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 March 30, 2002
[ ] 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: 0-27598
IRIDEX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0210467
-------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1212 TERRA BELLA AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043-1824
(Address of principal executive offices, including zip code)
(650) 940-4700
(Registrant's telephone number, including area code)
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.
(1) Yes [X] No [ ]; (2) Yes [X] No [ ]
The number of shares of Common Stock, $.01 par value, issued and outstanding as
of May 6, 2002 was 6,862,862.
IRIDEX CORPORATION
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets as of March 30, 2002
and December 29, 2001 3
Condensed Consolidated Statements of Operations for the three
months ended March 30, 2002 and March 31, 2001 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 30, 2002 and March 31, 2001 5
Condensed Consolidated Statements of Comprehensive Loss for
the three months ended March 30, 2002 and March 31, 2001 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 23
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 23
ITEM 5. OTHER INFORMATION 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
SIGNATURE 24
-2-
IRIDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 30, DECEMBER 29,
2002 2001
-------------- --------------
ASSETS
------
Current assets:
Cash and cash equivalents. . . . . . . . . . $ 5,856 $ 4,613
Available-for-sale securities. . . . . . . . 2,428 4,489
Accounts receivable, net . . . . . . . . . . 7,939 8,066
Inventories. . . . . . . . . . . . . . . . . 12,361 12,562
Prepaids and other current assets. . . . . . 698 599
-------------- --------------
Total current assets . . . . . . . . . . . 29,282 30,329
Property and equipment, net. . . . . . . . . 1,418 1,535
Deferred income taxes. . . . . . . . . . . . 1,932 1,924
-------------- --------------
Total assets . . . . . . . . . . . . . . . $ 32,632 $ 33,788
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . $ 598 $ 1,176
Accrued expenses . . . . . . . . . . . . . . 2,302 2,779
-------------- --------------
Total liabilities. . . . . . . . . . . . . 2,900 3,955
-------------- --------------
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . 70 69
Additional paid-in capital . . . . . . . . . 23,524 23,417
Accumulated other comprehensive income . . . 1 3
Treasury stock . . . . . . . . . . . . . . . (430) (430)
Retained earnings. . . . . . . . . . . . . . 6,567 6,774
-------------- --------------
Total stockholders' equity . . . . . . . . 29,732 29,833
-------------- --------------
Total liabilities and stockholders' equity $ 32,632 $ 33,788
============== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
IRIDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
------------------------
MARCH 30, MARCH 31,
2002 2001
----------- -----------
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,963 $ 5,735
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,878 3,372
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,085 2,363
----------- -----------
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145 1,312
Selling, general and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,287 2,798
----------- -----------
Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,432 4,110
----------- -----------
Operating loss from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . (347) (1,747)
Interest and other income (expense), net. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 140
----------- -----------
Loss from continuing operations before benefit from income taxes. . . . . . . . . . . . . . . (304) (1,607)
Benefit from income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 683
----------- -----------
Loss from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (207) (924)
Discontinued operations (Note 4):
Loss from operations of discontinued Laser Research segment (net of applicable income
tax benefit of $0 and $124, respectively) . . . . . . . . . . . . . . . . . . . . . . . - (204)
Loss on disposal of Laser Research segment, including provision of $0
and $63, respectively, for operating losses during phase-out period (net of applicable
income tax benefit of $0 and $418, respectively). . . . . . . . . . . . . . . . . . . . - (689)
----------- -----------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (207) $ (1,817)
=========== ===========
Basic net loss per share:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.03) $ (0.14)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (0.13)
----------- -----------
Basic net loss per share: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.03) $ (0.27)
=========== ===========
Shares used in per common shares basic calculations . . . . . . . . . . . . . . . . . . . . . 6,838 6,712
=========== ===========
Diluted net loss per share:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.03) $ (0.14)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (0.13)
----------- -----------
Diluted net loss per share: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.03) $ (0.27)
=========== ===========
Shares used in per common share diluted calculations. . . . . . . . . . . . . . . . . . . . . 6,838 6,712
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
IRIDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
------------------------
MARCH 30, MARCH 31,
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (207) $ (1,817)
Adjustments to reconcile net loss to net cash used in continuing operations:
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . - 564
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 226 204
Provision for inventories . . . . . . . . . . . . . . . . . . . . . . . 10 -
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . (4) -
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . 131 1,466
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 (221)
Prepaids and other current assets . . . . . . . . . . . . . . . . . . (99) (93)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . (8) -
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . (578) (212)
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . (477) (947)
----------- -----------
Net cash used in continuing operations. . . . . . . . . . . . . . . . . (815) (1,056)
----------- -----------
Cash flows from investing activities:
Purchases of available-for-sale securities . . . . . . . . . . . . . . . . - (1,368)
Proceeds from maturity of available-for-sale securities. . . . . . . . . . 2,059 111
Acquisition of property and equipment. . . . . . . . . . . . . . . . . . . (109) (237)
----------- -----------
Net cash provided by (used) in investing activities . . . . . . . . . . 1,950 (1,494)
----------- -----------
Cash flows from financing activities:
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . 108 100
----------- -----------
Net cash provided by financing activities . . . . . . . . . . . . . . . 108 100
----------- -----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . 1,243 (2,450)
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . 4,613 9,998
----------- -----------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . $ 5,856 $ 7,548
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in unrealized gains (losses) on available-for-sale securities $ (2) $ 3
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5-
IRIDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
------------------------
MARCH 30, MARCH 31,
2002 2001
----------- -----------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (207) $ (1,817)
Other comprehensive income (loss):
Change in unrealized gain (loss) on
available-for-sale securities. . . . . . . . . . . . . . . . . (2) 3
----------- -----------
Comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . $ (209) $ (1,814)
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-6-
IRIDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
IRIDEX Corporation have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation have been included.
The condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto, together
with management's discussion and analysis of financial condition and results of
operations, contained in our Annual Report on Form 10-K, which was filed with
the Securities and Exchange Commission on March 29, 2002 (as amended on Form
10K/A on April 10, 2002). The results of operations for the three month period
ended March 30, 2002 are not necessarily indicative of the results for the year
ending December 28, 2002 or any future interim period.
2. INVENTORIES CONSIST OF THE FOLLOWING (IN THOUSANDS):
MARCH 30, DECEMBER 29,
2002 2001
------------ -------------
(unaudited)
Raw materials and work in progress . . . . . . $ 7,773 $ 8,078
Finished goods . . . . . . . . . . . . . . . . 4,588 4,484
------------ -------------
Total inventories. . . . . . . . . . . . . . . $ 12,361 $ 12,562
============ =============
3. COMPUTATIONS OF BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic and diluted net loss per share are computed by dividing net loss for
the period by the weighted average number of shares of common stock outstanding
during the period. For the periods presented, the Company had losses and,
therefore, all common stock equivalents are excluded from the computation of
dilutive net loss per share because their effect is antidilutive. Common stock
equivalents consist of incremental common shares issuable upon the exercise of
stock options.
-7-
For the three months ended March 30, 2002 and March 31, 2001, options to
purchase 654,678 and 625,406 shares at a weighted average exercise prices of
$7.98 and $8.54 were outstanding, but were not included in the computation of
diluted net loss per common share because it would have an antidilutive effect.
These options could dilute earnings per share in future periods.
4. DISCONTINUED OPERATIONS
In April 2001, management decided to discontinue the Laser Research
segment. Revenues of this segment totaled $0 and $25,000 for the three months
ended March 30, 2002 and March 31, 2001, respectively. Costs and operating
expenses of this segment totaled $0 and $918,000 for the three months ended
March 30, 2002 and March 31, 2001, respectively. The total loss on discontinued
operations of $893,000 (net of a $542,000 income tax benefit) for the three
months ended March 31, 2001 consisted primarily of inventory and sales returns
costs. No assets or liabilities of the Laser Research segment remain and no
proceeds are expected from the disposition of this segment.
-8-
5. BUSINESS SEGMENTS (UNAUDITED)
We operate in two reportable segments: the ophthalmology medical device
segment and the dermatology medical device segment. In both segments, we
develop, manufacture and market medical devices. Our revenues arise from the
sale of consoles, delivery devices, disposables and service and support
activities.
Information on reportable segments for the three months ended March 30,
2002 and March 31, 2001 is as follows (in thousands):
THREE MONTHS ENDED MARCH 30, 2002 THREE MONTHS ENDED MARCH 31, 2001
------------------------------------- --------------------------------------
Ophthalmology Dermatology Ophthalmology Dermatology
Medical Medical Medical Medical
Devices Devices Total Devices Devices Total
-------------- ------------ ------- -------------- ------------ --------
Sales $ 5,078 $ 1,885 $6,963 $ 4,629 $ 1,106 $ 5,735
Direct Cost
of Goods
Sold 1,672 874 2,546 1,482 443 1,925
Direct Gross
Margin 3,406 1,011 4,417 3,147 663 3,810
Total
Unallocated
Costs -- -- 4,721 -- -- (5,417)
Pre-tax
Loss (304) (1,607)
Indirect costs of manufacturing, research and development and selling,
general and administrative costs are not allocated to the segments.
The Company's assets and liabilities are not evaluated on a segment basis.
