<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
---- ----
Commission File Number 1-10694
VISX, INCORPORATED
------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1161793
- ------------------------------------ -------------------
(State or other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
3400 CENTRAL EXPRESSWAY, SANTA CLARA, CALIFORNIA 95051
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (408) 733-2020
--------------
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
----- -----
Total number of shares of common stock outstanding as of
October 31, 1995: 12,243,385.
-----------
<PAGE> 2
VISX, INCORPORATED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Interim Balance Sheets as 3
of September 30, 1995 and December 31, 1994
Condensed Consolidated Interim Statements of Operations for the Three Months 4
Ended September 30, 1995 and 1994 and for the Nine Months Ended September 30,
1995 and 1994
Condensed Consolidated Interim Statements of Cash Flows for the Nine Months 5
Ended September 30, 1995 and 1994
Notes to Condensed Consolidated Interim Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations 8
Liquidity and Capital Resources 11
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
VISX, Incorporated and Subsidiaries
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,222 $ 11,161
Short-term investments 6,059 --
Accounts receivable:
Trade 4,211 268
Alcon, a related party -- 2,659
Inventories 6,364 3,792
Prepaid expenses 347 187
-------- --------
Total current assets 23,203 18,067
PROPERTY AND EQUIPMENT, NET 1,486 1,450
OTHER ASSETS 840 1,110
-------- --------
$ 25,529 $ 20,627
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,743 $ 2,058
Accrued liabilities 3,736 4,167
-------- --------
Total current liabilities 6,479 6,225
-------- --------
DEFERRED REVENUE AND OTHER LONG-TERM OBLIGATIONS 409 409
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value, 30,000,000 shares authorized;
shares issued September 30, 1995 12,203,392;
December 31, 1994 11,024,808 122 110
Additional paid-in capital 65,979 50,689
Accumulated deficit (47,460) (36,803)
Less 500,000 common stock treasury shares, at cost -- (3)
-------- --------
Total stockholders' equity 18,641 13,993
-------- --------
$ 25,529 $ 20,627
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
Page 3
<PAGE> 4
VISX, Incorporated and Subsidiaries
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 2,800 $ 300 $ 5,600 $ 1,240
Product sales to Alcon, a related party -- 3,686 1,680 11,753
Service and other revenues 1,151 897 3,146 2,127
-------- -------- -------- --------
Total revenues 3,951 4,883 10,426 15,120
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of revenues 2,702 2,616 7,140 7,866
Marketing, general and administrative 1,737 1,941 5,653 4,436
Research, development and regulatory 2,069 2,039 6,677 5,017
Reserve for product line disposition -- 1,500 -- 1,500
-------- -------- -------- --------
Total costs and expenses 6,508 8,096 19,470 18,819
-------- -------- -------- --------
LOSS FROM OPERATIONS (2,557) (3,213) (9,044) (3,699)
-------- -------- -------- --------
INTEREST AND OTHER INCOME, NET 179 637 637 866
LITIGATION SETTLEMENT -- -- (2,250) --
-------- -------- -------- --------
OTHER INCOME (LOSS), NET 179 637 (1,613) 866
-------- -------- -------- --------
NET LOSS $ (2,378) $ (2,576) $(10,657) $ (2,833)
======== ======== ======== ========
NET LOSS PER SHARE $ (0.20) $ (0.25) $ (0.90) $ (0.27)
======== ======== ======== ========
Weighted average number of shares 12,156 10,440 11,823 10,328
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
Page 4
<PAGE> 5
VISX, Incorporated and Subsidiaries
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------
1995 1994
-------- --------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,657) $ (2,833)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 462 442
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in trade accounts receivable (3,943) 316
(Increase) decrease in accounts receivable from Alcon 2,659 (23)
Increase in inventories (2,572) (847)
Increase in prepaid expenses (160) (162)
Decrease in other assets 253 204
Increase in accounts payable 685 977
(Decrease) increase in accrued liabilities (431) 1,383
Decrease in deferred revenue and other long-term obligations -- (250)
-------- --------
Net cash used for operating activities (13,704) (793)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (481) (379)
Purchase of short-term investments (8,712) --
Proceeds from maturities of short-term investments 2,653 --
-------- --------
Net cash used in investing activities (6,540) (379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 15,305 2,192
-------- --------
Net increase (decrease) in cash and cash equivalents (4,939) 1,020
Cash and cash equivalents, beginning of period 11,161 11,847
-------- --------
Cash and cash equivalents, end of period $ 6,222 $ 12,867
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
Page 5
<PAGE> 6
VISX Incorporated and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
September 30, 1995
(Unaudited)
1. BASIS OF PRESENTATION:
The Condensed Consolidated Interim Financial Statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These Condensed Consolidated
Interim Financial Statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
The Condensed Consolidated Interim Financial Statements included herein reflect,
in the opinion of management, all adjustments (consisting primarily only of
normal recurring adjustments) necessary to present fairly the results for the
interim period. The results of operations for the nine months ended September
30, 1995 are not necessarily indicative of results to be expected for the entire
year ending December 31, 1995.
