<PAGE>
Total Number of Pages: 10
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 MARCH 31, 1997
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 May 2, 1997, there were 12,534,782 shares of Common Stock
outstanding.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Condensed Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996......................................................................3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996..........................................................4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996..........................................................5
Notes to Condensed Consolidated 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 Consolidated Financial Statements:
KERAVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------------ ------------------
(Unaudited) (Note 1)
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $5,261 $8,291
Available-for-sale investments ......................................... 22,365 23,774
Other current assets.................................................... 1,851 1,297
------- -------
Total current assets......................................................... 29,477 33,362
Property and equipment, at cost:
Manufacturing and laboratory equipment ................................. 3,064 2,795
Office furniture and fixtures........................................... 556 559
Leasehold improvements.................................................. 368 368
------- -------
3,988 3,722
Accumulated depreciation and amortization ................................... (1,914) (1,746)
------- -------
Property and equipment, net............................................. 2,074 1,976
Other assets................................................................. 145 147
------- -------
Total assets ................................................................ $31,696 $35,485
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $745 $973
Accrued payroll and related expenses ................................... 476 424
Accrued clinical trial costs............................................ 1,284 965
Other accrued liabilities .............................................. 301 221
Current portion of capital lease obligations ........................... 286 344
------- -------
Total current liabilities.................................................... 3,092 2,927
Capital lease obligations ................................................... 772 793
Commitments
Stockholders' equity:
Preferred stock......................................................... -- --
Common stock 12 12
Additional paid-in capital.............................................. 76,245 76,114
Deferred compensation .................................................. (291) (328)
Accumulated deficit .................................................... (47,366) (43,265)
Notes receivable from stockholders...................................... (768) (768)
------- -------
Total stockholders' equity .................................................. 27,832 31,765
------- -------
Total liabilities and stockholders' equity .................................. $31,696 $35,485
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
KERAVISION, INC.
CONDENSED STATEMENT OF OPERATIONS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA; UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
-------------------------
1997 1996
----------- -----------
Net sales......................................... $56 $--
Costs and expenses:
Cost of sales................................ 770 --
Research and development..................... 2,373 2,186
General and administrative................... 1,379 658
----------- -----------
Total costs and expenses.......................... (4,522) (2,844)
----------- -----------
Operating loss.................................... (4,466) (2,844)
Interest income, net.............................. 373 547
----------- -----------
Net loss.......................................... $(4,093) $(2,297)
=========== ===========
Net loss per share................................ $(0.33) $(0.19)
=========== ===========
Shares used in calculation of net loss per share.. 12,457 12,266
See accompanying notes.
4
<PAGE>
KERAVISION, INC.
CONDENSED STATEMENT OF CASH FLOWS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $(4,093) $(2,297)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 168 84
Amortization of deferred compensation................ 37 37
Other current assets................................. (554) 150
Accounts payable..................................... (228) (131)
Accrued liabilities ................................. 451 16
------ -------
Total adjustments.................................. (126) 156
------ -------
Net cash used in operating activities.............. (4,219) (2,141)
------ -------
Cash flows from investing activities:
Purchases of available-for-sale investments.............. (5,783) (25,023)
Sales of available-for-sale investments.................. 3,185 --
Maturities of available-for-sale investments............. 3,999 --
Capital expenditures .................................... (266) (230)
Other assets............................................. 2 --
------ -------
Net cash provided by (used in) investing activities.. 1,137 (25,253)
------ -------
Cash flows from financing activities:
Principal payments under capital lease obligations ...... (79) (24)
Proceeds from issuance of equity securities, net of
purchases.............................................. 131 16
Net cash provided by (used in) financing activities.. 52 (8)
------ -------
Net increase (decrease) in cash and cash equivalents ....... (3,030) (27,402)
Cash and cash equivalents at the beginning of the period ... 8,291 44,703
------ -------
Cash and cash equivalents at the end of the period ......... $ 5,261 $17,301
======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
KERAVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of KeraVision,
Inc. (the "Company" or "KeraVision"), 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 March 31, 1997, the statements of cash flows and the
statements of operations for the three-month periods ended March 31, 1997 and
1996 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 consolidated 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 to stockholders and
Form 10-K for the year ended December 31, 1996. The accompanying condensed
consolidated balance sheet at December 31, 1996 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 or 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. In
February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. There will be no impact on the Company from the
adoption of Statement No. 128.
3. SHORT-TERM INVESTMENTS
The Company's short-term investments at March 31, 1997, classified as
available-for-sale securities, were composed of the following (in thousands):
Gross Estimated
Unrealized Fair
Cost Gains Value
------------------------------------------
Certificate of deposit $ 2,156 $ 2,156
U.S. Treasury bills & other
government agency obligations 8,015 8,015
Reverse repurchase agreements 353 353
Corporate debt securities 9,820 $ 21 9,841
Auction rate preferred stocks 2,000 2,000
------------------------------------------
Available-for-sale investments $ 22,344 $ 21 $ 22,365
==========================================
All available-for-sale investments mature within one year. Gross realized
and unrealized gains/losses were not significant during the three month periods
ended March 31, 1997 and 1996.
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, 1996.