Accordingly, no disclosure on segment assets and liabilities is provided.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, such as statements relating to levels of future sales and operating
results, including sales of our OcuLight SLx and Apex 800 laser systems; actual
order rate and market acceptance of our products; expectations for future sales
growth, generally, and the potential for production cost decreases and higher
gross margins; levels of future investment in research and development efforts;
favorable Center for Medicare and Medicaid coverage decisions regarding AMD
procedures that use our products; results of clinical studies, risks associated
with bringing new products to market, general economic conditions, levels of
international sales, liquidity and capital resources, and the sufficiency of our
existing cash resources. In some cases, forward-looking statements can be
identified by terminology, such as "may," "will," "should," "expects,""plans,"
"anticipates," "believes," "estimates," "predicts," "intends," "potential,"
"continue," or the negative of such terms or other comparable terminology. These
statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to differ
materially from those expressed or implied by such forward-looking statements.
The reader is cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date of this Form
10-Q. We undertake no obligation to update the results of any revision of these
forward-looking statements. Actual results could differ materially from those
set forth in such forward-looking statements as a result of the factors set
forth under "Factors That May Affect Future Operating Results" and other risks
detailed in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 29, 2002(as amended on Form 10K/A on April 10,
2002) and detailed from time to time in the Company's reports filed with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
sales for the periods indicated.
THREE MONTHS ENDED
----------------------
MARCH 30, MARCH 31,
2002 2001
---------- ----------
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . 55.7 58.8
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . 44.3 41.2
---------- ----------
Operating expenses:
Research and development. . . . . . . . . . . . . . . . . . . . 16.4 22.9
Sales, general and administrative . . . . . . . . . . . . . . . 32.9 48.8
---------- ----------
Total operating expenses. . . . . . . . . . . . . . . . . . 49.3 71.7
---------- ----------
Operating loss from continuing operations. . . . . . . . . . . . . (5.0) (30.5)
Other income, net. . . . . . . . . . . . . . . . . . . . . . . . . 0.6 2.5
---------- ----------
Loss from continuing operations before provision for income taxes (4.4) (28.0)
Benefit from income taxes. . . . . . . . . . . . . . . . . . . . . 1.4 11.9
---------- ----------
Loss from continuing operations. . . . . . . . . . . . . . . . . . (3.0) (16.1)
Loss from discontinued operations (net of tax) . . . . . . . . . . - (15.6)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.0)% (31.7)%
========== ==========
-10-
The following table sets forth for the periods indicated the amount of
sales for our operating segments and sales as a percentage of total sales.
Three Months Ended
------------------
March 30, 2002 March 31, 2001
-------------- --------------
Percentage Percentage
of total of total
Amount sales Amount sales
------------ ----------- ------------ -----------
Domestic $ 3,998 57.4% $ 3,121 54.4%
International 2,965 42.6% 2,614 45.6%
------------ ----------- ------------ -----------
Total $ 6,963 100.0% $ 5,735 100.0%
============ =========== ============ ===========
Ophthalmology:
Domestic $ 2,817 40.4% $ 2,201 38.4%
International 2,261 32.5% 2,428 42.3%
------------ ----------- ------------ -----------
Total $ 5,078 72.9% $ 4,629 80.7%
============ =========== ============ ===========
Dermatology:
Domestic $ 1,181 17.0% $ 920 16.0%
International 704 10.1% 186 3.3%
------------ ----------- ------------ -----------
Total $ 1,885 27.1% $ 1,106 19.3%
============ =========== ============ ===========
Combined Ophthalmology and Dermatology Sales
Sales for the three months ended March 30, 2002 increased by 21.4% to $7.0
million from $5.7 million for the three months ended March 31, 2001. The
increase was driven primarily by increased unit sales of both our dermatology
and ophthalmology products. Domestic sales, which represented 57.4% of total
sales, increased by $0.9 million or 28.1% from the comparable prior year
three-month period, primarily as a result of unit sales of the new Apex 800 hair
removal dermatology laser and increased unit sales of our visible laser systems.
International sales, which were 42.6% of total sales, increased by $0.4 million
or 13.4% from the comparable prior year three-month period, primarily as a
result of unit sales of the Apex 800. We face challenges marketing and selling
our products in the current difficult economic environment, both domestically
and internationally, and expect to continue to face these challenges for the
foreseeable future. See "-Factors That May Affect Future Results - Our Business
has been Adversely Impacted by the Current Worldwide Economic Slowdown and
Related Uncertainties."
-11-
Ophthalmology Sales
Ophthalmology sales increased by 9.7% to $5.1 million for the three months
ended March 30, 2002 from $4.6 million for the three months ended March 31,
2001. Domestic ophthalmology sales increased by $0.6 million or 28.0% to $2.8
million for the three months ended March 30, 2002 from $2.2 million for the
comparable prior year three-month period. The increase in domestic sales
resulted primarily from increased unit sales of our visible laser systems and
delivery devices, offset by decreased sales of our infrared laser systems. The
increase in visible laser system sales was driven by increased sales focus on
these products and also to product improvement resulting from the new Easy Fit
adapter. Sales of our infrared laser systems were lower due to uncertainties
surrounding reimbursement by the Center for Medicare and Medicaid (CMS) for
certain procedures to treat age-related macular degeneration (AMD).
