<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 . . . . . . . . . . . . . . . September 29, 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 12,745,765 shares of common stock, par value $0.01 per share,
issued and outstanding as of November 10, 1995.
Total number of sequentially numbered pages in this document: 8
<PAGE>
STAAR SURGICAL COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I
Item 1 - Financial Information
Condensed Consolidated Balance Sheets - September 29, 1995
and December 30, 1994......................................................... 1
Condensed Consolidated Statements of Income - Three and Nine Months Ended
September 29, 1995 and September 30, 1994..................................... 2
Condensed Consolidated Statements of Cash Flows - Nine Month Ended
September 29, 1995 and September 30, 1994..................................... 3
Notes to Condensed Consolidated Financial Statements.......................... 4
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 6
PART II
Other Information............................................................. 7
Signature Page................................................................ 8
</TABLE>
<PAGE>
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 29, 1995 DECEMBER 30, 1994
------------------ -----------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,100,066 $ 3,203,887
Accounts receivable, less allowance for doubtful 6,308,416 5,307,708
accounts and estimated returns
Inventories 9,242,616 8,578,646
Prepaids, deposits and other current assets 1,226,039 609,623
Deferred income tax 2,400,000 2,400,000
------------ ------------
Total current assets 23,277,137 20,099,864
Investment in joint venture 2,196,144 1,791,485
Property, plant and equipment, net 4,480,315 4,035,562
Patents and licenses, net 3,298,209 1,857,729
Other assets 1,618,318 1,103,561
------------ ------------
Total Assets $ 34,870,123 $ 28,888,201
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable $ 2,170,470 $ 1,465,850
Current portion of long-term debt 819,148 326,375
Accounts payable 1,176,640 1,109,364
Other current liabilities 2,835,457 3,032,777
------------ ------------
Total current liabilities 7,001,715 5,934,366
------------ ------------
Long term debt 1,091,128 571,755
Deferred gain on sale of license 190,625 331,250
Other long term liabilities 13,373 21,871
------------ ------------
Total liabilities 8,296,841 6,859,242
------------ ------------
Stockholders' equity:
Common stock $0.01 par value,
20,000,000 shares authorized;
issued and outstanding 12,655,804
at September 29, 1995 and
12,704,461 at December 30, 1994 126,558 127,045
Capital in excess of par value 40,178,717 41,158,736
Accumulated deficit (11,405,978) (16,930,807)
------------ ------------
28,899,297 24,354,974
Notes and other receivables (2,326,015) (2,326,015)
------------ ------------
Total stockholders' equity 26,573,282 22,028,959
------------ ------------
Total Liabilities and Stockholders' Equity $ 34,870,123 $ 28,888,201
============ ============
</TABLE>
1
<PAGE>
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------- ----------------------------------------
REVENUES SEPTEMBER 29, 1995 SEPTEMBER 30, 1994 SEPTEMBER 29, 1995 SEPTEMBER 30, 1994
- -------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Sales $8,958,550 $6,580,019 $24,713,890 $18,379,909
Royalty income ---- 333,221 ---- 893,280
---------- ---------- ----------- -----------
Total revenues 8,958,550 6,913,240 24,713,890 19,273,189
Cost of sales 2,183,496 1,644,660 5,964,871 4,386,488
---------- ---------- ----------- -----------
Gross profit 6,775,054 5,268,580 18,749,019 14,886,701
Selling, general and administrative expenses:
General and administrative 1,336,591 1,079,503 3,547,375 3,602,374
Marketing and selling 2,508,820 2,088,952 7,580,838 5,671,358
Research and development 773,906 662,746 2,272,711 2,005,702
---------- ---------- ----------- -----------
Total selling general and administrative expense 4,619,317 3,831,201 13,400,924 11,279,434
Operating income 2,155,737 1,437,379 5,348,095 3,607,267
---------- ---------- ----------- -----------
Other income (expense)
Equity in earnings of joint venture 165,882 344,038 545,302 809,585
Interest expense - net (32,716) (51,597) (155,449) (130,684)
Other expense (126,653) 1,652 (43,201) (12,339)
---------- ---------- ----------- -----------
Total other income - net 6,513 294,093 346,652 666,562
Income before income taxes 2,162,250 1,731,472 5,694,747 4,273,829
Income tax provision 54,926 50,844 169,918 135,371
---------- ---------- ----------- -----------
Net income $2,107,324 $1,680,628 $ 5,524,829 $ 4,138,458
========== ========== =========== ===========
Income per share:
Primary $ 0.16 $ 0.13 $ 0.41 $ 0.32
========== ========== =========== ===========
Fully diluted $ 0.16 $ 0.13 $ 0.41 $ 0.32
========== ========== =========== ===========
</TABLE>
2
<PAGE>
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS SEPTEMBER 29, 1995 SEPTEMBER 30, 1994
- ------------------------------------------------ ------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,524,829 $ 4,138,458
Adjustments to reconcile operating activities:
Depreciation and amortization 1,052,676 825,030
Income in equity of joint venture (545,284) (809,585)
Services performed in satisfaction of notes receivable ---- 46,875
Stock issued in exchange for services 325,000 346,125
Other (30,117) 29,764
Change in working capital (2,411,138) (3,682,735)
----------- -----------
Net cash provided by operating activities 3,915,966 893,932
Cash flows from investing activities:
Acquisition of property, plant and equipment (1,354,302) (1,103,689)
Increase in patent and licenses (2,076,745) (578,626)
----------- -----------
Net cash used in investing activities (3,431,047) (1,682,315)
Cash flows from financing activities:
Net borrowings under debt financing 1,716,766 (332,104)
Proceeds from exercise of stock options & warrants 211,156 704,495
Proceeds from collection of notes receivable ---- 25,000
Payments for repurchase of common stock (1,516,662) ----
----------- -----------
Net cash provided by financing activities 411,260 397,391
Increase (decrease) in cash and cash equivalents 896,179 (390,992)
Cash and cash equivalents at beginning of period 3,203,887 1,401,410
----------- -----------
Cash and cash equivalents at end of period $ 4,100,066 $ 1,010,418
=========== ===========
</TABLE>
3
<PAGE>
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 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.
