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: April 4, 1997
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 13,075,647 shares of common stock, par value $0.01 per share,
issued and outstanding as of May 14, 1997.
Total number of sequentially numbered pages in this document: 9
STAAR SURGICAL COMPANY
INDEX
PAGE
NUMBER
------
PART I
Item 1 - Financial Information
Condensed Consolidated Balance Sheets - April 4, 1997 and
January 3, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Income - Three Months Ended
April 4, 1997 and March 29, 1996 . . . . . . . . . . . . .. . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows - Three Months Ended
April 4, 1997 and March 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
APRIL 4, JANUARY 3,
ASSETS 1997 1997
------ ------------ ------------
Current assets:
Cash and cash equivalents $ 3,998,896 $ 6,469,515
Accounts receivable, less allowance for doubtful accounts and
estimated returns 6,918,414 6,827,250
Inventories 12,916,318 12,365,867
Prepaid, deposits and other current assets 2,370,815 1,676,611
Deferred income tax 781,075 1,331,075
------------ ------------
Total current assets 26,985,518 28,670,318
------------ ------------
Investment in joint venture 2,533,087 2,464,140
Property, plant and equipment, net 8,971,933 8,920,989
Patents and licenses, net 9,624,890 8,900,236
Other assets 1,776,078 2,163,336
------------ ------------
Total assets $ 49,891,506 $ 51,119,019
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $ 4,974,403 $ 7,489,549
Accounts payable 1,605,788 1,605,026
Current portion of long-term debt 678,912 703,260
Other current liabilities 3,496,452 3,872,750
------------ ------------
Total current liabilities 10,755,555 13,670,585
------------ ------------
Long-term debt 709,920 844,050
Other long-term liabilities 45,570 207
------------ ------------
Total liabilities 11,511,045 14,514,842
------------ ------------
Stockholders' equity
Common stock, $.01 par value, 30,000,000 shares authorized; issued and
outstanding 13,075,622 at April 4, 1997 and 13,070,705 at
January 3, 1997 130,756 130,707
Capital in excess of par value 41,540,511 41,518,049
Accumulated translation adjustment (156,207) (160,573)
Accumulated deficit (808,584) (2,557,991)
------------ ------------
40,706,476 38,930,192
Notes receivable (2,326,015) (2,326,015)
------------ ------------
Total stockholders' equity 38,380,461 36,604,177
------------ ------------
$ 49,891,506 $ 51,119,019
============ ============
1
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
------------------------------
APRIL 4, 1997 MARCH 29, 1996
------------- --------------
Sales $ 10,304,743 $ 9,279,078
Royalty income 250,000 250,000
------------ ------------
Total revenues 10,554,743 9,529,078
Cost of sales 2,459,366 2,273,870
------------ ------------
Gross profit 8,095,377 7,255,208
------------ ------------
Selling, general and administrative expenses:
General and administrative 1,516,114 1,423,698
Marketing and selling 2,869,379 2,778,451
Research and development 991,343 870,598
------------ ------------
Total selling, general and administrative expenses 5,376,836 5,072,747
------------ ------------
Operating income 2,718,541 2,182,461
------------ ------------
Other income (expense):
Equity in earnings of joint venture 68,947 176,098
Interest expense - net (115,418) (70,389)
Other income (expense) (85,820) 15,649
------------ ------------
Total other income (expense) - net (132,291) 121,358
------------ ------------
Income before income taxes 2,586,250 2,303,819
Income tax provision 836,843 805,940
------------ ------------
Net income $ 1,749,407 $ 1,497,879
============ ============
Net income per share
Primary $ .13 $ .11
============ ============
Fully diluted $ .13 $ .11
============ ============
2
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
--------------------------
APRIL 4, MARCH 29,
1997 1996
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income $ 1,749,407 $ 1,497,879
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 421,053 390,709
Amortization of patents and licenses 223,529 87,846
Provision for allowance for doubtful accounts 57,932 7,215
Equity in earnings of joint venture (68,947) (176,098)
Utilization of deferred tax asset 550,000 434,501
Common stock issued for services -- 325,000
Prepaid services and other -- 56,008
Change in operating working capital (1,769,287) (1,033,508)
----------- -----------
Net cash provided by operating activities 1,163,687 1,589,552
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (471,996) (1,141,570)
Increase in patents and licenses (948,183) (973,733)
Decrease in other assets 387,258 --
----------- -----------
Net cash used in investing activities (1,032,921) (2,115,303)
----------- -----------
Cash flows from financing activities:
Increase in borrowings under notes payable and long-term debt -- 325,035
Payments on other notes payable and long-term debt (1,358,683) (58,968)
Net borrowings (payments) under line of credit (1,269,578) 519,494
Proceeds from the issuance of common stock 22,510 68,798
Payments for repurchase of common stock -- (77,000)
----------- -----------
Net cash (used in) provided by financing activities (2,605,751) 777,359
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 4,366 --
(Decrease) increase in cash and cash equivalents (2,470,619) 251,608
Cash and cash equivalents at beginning of period 6,469,515 3,767,011
----------- -----------
Cash and cash equivalents at end of period $ 3,998,896 $ 4,018,619
=========== ===========
3
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 4, 1997
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 period. The resulting gains and
losses are deferred and are shown as a separate component of stockholders'
equity. During the three-months ended April 4, 1997 and March 29, 1996, foreign
currency transaction gains and losses were not material. Investments in
affiliates and joint ventures are accounted for using the equity method of
accounting.