OVERVIEW
Since its founding in November 1986, the Company has been engaged in the
research and development of the KeraVision Ring and related technology. Although
the Company recorded revenue in the quarter ended March 31, 1997, the Company
expects to continue to incur substantial losses at least through the year ending
December 31, 1997, and until sufficient revenue and margin can be generated to
offset expenses. Given the uncertainties in developing a new market, revenues
may not increase significantly in the foreseeable future. Furthermore, the
Company expects its expenses in all categories to increase as its clinical and
other activities increase.
The Company is currently conducting a Phase III trial for the KeraVision
Ring in the United States for myopia in the range of -1.0 to -3.5 diopters and a
Phase II trial for myopia in the range of -3.5 to -5.0 diopters. The Company was
granted the right to affix the CE mark on the KeraVision Ring for myopia which
allows the Company to sell product in the range of -1.0 to -5.0 diopters in
European Union countries. To date, sales efforts have been concentrated in
Germany, France and Austria.
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, the 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. After
approvals have been given, product approvals and clearances can be withdrawn for
failure to comply with regulatory standards or for the occurrence of unforeseen
problems following initial marketing. Foreign governments or agencies also have
review processes for medical devices which present many of the same risks. The
right to affix the CE mark can be withdrawn, resulting in an inability to sell
products in the European Union.
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. Although the Company
does have approval to sell product in the European Union, 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 other government agencies 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 MARCH 31, 1997 AND 1996
------------------------------------------
The Company recorded net revenues of $56,000 for the quarter ended March
31, 1997. The Company made its first commercial shipments in late 1996;
therefore, no revenues are reflected in the first quarter of the previous year.
Product sales were primarily composed of sales to a German distributor.
Research and development expenses, which include clinical and regulatory
expenses, for the three-month period ended March 31, 1997 were $2.4 million, an
increase of $0.2 million from the three-month period ended March 31, 1996. The
increase is attributable to increased activities related to clinical trials and
continued investments in research and development. Management expects research
and development expenses to continue to increase, as clinical trials and product
development efforts continue.
7
<PAGE>
ITEMS 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
General and administrative expenses of $1.4 million were incurred in the
three-month period ended March 31, 1997, an increase of $0.7 million from the
$0.7 million incurred in the comparable prior year period. The increase was
primarily the result of expanded sales and marketing activities to support
European commercialization effort.
The Company recorded $0.4 million of net interest income for the three
months ended March 31, 1997, as compared to $0.5 million for the same quarter of
the previous year. Interest income decreased due to the decrease of $4.4 million
in cash and available-for-sale investments from period to period. The net loss
of $4.1 million for the three-month period ended March 31, 1997, increased $1.8
million from the $2.3 million reported in the comparable prior year period.
The Company believes that its net loss will significantly increase in future
periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since incorporation primarily
through its initial public offering, private sales of preferred stock, interest
income and equipment financing arrangements. 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. Prior to the initial
public offering the Company had raised approximately $29.5 million from the sale
of preferred stock, related warrants and common stock. Cash used in operating
activities has increased from $2.1 million in the quarter ended March 31, 1996
to $4.2 million in the quarter ended March 31, 1997, reflecting increasing net
losses principally related to increased research and development expenditures.
Cash, cash equivalents and available-for-sale investments were $27.6 million at
March 31, 1997. Capital expenditures increased from $0.2 million in the first
quarter of 1996 to $0.3 million in the first quarter of 1997, but will be
largely financed through capital lease arrangements. As of March 31, 1997, the
Company had $920,000 available on its lease line.
The Company expects to continue to incur substantial expenses in support of
additional research and development activities, including costs of clinical
studies, manufacturing costs, the establishment of a sales and marketing
organization and the support for ongoing administrative activities. The Company
anticipates that existing cash, cash equivalents and available-for-sale
investments will enable it to maintain its current and planned operations for at
least the next 12 months.
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 commercial manufacturing facility, competitive and
technological advances, the FDA or other regulatory processes, changes in the
Company's marketing and distribution strategy, and other factors. As a result,
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 on terms favorable to
the Company, or at all.
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) slower than anticipated
market acceptance of the KeraVision Ring in the European Union, (ii) significant
unforeseen delays in the FDA or foreign regulatory approval process, (iii)
determinations by the FDA or foreign regulatory bodies that the clinical data
collected are insufficient to support safety and efficacy of the KeraVision
Ring, (iv) the FDA's failure to schedule advisory review panels, (v) changes in
FDA or foreign regulatory review guidelines, procedures, regulations or
administrative interpretations, (vi) complications relating to the KeraVision
Ring or the surgical procedure, (vii) competitive products and technology, and
(viii) 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 10-K for the year ended December 31, 1996 and in other filings
made with the Securities and Exchange Commission.
8
<PAGE>
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
Not applicable
ITEM 5. OTHER ITEMS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(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: May 2, 1997
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,261
<SECURITIES> 22,365
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,477
<PP&E> 3,988
<DEPRECIATION> 1,914
<TOTAL-ASSETS> 31,696
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 27,820
<TOTAL-LIABILITY-AND-EQUITY> 31,696
<SALES> 56
<TOTAL-REVENUES> 56
<CGS> 0
<TOTAL-COSTS> 4,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,093)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,093)
<EPS-PRIMARY> $(0.33)
<EPS-DILUTED> $(0.33)
</TABLE>