2. NET LOSS PER SHARE:
Net loss per share data has been computed using the weighted average number of
common shares outstanding during each period, after giving effect to dilutive
common stock equivalents. Common stock equivalents consist of the dilutive
shares issuable upon the exercise of stock options (using the treasury stock
method) and warrants. Net loss per share data has been computed using the
weighted average number of shares outstanding during each period; dilutive
common stock equivalents have been excluded from the computation as their effect
would be to reduce the net loss per share amount.
3. INVENTORIES CONSIST OF (IN THOUSANDS):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Raw materials and component parts $1,974 $1,394
Work in process 3,569 2,398
Finished goods 821 --
------ ------
Total $6,364 $3,792
====== ======
</TABLE>
4. COMMON STOCK:
On February 14, 1995 the Company concluded a private placement of 1,200,000
shares of its Common Stock at a price of $10.85 per share and received net
proceeds of approximately $12,288,000. The Company registered those shares for
resale under the Securities Act of 1933 in April 1995.
Page 6
<PAGE> 7
5. CLASS ACTION LITIGATION:
In June 1995, the Company reached a settlement (pending court approval) of the
securities class action lawsuit against the Company. The net cost of settlement
after insurance reimbursement was $2,250,000.
6. RELATIONSHIP WITH ALCON:
Alcon representatives did not stand for reelection at the Company's annual
shareholders' meeting on May 26, 1995, thus Alcon is no longer considered a
related party to the Company.
7. SHORT-TERM INVESTMENTS:
Short-term investments consist of U.S. Treasury Bills that will be
held-to-maturity and are thus accounted for at amortized cost in accordance with
Statement of Financial Accounting Standards No. 115. At September 30, 1995, the
amortized cost approximated the aggregate fair market value.
Page 7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
INCOME STATEMENT HIGHLIGHTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------------------------------------------------------
1995 CHANGE 1994 1995 CHANGE 1994
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 3,951 (19%) $ 4,883 $ 10,426 (31%) $ 15,120
Cost of revenues 2,702 3% 2,616 7,140 (9%) 7,866
Gross margin percentage 32% 46% 32% 48%
Operating expenses 3,806 (31%) 5,480 12,330 13% 10,953
Percentage of revenues 96% 112% 118% 72%
Litigation settlement -- -- 2,250 n/a --
Net loss (2,378) (8%) (2,576) (10,657) 276% (2,833)
Net loss per share $ (0.20) (20%) $ (0.25) $ (0.90) 233% $ (0.27)
SOURCES OF REVENUES
Product sales $ 2,800 (30%) $ 3,986 $ 7,280 (44%) $ 12,993
Service and other revenues 1,151 28% 897 3,146 48% 2,127
-------- ---- -------- -------- ---- --------
Total revenues $ 3,951 (19%) $ 4,883 $ 10,426 (31%) $ 15,120
======== ==== ======== ======== ==== ========
</TABLE>
Product revenues for the quarter ended September 30, 1995 were $2,800,000, a
decrease of 30% from the $3,986,000 in product sales for the quarter ended
September 30, 1994. The decline in product revenues in 1995 compared to 1994 is
due to a reduced number of systems sold during the period to Alcon, the
Company's exclusive international distributor. In light of market conditions and
Alcon's level of inventory, Alcon purchased fewer VISX Systems from the Company
during the third quarter of 1995 than in the third quarter of 1994.
