<PAGE>
Total Number of Pages: 12
-----
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED June 30, 1996,
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 0-26208
===============================================================================
KERAVISION, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0328942
(State of Incorporation) (I.R.S. Employer
Identification No.)
48630 MILMONT DRIVE
FREMONT, CA 94538
(Address of principal executive offices)
(510) 353-3000
(Registrant's telephone number)
===============================================================================
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
------ ------
As of August 5, 1996, there were 12,353,409 shares of Common Stock
outstanding.
<PAGE>
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Condensed Balance Sheets as of June 30, 1996 and
December 31, 1995............................................ 3
Condensed Statements of Operations for the three
months and six months ended June 30, 1996 and 1995........... 4
Condensed Statements of Cash Flows for the six months
ended June 30, 1996 and 1995................................. 5
Notes to Condensed Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 9
Item 2. Changes in Securities........................................ 9
Item 3. Defaults upon Senior Securities.............................. 9
Item 4. Submission of Matters to a Vote of Security Holders.......... 9
Item 5. Other Items.................................................. 9
Item 6. Exhibits and Reports on Form 8-K............................. 9
SIGNATURES.................................................................. 10
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS:
KERAVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-----------------------------
(Unaudited) (Note 1)
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 10,255 $ 44,703
Short-term investments................ 29,386 --
Prepaid expenses...................... 349 272
-------- --------
Total current assets..................... 39,990 44,975
Property and equipment, at cost:
Manufacturing and laboratory equipment 1,957 1,596
Office furniture and fixtures......... 381 362
Leasehold improvements................ 215 214
-------- --------
2,553 2,172
Accumulated depreciation and............. (1,459) (1,298)
amortization............................ -------- --------
Net property and equipment............ 1,094 874
Other assets............................. 123 70
-------- --------
Total assets............................. $ 41,207 $ 45,919
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 677 $ 445
Accrued payroll and related expenses.. 218 124
Accrued clinical trial costs.......... 924 779
Other accrued liabilities............. 226 316
Current portion of capital lease...... 106 106
obligations.......................... -------- --------
Total current liabilities................ 2,151 1,770
Capital lease obligations................ 69 114
Commitments
Stockholders' equity:
Preferred stock....................... -- --
Common stock.......................... 12 12
Additional paid-in capital............ 75,942 75,710
Deferred compensation................. (403) (477)
Deficit accumulated during the........ (35,757) (30,403)
development stage
Notes receivable from stockholders.... (807) (807)
-------- --------
Total stockholders' equity............... 38,987 44,035
-------- --------
Total liabilities and total.............. $ 41,207 $ 45,919
stockholders' equity ======== ========
</TABLE>
See accompanying notes.
-3-
<PAGE>
KERAVISION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 5,
1986 (DATE OF
INCORPORATION)
THREE MONTHS SIX MONTHS TO JUNE 30,
ENDED JUNE 30, ENDED JUNE 30, 1996
------------------------ ------------------- ------------------
1996 1995 1996 1995
---------- ---------- -------- --------
Operating expenses:
<S> <C> <C> <C> <C> <C>
Research and development............... $ 2,843 $ 1,778 $ 5,029 $ 3,020 $ 31,057
General and administrative............. 865 433 1,523 738 8,436
----------- ----------- ----------- ----------- ------------
Loss from operations.................... $ (3,708) $ (2,211) $ (6,552) $ (3,758) $ (39,493)
Interest income, net.................... 548 56 1,094 139 3,880
Other income (expense).................. -- -- -- (60) (171)
------------ ----------- ----------- ----------- ------------
Net Loss................................ $ (3,160) $ (2,155) $ (5,458) $ (3,679) $ (35,784)
============ =========== =========== =========== ============
Net loss per share...................... $ (0.26) $ (0.44)
============ ===========
Shares used in calculation of net loss
per share.............................. 12,313 12,290
Pro forma net loss per share............ $ (0.26) $ (0.44)
========== ===========
Shares used in calculation of pro forma
net loss per share..................... 8,290 8,290
</TABLE>
See accompanying notes.
-4-
<PAGE>
KERAVISION, INC.
CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 6,
1986 (DATE OF
SIX MONTHS SIX MONTHS INCORPORATION)
ENDED ENDED TO JUNE 30,
JUNE 30, 1996 JUNE 30, 1995 1996
-------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss..................................... $ (5,458) $(3,679) $(35,784)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization........ 108 153 1,602
Interest receivable on
stockholders' notes................. -- -- (145)
Amortization of deferred
compensation........................ 74 97 614
Loss on sales of securities
and other........................... -- 60 244
Prepaid expenses..................... (77) (19) (349)
Accounts payable..................... 232 (111) 677
Accrued liabilities.................. 149 729 1,367
-------- ------- --------
Total adjustments............... 486 909 4,010
-------- ------- --------
Net cash used in
operating activities........... (4,972) (2,770) (31,774)
-------- ------- --------
Cash flows from investing activities:
Purchases of short-term investments.......... (33,355) (2,970) (40,137)
Sales of short-term investments.............. 4,073 3,671 6,690
Maturities of short-term investments......... -- 3,990 3,990
Capital expenditures......................... (381) (26) (2,330)
Other assets................................. -- 7 (224)
-------- ------- --------
Net cash provided by (used in)
investing activities........... (29,663) 4,672 (32,011)
-------- ------- --------
Cash flows from financing activities:
Principal payments under capital
lease obligations........................... (45) (48) (355)
Proceeds from sales-leaseback of
capital equipment........................... -- -- 271
Proceeds from issuance of equity
securities, net of repurchases.............. 232 5 72,374
Proceeds from issuance of notes payable...... -- -- 1,750
-------- ------- --------
Net cash provided by (used in)
financing activities........... 187 (43) 74,040
-------- ------- --------
Net increase (decrease) in cash and
cash equivalents.............................. (34,448) 1,859 10,255
Cash and cash equivalents at the
beginning of the period....................... 44,703 1,247 --
-------- ------- --------
Cash and cash equivalents at the end
of the period................................. $ 10,255 $ 3,106 $ 10,255
======== ======= ========
</TABLE>
See accompanying notes.
-5-
<PAGE>
KERAVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of KeraVision, Inc.
(the "Company" or "KeraVision"), a development stage company, have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. The balance sheet as of June 30, 1996, the statements of cash
flows for the six-month periods ended June 30, 1996 and 1995 and the statements
of operations for the three-and six-month periods ended June 30, 1996 and 1995
are unaudited but include all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position at such date and the operating results and cash flows for
those periods. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information normally included in financial statements and
related footnotes prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. The accompanying financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's annual report and Form 10-K for the year ended
December 31, 1995. The accompanying condensed balance sheet at December 31, 1995
is derived from audited financial statements at that date.
Results for any interim period are not necessarily indicative of results for
any other interim period of for the entire year.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted-average number of shares of
common stock outstanding during the periods presented. Common equivalent shares
are excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares (stock options, warrants, convertible notes
and preferred stock) issued during the 12-month period prior to the Company's
initial public offering have been included in the calculation as if they were
outstanding for all periods through July 31, 1995 using the treasury stock
method for stock options and warrants and the if-converted method for
convertible preferred stock. Pro forma net loss per share for the three-and
six-months ended June 30, 1995, has been computed as described above and also
gives effect to the conversion of redeemable convertible preferred shares not
included above that automatically converted into common shares upon completion
of the Company's initial public offering (using the if-converted method) from
the original date of issuance.
3. SHORT-TERM INVESTMENTS
The Company's short-term investments at June 30, 1996, classified as
available-for-sale securities, were composed of the following (in thousands):
<TABLE>
<CAPTION>
Estimated Fair
Value
-----------------
<S> <C>
U.S. Government Obligations $12,140
Corporate Debt Securities 12,246
Municipal Investments 5,000
------------------
$29,386
==================
</TABLE>
All short-term investments mature within one year. Gross realized and
unrealized gains/losses were not significant during the periods ended June 30,
1996 and 1995.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I -- Item 1 of this
Quarterly Report and the audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report and Form 10-K for the year
ended December 31, 1995.
OVERVIEW
Since its founding in November 1986, the Company has been engaged in the
research and development of the Intrastromal Corneal Ring (the "KeraVision
Ring") and related technology. The Company has generated no revenues from the
sales of products and therefore has been unprofitable since inception and is
considered to be a development stage company. For the period from incorporation
to June 30, 1996, KeraVision has incurred cumulative net losses of $35.8
million. The Company does not expect to generate significant revenues in either
1996 or 1997 and expects to continue to incur substantial losses through at
least the year ending December 31, 1997. Furthermore, the Company expects its
expenses in all categories to increase as its clinical and other activities
increase.
The research, manufacture, sale and distribution of medical devices such as
the KeraVision Ring are subject to numerous regulations imposed by governmental
authorities, principally the FDA and corresponding state and foreign agencies.
The regulatory process is lengthy, expensive and uncertain. Prior to commercial
sale in the United States, most medical devices, including the Company's
KeraVision Ring, must be cleared or approved by the FDA. Securing FDA approvals
and clearances will require the submission to the FDA of extensive clinical data
and supporting information. Current FDA enforcement policy strictly prohibits
the marketing of medical devices for uses other than those for which the product
has been approved or cleared. Product approvals and clearances can be withdrawn
for failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial marketing. Foreign governments also have review
processes for medical devices which present many of the same risks.