Each of the Company's reporting periods ends on the Friday nearest to the
quarter ending date.
2. EXPORT SALES
During the three-months ended April 4, 1997 and March 29, 1996, the Company
had export sales primarily to Europe and South Africa, Australia and Southeast
Asia, of approximately $ 3,023,000 and $2,728,000. Of these sales, approximately
$ 2,045,000 and $1,668,000 were to Europe, which is the Company's principal
foreign market, for the quarters ended April 4, 1997 and March 29, 1996.
The Company sells its products internationally. International transactions
subject the Company to several potential risks, including fluctuating exchange
rates (to the extent the Company's transactions are not in U.S. dollars),
regulation of fund transfers by foreign governments, United States and foreign
export and import duties and tariffs and possible political instability.
3. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market
(net realizable value) and consisted of the following at April 4, 1997 and
January 3, 1997.
APRIL 4, JANUARY 3,
1997 1997
--------------- --------------
Raw materials and purchased parts...................................... $ 1,802,514 $ 1,518,819
Work in process........................................................ 1,909,483 1,644,234
Finished goods......................................................... 9,204,321 9,202,814
--------------- --------------
$ 12,916,318 $ 12,365,867
=============== ==============
4. INTERIM FINANCIAL STATEMENTS
The financial statements for the three-months ended April 4, 1997 and
March 29, 1996 are unaudited and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial condition and results of operations for this
interim period. The results of operations for the three-months ended April 4,
1997 and March 29, 1996 are not necessarily indicative of the results to be
expected for any other interim period or the entire year.
4
5. RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 consolidated financial
statements to conform with the 1997 presentation.
6. NEW ACCOUNTING PRONOUNCEMENTS
On March 3, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128). This pronouncement provides a
different method of calculating earnings per share than is currently used in
accordance with APB 15, Earnings per Share. SFAS 128 provides for the
calculation of Basic and Diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
that could share in the earnings of an entity, similar to fully diluted earnings
per share. The pronouncement is effective for fiscal years and interim periods
ending after December 15, 1997; early adoption is not permitted. The Company has
not determined the effect, if any, of adoption on its EPS computation(s).
5
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
Results of Operations
The following table sets forth the percentage of total revenues represented by
certain items reflected in the Company's income statement for the period
indicated and the percentage increase or decrease in such items over the prior
period.
RELATIONSHIP TO
TOTAL REVENUES FOR THREE PERCENTAGE CHANGE
MONTHS ENDED FOR THREE MONTHS
-------------------------------- ----------------------
APRIL 4, MARCH 29,
1997 1996 1997 VS 1996
------------ ----------- ----------------------
INCREASE (DECREASE)
Total revenues.................................. 100.0% 100.0% 10.8
Cost of sales .................................. 23.3 23.9 8.2
General and administrative...................... 14.4 14.9 6.5
Marketing and selling........................... 27.2 29.2 3.3
Research and development........................ 9.4 9.1 13.9
Other income (expense).......................... (1.3) 1.3 (209.0)
Income before income taxes...................... 24.5 24.2 12.3
Income tax provision............................ 7.9 8.5 3.8
Net income ...................... 16.6 15.7 16.8
REVENUES:
- --------
Revenues for the three-month period ended April 4, 1997 were $10.6 million,
which is 10.8% greater than the $9.3 million in revenues for the three-month
period ended March 29, 1996. The increase in revenues was attributable to (i) a
10.0% rise in international sales reflecting increased demand for the Company's
foldable IOL's and the commercialization of the Company's new Glaucoma Wick and
implantable contact lens ("ICL") in selected foreign countries, and (ii) a 10.3%
increase in sales within the United States due to a 16.8% increase in unit
volume of foldable IOL's (primarily the ELASTIMIDE(TM) model), partially offset
by a 5.9% average price decrease primarily due to a decrease in prices charged
to certain large volume customers.