Additionally, in connection with the introduction of the new model VISX System,
the Company agreed to reduce the distributor price to Alcon during 1995. Service
and other revenues consisting primarily of sales of parts for VISX Systems,
sales of VisionKey(R) cards, and customer service revenues for the quarter ended
September 30, 1995 were $1,151,000, an increase of 28% from the $897,000 in
service and other revenue for the quarter ended September 30, 1994. The increase
is primarily due to a larger installed base of VISX Systems.
Product sales for the nine month period ended September 30, 1995 were
$7,280,000, a decrease of 44% from the $12,993,000 in product revenues for the
nine month period ending September 30, 1994. The decline in product sales in
1995 compared to 1994 is due to a reduced number of systems sold during the
period to Alcon, the Company's exclusive international distributor. In light of
market conditions and Alcon's level of inventory, Alcon purchased fewer VISX
Systems from the Company in the first nine months of 1995 than in the first nine
months of 1994. Additionally, in connection with the introduction of the new
model VISX System, the Company agreed to reduce the distributor price to Alcon
during 1995. Service and other revenues for the nine month period ended
September 30, 1995 were $3,146,000, an increase of 48% over the $2,127,000 in
service and other revenues for the nine month period ended September 30, 1994,
due primarily to a larger installed base of VISX Systems.
Page 8
<PAGE> 9
The Company derives its revenues primarily from international sales of the VISX
System, and to a lesser extent from sales of the Company's proprietary
VisionKey(R) card and equipment service contracts. On September 29, 1995, the
company received Food and Drug Administration ("FDA") approval of its PMA
application for the VISX System for Phototherapeutic Keratectomy ("PTK"). The
Company anticipates commercializing the VISX System in the fourth quarter of
1995 for this indication. On October 20, 1995, the FDA's Ophthalmic Devices
Advisory Panel recommended approval of the Company's Pre-Market Approval
("PMA") application for the VISX System for treatment of low-level myopia.
Although the FDA is not bound by the panel's recommendations in determining
whether or not to grant PMA approval and there can be no assurance as to when
or whether such approval will be received, the FDA tends to accord significant
weight to advisory panel recommendations in determining whether to grant PMA.
Unless such approval is obtained, the Company's ability to sustain or increase
product sales will be entirely dependent upon international sales and sales for
PTK in the United States, and upon Alcon Laboratories, Inc. and its affiliates
("Alcon"), the Company's exclusive marketing partner. The volumes and terms of
purchases by Alcon of VISX Systems are determined from time to time by
agreement between Alcon and VISX. Alcon accounted for 100% of the Company's
product sales in the nine months ended September 30, 1995, compared to 93% in
the nine months ended September 30, 1994. Historical financial information
should not be considered as a reliable indicator of future performance, and
past financial trends are not necessarily indicative of results or trends
in future periods.
Until May 26, 1995, Alcon had been a related party to the Company by virtue of
its representation on the Company's board of directors. Alcon's representatives
did not stand for reelection at the Company's 1995 annual stockholders' meeting,
and Alcon is therefore no longer considered a related party to the Company.
Through May 26, 1995, sales to Alcon were reported as "Product Sales to Alcon, a
related party," and after such date sales to Alcon are reported as "Product
Sales." On October 28, 1995, Alcon, VISX and the other participants in VISX's
pending stockholder derivative litigation announced an agreement in principle to
settle such litigation pursuant to which, among other things, Alcon's exclusive
domestic marketing and international distribution rights will be terminated
subject to execution of a definitive settlement agreement and effective upon
court approval of the settlement, which is expected in the first quarter
of 1996.