The Company is currently conducting Phase II clinical trials for the
KeraVision Ring. The Company does not believe it will be able to complete
development of, obtain regulatory approval for and begin commercial sales of the
KeraVision Ring in Europe before late 1996 or early 1997, or in the United
States before late 1999, if ever. There can be no assurance that the Company's
research and development efforts will be successfully completed, and until the
development and testing processes for the KeraVision Ring are complete, there
can be no assurance that the KeraVision Ring will perform in the manner
anticipated. There can be no assurance that the KeraVision Ring will prove to be
safe or effective over the long term in correcting vision, that the product will
be approved for marketing by the FDA or any other government agency or that the
KeraVision Ring or any other product developed by the Company will be
commercially successful, will be successfully marketed or achieve market
acceptance. There can be no assurance that the Company will ever achieve either
significant revenues from sales of the KeraVision Ring or any other potential
products or ever achieve profitable operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Research and development expenses, which include clinical and regulatory
expenses, for the three-month period ended June 30, 1996 were $2.8 million, an
increase of $1.1 million from the three-month period ended June 30, 1995. The
increase is attributable to increased activities related to clinical trials,
additional staffing and continued investments in research and development.
Management expects research and development expenses to continue to increase, as
clinical trials continue in Europe and the United States.
General and administrative expenses of $0.9 million were incurred in the
three-month period ended June 30, 1996, an increase of $0.4 million from the
$0.4 million incurred in the comparable prior year period. The increase was
primarily the result of increased expenses associated with marketing efforts,
hiring of personnel and the preparation for future European commercialization.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS: (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The Company recorded $0.5 million of net interest income for the three months
ended June 30, 1996, as compared to $0.06 million for the previous year.
Interest income increased due to the short-term investment of net proceeds of
$44.4 million from the Company's initial public offering completed on August 2,
1995. The net loss of $3.2 million for the three-month period ended June 30,
1996, increased $1.0 million from the $2.2 million reported in the comparable
prior year period. The Company believes that its net loss will significantly
increase in future periods.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Research and development expenses for the six-month period ended June 30, 1996
were $5.0 million, an increase of $2.0 million from the comparable six-month
period in the prior year. This 67% increase was due to higher expenses related
to clinical study, staffing and continued investments in research and
development. Research and development expenses represent 77% of the loss from
operations of $6.6 million in the six-month period ended June 30, 1996 and 80%
of the loss from operations of $3.8 million for the prior-year period.
General and administrative expenses for the six-month periods ended
June 30, 1996 and 1995 were $1.5 million and $0.7 million, respectively.
Consistent with the three-month comparison, the increase in general and
administrative expenses is primarily the result of increased marketing efforts
relating to the preparation for potential future European commercialization and
increased expenditures associated with the hiring of employees.
The Company recorded $1.1 million of net interest income for the six-month
period ended June 30, 1996, as compared to $0.1 million for the same period in
1995. Interest income increased due to the short-term investment of proceeds
from the initial public offering completed on August 2, 1995. The net loss for
the six-month period ended June 30, 1996 was $5.5 million, an increase of
$1.8 million over the loss of $3.7 million in the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since incorporation primarily through
its initial public offering, private sales of preferred stock and interest
income. The Company completed an initial public offering on August 2, 1995, from
which it realized net proceeds (after underwriting discounts and expenses) of
$44.4 million. Through June 30, 1995 the Company had raised approximately $29.5
million from the sale of preferred stock, related warrants and common stock. The
Company's capital equipment expenditures have aggregated since inception to $2.3
million through June 30, 1996. Cash used to fund operating activities since
incorporation is $31.8 million. Cash used in operating activities for the first
six months of 1996 has increased to $5.0 million from $2.8 million in the same
period of the prior year, reflecting increasing net losses principally related
to increased research and development expenditures. Cash, cash equivalents and
short-term investments were $39.6 million at June 30, 1996.
The Company expects to continue to incur substantial expenses in support of
additional research and development activities, including costs of clinical
studies, production costs, the establishment of a sales and marketing
organization and the support for ongoing administrative activities. The Company
anticipates that the existing cash, cash equivalents and short-term investments
will enable it to maintain its current and planned operations through 1997.
