of common stock, options and/or warrants.
The Company expects to continue to be profitable in the future and the Company
believes that all future cash flow needs will come from cash generated by
operations. Should additional funding be needed the Company believes that as
long as the financial position of the Company remains constant, these funds
could be obtained.
PART II - ITEM 1
OTHER INFORMATION
-----------------
On April 3, 1995, the Company received approval of its Ultraviolet ("UV")
absorbing material by the U.S. Food and Drug Administration ("FDA") for use in
Intraocular lenses ("IOL") in the United States.
On April 13, 1995, the Company filed a lawsuit against Alcon Laboratories, Inc.
"Alcon" in Los Angeles Superior Court concerning breach of contract, specific
performance and other items relating to Alcon's license to the Company, Patent
Number 4,573,998, entitled "Methods for Implantation of Deformable Intraocular
Lens Structures". This followed an April 12, 1995 lawsuit against the Company
from Alcon in the U.S. District Court in Delaware, concerning the same patent
for non-infringement and other patent related matters. The Company filed a
motion in Delaware to dismiss the Alcon complaint or as an alternative, transfer
the actions to California.
On July 31, 1995, U.S. District Court for the Central District of California
ruled the Company's Antitrust action against Allergan Medical Optics should go
forward. In a companion ruling the Court further lifted its stay of discovery
of infringement, patent validity, and other issues concerning the U.S. Patent
Number 4,681,102 (known as the 102 Patent). The Antitrust action and discovery
on these patent issues had previously been stayed pending a determination of
ownership of the 102 Patent. During the proceedings the Court also confirmed a
June 19, 1995 jury ruling that Microtech is the owner of the 102 Patent. The
102 Patent relates to an insertion device, known as the Bartell Shooter which in
the past was used by some surgeons during cataract surgery. The Court did not
determine any issue as to infringement of the 102 Patent. The Company believes
the 102 Patent will be deemed to be invalid and unenforceable.
9
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
STAAR SURGICAL COMPANY
Date: August 14, 1995 By:\William C. Huddleston
-------------------------
William C. Huddleston
Chief Financial Officer and
Duly Authorized Officer
(principal accounting and financial
officer for the quarter)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,915,772
<SECURITIES> 0
<RECEIVABLES> 6,250,287
<ALLOWANCES> 88,428
<INVENTORY> 8,940,597
<CURRENT-ASSETS> 22,336,093
<PP&E> 10,291,319
<DEPRECIATION> 5,983,245
<TOTAL-ASSETS> 33,029,836
<CURRENT-LIABILITIES> 7,190,328
<BONDS> 0
<COMMON> 127,309
0
0
<OTHER-SE> 24,367,339
<TOTAL-LIABILITY-AND-EQUITY> 33,029,836
<SALES> 15,755,340
<TOTAL-REVENUES> 15,755,340
<CGS> 3,781,375
<TOTAL-COSTS> 3,781,375
<OTHER-EXPENSES> 8,217,071
<LOSS-PROVISION> 33,131
<INTEREST-EXPENSE> 191,266
<INCOME-PRETAX> 3,532,497
<INCOME-TAX> 114,992
<INCOME-CONTINUING> 3,417,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,417,505
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