COST OF REVENUES AND GROSS MARGINS
Cost of revenues consists of manufacturing costs, cost of services and warranty
expenses. Gross profit as a percentage of revenues was 32% for the quarter ended
September 30, 1995 and 46% for the quarter ended September 30, 1994. Decreased
gross profit as a percentage of revenues for the third quarter of 1995 as
compared to the third quarter of 1994 reflects lower VISX System sales volume
and product transition costs from the Company's prior generation of the VISX
System to the new model VISX System.
Gross profit as a percentage of revenues was 32% for the nine months ended
September 30, 1995 and 48% for the nine months ended September 30, 1994.
Decreased gross profit as a percentage of revenues for the nine months ended
September 30, 1995 as compared to the nine months ended September 30, 1994
reflects lower VISX System sales volume and product transition costs from the
Company's prior generation of the VISX System to the new model VISX System.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------------- ------------------------------------------
1995 CHANGE 1994 1995 CHANGE 1994
---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Marketing, general and
administrative expense $ 1,737 (11%) $ 1,941 $ 5,653 27% $ 4,436
Percentage of total
revenues 44% 40% 54% 29%
</TABLE>
Page 9
<PAGE> 10
Marketing, general and administrative expenses were $1,737,000 in the third
quarter of 1995, a decrease of 11% compared to $1,941,000 of marketing, general
and administrative expenses in the third quarter of 1994. The decrease in the
three months ended September 30, 1995 compared to the same period of 1994
primarily reflects a one-time recruiting and compensation expense incurred in
the prior year. Marketing, general and administrative expenses were $5,653,000
for the first nine months of 1995, an increase of 27% compared to $4,436,000 of
marketing, general and administrative expenses in the first nine months of 1994.
The increase in the first nine months ended September 30, 1995 compared to the
same period of 1994 primarily reflects increased staffing levels and increases
in legal expenses associated with pending litigation.
RESEARCH, DEVELOPMENT AND REGULATORY EXPENSES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------------- --------------------------------------
1995 CHANGE 1994 1995 CHANGE 1994
---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Research,
development and
regulatory expense $ 2,069 1% $ 2,039 $ 6,677 33% $ 5,017
Percentage of total
revenues 52% 42% 64% 33%
</TABLE>
Research, development and regulatory expenses were $2,069,000 in the third
quarter of 1995, an increase of 1% compared to $2,039,000 of research,
development and regulatory expenses in the third quarter of 1994. Research,
development and regulatory expenses were $6,677,000 for the first nine months of
1995, an increase of 33% compared to $5,017,000 of research, development and
regulatory expenses in the first nine months of 1994. The increase in 1995
compared to 1994 primarily reflects increased consulting and regulatory expenses
necessary to conduct U.S. clinical trials, to complete and finalize clinical
data, to pursue PMA applications filed with the FDA, and consulting fees in
support of the Company's PMA applications.
RESERVE FOR PRODUCT LINE DISPOSITION
Management of the Company made the determination not to pursue a PMA for the
Model 2015, which is the excimer system designed by Taunton Technologies, Inc.
prior to its merger with VISX, Incorporated, a California corporation, in 1990.
The Company discontinued the clinical trials as of August 31, 1994 and
terminated the IDEs pursuant to which those trials were conducted. The Company
has established a reserve of $1,500,000 during the third quarter of 1994 to
cover costs expected to be incurred as a result of its decision to discontinue
clinical trials for the Model 2015.
INTEREST AND OTHER INCOME, NET
Interest and other income decreased to $179,000 in the third quarter of 1995 as
compared to $637,000 in the third quarter of 1994. Interest income increased to
$469,000 in the first nine months of 1995 and compared to $335,000 in the first
nine months of 1994. The increase in interest income (which reflects the net
amount of interest income earned in investments and marketable securities less
any interest expense incurred) earned in 1995 as compared to 1994 is primarily
due to higher average cash and cash equivalent balances which generated higher
interest income. In addition, other income decreased as a result of the Company
receiving from Aesculap-Meditec, GmbH, a one-time payment in the third quarter
of 1994 for past patent infringement.