The Company's cash requirements may vary materially from those now planned
because of results of research, development, and clinical testing, establishment
of relationships with strategic partners, changes in focus and direction of the
Company's research and development programs, changes in the scale, timing, or
cost of the Company's manufacturing facility, competitive and technological
advances, the FDA or other regulatory processes, changes in the Company's
marketing and distribution strategy, and other factors. The Company may need to
raise additional funds in the form of equity or debt financing to fund its
future operations. The Company may also enter into collaborative arrangements
with corporate partners that could provide the Company with additional funding
in the form of equity, debt or license fees in exchange for the Company's rights
with respect to certain markets or technology. There can be no assurance that
the Company will be able to raise any additional funds or enter into any such
collaborative arrangements, in either case on favorable terms or at all.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS: (CONTINUED)
FORWARD LOOKING STATEMENTS
The Company notes that certain of the foregoing statements in this report
are forward looking and that actual results may differ materially due to a
variety of factors including, but not limited to, (i) significant unforeseen
delays in the FDA or foreign regulatory approval process (ii) determinations by
the FDA or foreign regulatory bodies that the clinical data collected are
insufficient to support safety and efficacy of the Corneal Ring, (iii) the FDA's
failure to schedule advisory review panels, (iv) changes in FDA or foreign
regulatory review guidelines, procedures, regulations or administrative
interpretations, (v) complications relating to the Corneal Ring or the surgical
procedure, (vi) competitive products and technology, and (vii) other risk
factors described under the heading "Risk Factors Affecting the Company, its
Business and its Stock Price" set forth in Item 1 of the Company's Form 10K for
the year ended December 31, 1995 and in other filings made with the Securities
and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. The 1996 Annual Meeting of Stockholders of the Company was held pursuant to
notice at 9:30 a.m., Pacific time on May 2, 1996 at Company's offices in
Fremont, California. There were present at the meeting, in person or
represented by proxy, the holders of 9,752,093 shares of Common Stock. The
matters voted on at the meeting and the votes cast are as follows:
(a) As listed below, all of Management's nominees for directors were
elected at the meeting:
<TABLE>
<CAPTION>
NO. OF COMMON NO. OF COMMON
NAME OF NOMINEE VOTES IN FAVOR VOTES WITHHELD
------------------- ------------------- ------------------
<S> <C> <C>
David W. Chonette 9,743,893 8,200
Michael A. Henos 9,743,893 8,200
Steven N. Weiss 9,743,893 8,200
</TABLE>
(b) The appointment of Ernst & Young LLP as independent public accounts of
the Company for the fiscal year ending December 31, 1996 was ratified and
approved with 9,746,937 Common shares voting in favor and 5,155 Common shares
voting against or abstaining.
ITEM 5. OTHER ITEMS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See exhibit index on page 11.
(b) Reports on Form 8-K: None
-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.
KERAVISION, INC.
/s/Mark Fischer-Colbrie
-------------------------------------------
Mark Fischer-Colbrie
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 13, 1996
-10-
<PAGE>
EXHIBIT INDEX
-------------
EXHIBITS PAGE NUMBER
- -------- -----------
11.1 Statement computation of net income (loss) per share 12
27 Financial Data Schedule
-11-
<PAGE>
EXHIBIT 11.1
KERAVISION, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1996
------------- -------------
<S> <C> <C>
Net Loss....................................... $(3,160) $(5,458)
============= =============
Shares used in computation
of net loss per share:
Weighted average common
shares outstanding......................... 12,313 12,290
============= =============
Net loss per share............................. $ (0.26) $ (0.44)
============= =============
Three Months Six Months
Ended June 30, Ended June 30,
1995 1995
------------- -------------
Net Loss....................................... $(2,155) $(3,679)
============= =============
Shares used in calculation
of pro forma net loss per
share:
Weighted average shares of
common stock outstanding.................. 2,941 2,941
Shares related to Staff
Accounting Bulletins Nos.
55, 64 and 83:
Stock option grants..................... 84 84
Issuances of common stock............... 2 2
Preferred stock on an as-if
converted basis........................ 5,263 5,263
------------- -------------
8,290 8,290
============= =============
Pro forma net loss per share................... $ (0.26) $ (0.44)
============= =============
</TABLE>
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 10,255 10,255
<SECURITIES> 29,386 29,386
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 39,990 39,990
<PP&E> 2,553 2,553
<DEPRECIATION> 1,459 1,459
<TOTAL-ASSETS> 41,207 41,207
<CURRENT-LIABILITIES> 2,151 2,151
<BONDS> 0 0
0 0
0 0
<COMMON> 12 12
<OTHER-SE> 38,975 38,975
<TOTAL-LIABILITY-AND-EQUITY> 41,207 41,207
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,708 6,552
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,160) (5,458)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,160) (5,458)
<EPS-PRIMARY> ($0.26) ($0.44)
<EPS-DILUTED> ($0.26) ($0.44)
</TABLE>