Certain reclassifications have been made to the 1994 consolidated financial
statements to conform with the 1995 presentation.
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 nine months ended September 29, 1995 and September 30, 1994, the
Company had export sales primarily to Europe and South Africa, South
America, Australia and Japan, of approximately $5,373,339 and $2,865,000.
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 September 29, 1995
and December 30, 1994.
<TABLE>
<CAPTION>
September 29, 1995 December 30, 1994
------------------ -----------------
<S> <C> <C>
Raw materials and purchased parts $ 806,430 $ 602,058
Work in process 2,186,168 1,263,943
Finished goods 6,250,018 6,712,645
---------- ----------
$9,242,616 $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.
4
<PAGE>
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995
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.
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
13,335,359 for September 29, 1995 and 13,005,984 for September 30, 1994.
The shares used to calculate fully diluted earnings per share were
13,425,071 for September 29, 1995 and 13,045,319 for September 30, 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.
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 September 29, 1995 and December 30, 1994, its consolidated statements
of income for the three and nine months ended September 29, 1995 and
September 30, 1994 and its consolidated cash flows for the nine months
ended September 29, 1995 and September 30, 1994.
5
<PAGE>
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
Nine Months ended for Nine Months
September 29, 1995 September 30, 1994 1995 vs 1994
------------------ ------------------ -------------------
<S> <C> <C> <C>
Increase (Decrease)
Total Revenues 100.0% 100.0% 28.2%
Cost of Sales 24.1 22.8 36.0
General & Administrative 14.4 18.7 (1.5)
Marketing & Selling 30.7 29.4 33.7
Research & Development 9.2 10.4 13.3
Other Income 1.4 3.5 (48.0)
Net Income 22.4 21.5 33.5
</TABLE>
REVENUES:
- ---------
The Company's revenues for the nine months ended September 29, 1995 were $24.7
million compared to $18.4 million for nine months ended September 30, 1994, a
28.2% increase. The primary reason for the increase is expanding international
sales in Europe, South Africa, Australia, and South America; and continued
acceptance of STAAR's product in the U.S. The Company did not report royalty
payments for the nine months ended September 29, 1995 and expect royalties to be
minimal, if any, for the remainder of the year. However, the Company does
expect to report royalty income in 1996.
COST OF SALES:
- --------------
Cost of Sales increased to 24.4% and 24.1% of revenues for the three and nine
months ended September 29, 1995 from 23.8% and 22.8% of revenues for the same
periods ended September 30, 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 14.9% and 14.4% of revenues for the three months and
nine months ended September 29, 1995 from 15.6% and 18.7% of revenues for the
same periods ended September 30, 1994. The decrease is the result of continued
focus in controlling G&A expense.
MARKETING AND SELLING (M&S):
- ----------------------------
Marketing and selling expenses decreased to 28.0% and increased 30.7% of
revenues for the three months and nine months ended September 29, 1995 compared
to 30.2% and 29.4% of revenues for the three and nine months ended September 30,
1994. Increases are a result of additional staffing internationally in order to
achieve current and expected increases in international revenues as well as a
result of increased advertising costs.
6
<PAGE>
RESEARCH AND DEVELOPMENT (R&D):
- -------------------------------
R&D expense decreased to 8.6% and 9.2% of revenues for the three and nine months
ending September 29, 1995 compared to 9.6% and 10.4% of revenues for the three
and nine months ending September 30, 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.
INCOME TAXES
- ------------
Based on current and expected income levels, the Company expects to record an
income tax benefit in the fourth quarter as a result of the recognition of the
deferred tax asset through the utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 29, 1995, the Company had a current ratio of 3.3:1, net working
capital of $16.3 million and net equity of $26.6 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 nine 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 or debt financing. 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 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 with 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. In October 1995, the motion to transfer the action
to California was granted.
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.
7
<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: November 14, 1995 By: /s/ William C. Huddleston
----------------------------------
William C. Huddleston
Chief Financial Officer and
Duly Authorized Officer
(principal accounting and financial
officer for the quarter)
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> SEP-29-1995
<CASH> 4,100,066
<SECURITIES> 0
<RECEIVABLES> 6,406,376
<ALLOWANCES> 97,960
<INVENTORY> 9,242,616
<CURRENT-ASSETS> 23,277,137
<PP&E> 10,807,059
<DEPRECIATION> 6,326,744
<TOTAL-ASSETS> 34,870,123
<CURRENT-LIABILITIES> 7,001,715
<BONDS> 0
<COMMON> 126,558
0
0
<OTHER-SE> 26,446,724
<TOTAL-LIABILITY-AND-EQUITY> 34,870,123
<SALES> 24,713,890
<TOTAL-REVENUES> 24,713,890
<CGS> 5,964,871
<TOTAL-COSTS> 5,964,871
<OTHER-EXPENSES> 12,720,438
<LOSS-PROVISION> 53,776
<INTEREST-EXPENSE> 280,058
<INCOME-PRETAX> 5,694,747
<INCOME-TAX> 169,918
<INCOME-CONTINUING> 5,524,829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,524,829
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