Page 10
<PAGE> 11
LITIGATION SETTLEMENT
In June 1995, the Company reached a settlement (pending court approval) of the
securities class action lawsuit against the Company. The net cost of settlement
after insurance reimbursement was $2,250,000.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's primary sources of liquidity have consisted
of financing from the sale of Common Stock and revenues from the sale of VISX
Systems. At September 30, 1995, the Company had $12,281,000 in cash, cash
equivalents and short-term investments compared to $11,161,000 at December 31,
1994. At September 30, 1995, the Company had working capital of $16,724,000
compared with $11,842,000 at December 31, 1994. The ratio of current assets to
current liabilities at September 30, 1995 was 3.58 to one, compared to 2.90 to
one at December 31, 1994.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used for operating activities was
$13,704,000 in the first nine months of 1995 compared to $793,000 in the first
nine months of 1994. The cash flows used for operating activities in 1995
primarily reflects the net loss incurred in the period. The increase in accounts
receivable in the nine months ended September 30, 1995 primarily reflects a
higher level of system sales and service revenue during the period to Alcon
relative to the fourth quarter of 1994. The increase in inventories for the nine
months ended September 30, 1995 primarily reflects the transition in operations
to the Company's new VISX System, and the ramp up of production in anticipation
of FDA approval for Phototherapeutic Keratectomy.
CASH FLOWS FROM INVESTING ACTIVITIES. Cash used for investing activities was
$6,540,000 in the first nine months of 1995 compared to $379,000 in the first
nine months of 1994. The increase in cash used for investing activities in the
first nine months of 1995 relates primarily to the purchase of short-term
investments. The increase in capital expenditures for the first nine months of
1995 was primarily due to the purchase and capitalization of equipment to
support the Company's product transition to the new model VISX System, and other
general capital equipment. Cash used for investing activities during the first
nine months of 1994 was $379,000, primarily for general equipment purchases.
CASH FLOWS FROM FINANCING ACTIVITIES. On February 14, 1995, the Company
concluded a private placement of 1,200,000 shares of its Common Stock, resulting
in net proceeds of $12,288,000. Cash flows from financing activities, including
exercise of stock options, during the nine months ended September 30, 1995 was
$15,305,000. Cash provided by financing activities was $2,192,000 during the
nine months ended September 30, 1994 which includes proceeds from the exercise
of stock options.
On November 8, 1995, the Company completed a public offering of 2,500,000 shares
of its common stock at a price of $23.75. The Company anticipates that its
current cash and short-term investments, together with the proceeds of this
public offerings will be sufficient to fund operating expenses for at least the
next 24 months, including anticipated capital expenditures. The Company expects
to continue to fund future operations and related research and development
expenses from existing cash and short-term investments, revenues received from
the sales of VISX Systems and future financing as required. If the Company were
to receive FDA approval to market the VISX System for Laser Vision Correction in
the United States, the Company could require additional capital to fund
larger-scale manufacturing of the VISX System as well as future product
development. There can be no assurance that capital will be available when
needed or, if available, that the terms for obtaining such funds will be
favorable to the Company or will not result in dilution to the Company's
stockholders.
Page 11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Securities Class Action Litigation Settlement. In June 1995, the
Company reached a settlement (pending court approval) of the securities
class action lawsuit against the Company. The net cost of settlement
after insurance reimbursement is expected not to exceed $2,250,000.
There have been no new material developments.