COST OF SALES:
- -------------
Cost of sales decreased to 23.3% of revenues for the three-months ended April 4,
1997 from 23.9% of revenues for the three-months ended March 29, 1996. The
principal reasons for this decline were increased operating efficiencies and
economies of scale from increased sales volume. These savings were offset by
price decreases and a product mix change due to an increased demand for the
ELASTIMIDE(TM) IOL, which is relatively more expensive to manufacture.
6
GENERAL & ADMINISTRATIVE:
- ------------------------
General and administrative expense decreased to 14.4% of revenues for the
three-months ended April 4, 1997 from 14.9% of revenues for the three-months
ended March 29, 1996. The decline in general and administrative expense as a
percentage of revenues was attributable to the significant growth in overall
revenues permitting greater absorption of general and administrative costs. The
increase in general and administrative expense in dollar terms was attributable
to additional administrative infrastructure expenditures required to support the
increase in revenues.
MARKETING AND SELLING:
- ---------------------
Marketing and selling expense decreased to 27.2% of revenues for the
three-months ended April 4, 1997 compared to 29.2% of revenues for the
three-months ended March 29, 1996. The decline in marketing and selling expense
as a percentage of revenues was attributable to the significant growth in
overall revenues permitting greater absorption of fixed marketing and selling
(i.e., non-commission) costs. The increase in marketing and selling expense in
dollar terms was principally attributable to greater commissions paid arising
from increased sales revenues.
RESEARCH AND DEVELOPMENT:
- -------------------------
Research and development expense increased to 9.4% of revenues for the first
quarter ending April 4, 1997 compared to 9.1% of revenues for the first quarter
ending March 29, 1996. This increase was attributable to the Company's continued
investment in developing new and improved products, manufacturing and
distribution systems, and increased costs incurred conducting clinical studies
in the United States.
OTHER INCOME, (EXPENSE) NET:
- ---------------------------
Other income (expense) for the quarter ended April 4, 1997 was ($132,000), or
(1.3%) of revenues, as compared to $121,000, or 1.3% of revenues, for the
quarter ended March 29, 1996. The primary reasons for this decrease were
increased interest expenses, losses in translating foreign currency, and a
decline in earnings related to the Company's joint venture with Canon STAAR.
INCOME TAX PROVISION (INCOME TAXES)
- -----------------------------------
Income taxes decreased to 7.9% of revenues for the three-month period ended
April 4, 1997 from 8.5% of revenues for the three-month period ended March 29,
1996, due to a larger contribution toward earnings from countries with lower tax
rates.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents for the quarter ended April 4, 1997 decreased by
approximately $2.5 million relative to the fiscal year ended January 3, 1997.
This decrease was principally due to payments made by the Company on its Notes
Payable and Line-of-Credit resulting in a corresponding decrease to those
facilities.
The Company increased its inventories, primarily internationally, to support the
rollout of new products.
The increase in other current assets at April 4, 1997 is due to the
reclassification of assets from long-term to current and the prepayment of legal
and consulting fees.
7
The decrease in other current liabilities at April 4, 1997 is due to the
recognition of deferred revenue during the quarter.
As of April 4, 1997, the Company had a current ratio of 2.5:1, net working
capital of $16.2 million and net equity of $38.5 million compared to January 3,
1997 when the Company's current ratio was 2.1:1, its net working capital was
$15.0 million, and its net equity was $36.6 million.
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 additional financing, if required.
PART II - ITEM 1
OTHER INFORMATION
- -----------------
None
8
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: May 13, 1997 By: /s/ WILLIAM C. HUDDLESTON
----------------------------------------
William C. Huddleston
Chief Financial Officer and
Duly Authorized Officer
(principal accounting and financial
officer for the quarter)
9