Shareholder Derivative Litigation. In September 1994, an action was
filed as a derivative action on behalf of the Company by CAP Advisers
Limited, CAP Trust and Osterfak Limited (collectively, the "CAP
Group"), who collectively owned in excess of 10% of the Company's
outstanding Common Stock at the time the action was filed. The action
names as defendants several former officers of the Company, present and
former directors of the Company including representatives of Alcon, and
Alcon and certain of its affiliates. The suit alleges, among other
things, breaches of fiduciary duties involving the failure to exercise
appropriate oversight over regulatory affairs and the Alcon marketing
agreement by the named individual defendants including the Alcon
representatives as well as breaches of certain of Alcon's marketing
obligations under the Company's agreements with Alcon, and seeks
monetary damages in excess of $2.25 billion from Alcon and the named
individual defendants. Alcon has filed counterclaims against the CAP
Group and the named individual defendants (other than the Alcon
representatives) and two former directors of the Company not named in
the original suit for interference with the Company's contractual
relationship with Alcon. Alcon and the named individual defendants have
also filed counterclaims against such two former directors for
equitable indemnification and contribution. On October 28, 1995, VISX,
Alcon and the CAP Group announced an agreement in principle to settle
the litigation. The settlement is subject to execution of a definitive
settlement agreement as well as court approval. The agreement in
principle also relates to the settlement of the counterclaims filed by
Alcon in the proceeding. Under the proposed settlement terms, the
Company's domestic and international marketing agreements with Alcon
will terminate upon court approval of the settlement. Court approval,
if any, is not expected until the first quarter of 1996. Under the
settlement, VISX will also be obligated to reimburse the CAP Group for
legal fees and expenses and certain other related expenses incurred by
them. In addition, VISX has certain obligations to indemnify its
directors and officers in the event of litigation and is therefore
obligated to reimburse the individual defendants for their legal fees
and expenses. As a result, VISX anticipates incurring additional legal
expenses in connection with the settlement of this litigation.
Patent Proceedings. The Company is a party to a number of
patent-related legal proceedings in the United States and in several
international jurisdictions. Adverse determinations in one or more of
such proceedings could limit or restrict the Company from
manufacturing, marketing or selling its products in certain markets,
limit the Company's ability to collect use and equipment royalties in
certain markets and have a material, adverse effect on the Company's
business, financial condition and results of operations. These
proceedings are discussed separately below.
Canada. In February 1994, the Company filed suit in the
Federal Court of Canada against Nidek Co., Ltd. and its
Canadian distributor for infringement of three of VISX's
Canadian patents. In August 1994, the Canadian trial court
dismissed most of Nidek's counterclaims against VISX, and
Nidek has appealed this dismissal. The Nidek appeal does not
stay or delay the trial of VISX's claims against Nidek. In
July 1995, the Company notified Chiron, LaserSight, Meditec,
Nidek and Summit, and all of the doctors known to be using
their equipment in Canada, that such manufacturers' products
infringe VISX's Canadian patents. The Company offered all such
Page 12
<PAGE> 13
manufacturers the opportunity to take a license in Canada. The
Company entered into license agreements for Canada with Chiron
and Meditec. The Company's offer to enter into license
agreements expired on September 1, 1995, and on September 5,
1995, the Company filed lawsuits in Canada against LaserSight,
Summit and their respective customers. The Company has also
taken action in Canada to add Nidek's customers to the lawsuit
already pending there between the Company and Nidek. The
Company is seeking injunctive relief and unspecified money
damages against all defendants in Canada. The Canadian actions
other than the Nidek proceedings are in the pleading stage.
Europe. During the last two years, both Carl Zeiss GmbH and
Summit filed oppositions to several of VISX's European patents
before the EPO. The Company has filed written submissions in
response to these oppositions. On October 17, 1995, the EPO
held an oral hearing in the first of these oppositions and
rendered an oral decision to revoke the patent. The patent at
issue is directed to comparative topography apparatus and is
neither currently in use in the VISX System nor part of the
fundamental VISX patents for vision correction. The Company
expects to appeal the decision once it receives a written
opinion from the EPO. The EPO has set oral hearings in two
additional opposition proceedings for December 1995. Due to
the nature of the patent opposition process (in which claims
can be reworded to overcome the opposition), it is impossible
to predict the outcome of these opposition proceedings. In
August 1995, the Company sued Herbert Schwind GmbH in Germany,
alleging infringement of certain of the Company's European
patents. In addition, Schwind has filed a nullity action in
Germany against one of VISX's European patents. Although the
Company believes it will prevail in this nullity action, there
can be no assurance that such patent will survive the
proceeding.
Azema Patent. On August 30, 1995, Summit sued the Company in
the United States for infringement of a United States patent
held by Summit. Summit acquired the rights to the patent in
1993, and Pillar Point did not acquire rights to the patent
from Summit. The lawsuit claims that the manufacture and
export of VISX Systems from the United States is an
infringement of the patent. The Company believes that the
lawsuit is without merit and intends to vigorously defend its
position. Nevertheless, the cost of defending this action
could be significant, and there can be no assurance that the
VISX System will be held not to infringe the patent. In such
event, the Company could be subject to significant liabilities
to Summit and it could be necessary for the Company to seek a
license from Summit in order for the Company to manufacture,
market and sell products in the United States. There can be no
assurance that a license would be available on acceptable
terms or at all. It might also be necessary for the Company to
attempt to redesign the VISX System so that it no longer
infringes the patent, although there can be no assurance that
any such redesign efforts would be successful. Additionally, a
redesign of the VISX System, depending on its scope, could
entail delays in the FDA approval of the redesign.
Product Liability. VISX requires all clinical investigators to advise
persons treated in United States clinical trials that the procedure is
investigational and has not been determined to be safe or effective by
the FDA and requires that signed consents be obtained prior to
treatment. Notwithstanding these requirements, three individuals who
were treated in United States clinical trials of the VISX System have
sued their ophthalmologists and VISX following their surgery. These
suits are currently pending in Michigan, New Jersey and Pennsylvania.
VISX believes that is has meritorious defenses to these actions, and
that their resolution will not have a material adverse effect on the
Company's financial position or results of operations. However, all
three suits are in the early stages of discovery and there can be no
assurance as to their outcome.
Page 13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
Ex. 27 Financial Data Schedule
b) Reports on Form 8-K.
Since June 30, 1995, the Company has filed the following Reports
on Form 8-K:
(a) On October 16, 1995, a Form 8-K was filed regarding the
initiation of an investigation by the Federal Trade
Commission into the activities of Pillar Point Partners and
the companies that formed Pillar Point Partners (VISX and
Summit Technology, Inc.)
(b) On November 3, 1995, a Form 8-K was filed regarding the
agreement in principle to settle the stockholder derivative
suit filed in September 1994. See "Legal Proceedings --
Shareholder Derivative Litigation."
Page 14
<PAGE> 15
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.
VISX, Incorporated
------------------
(Registrant)
November____, 1995 /s/Mark B. Logan
(Date) Mark B. Logan
Chairman of the Board and
Chief Executive Officer
November____, 1995 /s/Timothy R. Maier
(Date) Timothy R. Maier
Vice President and
Chief Financial Officer (principal
financial and accounting officer)
Page 15
<PAGE> 16
EXHIBIT INDEX
Ex. 27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 6,222
<SECURITIES> 6,059
<RECEIVABLES> 4,211
<ALLOWANCES> 0
<INVENTORY> 6,364
<CURRENT-ASSETS> 23,203
<PP&E> 3,995
<DEPRECIATION> 2,509
<TOTAL-ASSETS> 25,529
<CURRENT-LIABILITIES> 6,479
<BONDS> 0
<COMMON> 122
0
0
<OTHER-SE> 18,519
<TOTAL-LIABILITY-AND-EQUITY> 25,529
<SALES> 10,426
<TOTAL-REVENUES> 10,426
<CGS> 7,140
<TOTAL-COSTS> 7,140
<OTHER-EXPENSES> 14,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 637
<INCOME-PRETAX> (10,657)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,657)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,657)
<EPS-PRIMARY> (.90)
<EPS-DILUTED> (.90)
</TABLE>