International ophthalmology sales decreased by $0.2 million or 6.9% to $2.3
million for the three months ended March 30, 2002 from $2.4 million for the
comparable prior year three-month period. The overall decrease in international
sales was driven by increased competition related to the strength of the U.S.
dollar. General economic conditions also contributed to the overall decrease in
international sales.
Dermatology Sales
Dermatology sales increased by $0.8 million or 70.4% to $1.9 million for
the three months ended March 30, 2002 from $1.1 million for the three months
ended March 31, 2001. Domestic dermatology sales increased by $0.3 million or
28.4% to $1.2 million for the three months ended March 30, 2002 as compared to
the comparable prior year three-month period. The increase in domestic sales
was driven by unit sales of the new Apex 800, offset in part by decreased unit
sales of the DioLite 532 laser system. International dermatology sales
increased by $0.5 million to $0.7 million for the three months ended March 30,
2002. The increase in dermatology sales related to unit sales of the new Apex
800 hair removal laser system.
Gross Profit. Our gross profit increased to $3.1 million for the three
months ended March 30, 2002 from $2.4 million for the three month period ended
March 31, 2001. Gross profit as a percentage of net sales for the three months
ended March 30, 2002 increased to 44.3%, compared to 41.2% for the three months
ended March 31, 2001, due primarily to the increase in domestic sales. Domestic
product sales have higher average sales prices, as they are transacted directly
with the user-customer by a direct sales force, as compared to international
product sales which are transacted through independent distributors. In
addition, fixed manufacturing costs were spread over an overall higher sales
volume. Our average selling prices also remained constant during this period. We
expect our gross profit margins to continue to fluctuate due to changes in the
relative proportions of domestic and international sales, mix of sales of
existing products, pricing, product costs and a variety of other factors.
Research and Development. Our research and development expenses decreased
by 12.7% to $1.1 million for the three months ended March 30, 2002 from $1.3
million for the three months ended March 31, 2001. Research and development
expenses decreased as a percentage of net sales to 16.4% for the three months
ended March 30, 2002 from 22.9% for the comparable prior year three-month
period. The decrease in research and development expenses in absolute dollars
and as a percentage of net sales during this period was primarily attributable
to completion of initial development on the Apex 800 hair removal laser system
in 2001 as well as general cost containment measures. We continue to invest in
the development of new products with a focus on new instruments and disposable
products.
Sales, General and Administrative. Our sales, general and administrative
expenses decreased by 18.3% to $2.3 million for the three months ended March
30, 2002 from $2.8 million for the three months ended March 31, 2001. Sales,
-12-
general and administrative expenses decreased as a percentage of net sales to
32.9% for the three months ended March 30, 2002 from 48.8% for the comparable
prior year three-month period. The decrease in sales, general and
administrative expenses, both in absolute dollars and as a percentage of net
sales, was primarily due to cost containment measures.
Discontinued Operations. In April 2001, management decided to discontinue
the Laser Research segment. Revenues of this segment totaled $0 and $25,000 for
the three months ended March 30, 2002 and March 31, 2001, respectively. Costs
and operating expenses of this segment totaled $0 and $918,000 for the three
months ended March 30, 2002 and March 31, 2001, respectively. The total loss on
discontinued operations of $893,000 (net of a $542,000 income tax benefit) for
the three months ended March 31, 2001 consisted primarily of inventory and sales
returns costs. No assets or liabilities of the Laser Research segment remain
and no proceeds are expected from the disposition of this segment.
LIQUIDITY AND CAPITAL RESOURCES
At March 30, 2002, our primary sources of liquidity included cash and cash
equivalents and available-for-sale securities in the aggregate amount of $8.3
million. In addition, we have available $4 million under our unsecured line of
credit which bears interest at the bank's prime rate and expires in October
2002. As of March 30, 2002, no borrowings were outstanding under this credit
facility. We expect to renew the line of credit in October 2002 assuming that
the terms continue to be acceptable.
During the three months ended March 30, 2002, we generated $1.2 million in
cash and cash equivalents. During this period, operating activities consumed a
net $0.8 million of cash. Uses of cash included a decrease in accounts payable
and accrued expenses totaling $1.0 million and an increase in prepaid assets of
$0.1 million, offset in part by sources of cash including a net decrease in
inventory of $0.2 million, a net decrease in accounts receivable of $0.1
million, and depreciation and amortization of $0.2 million.
We generated $1.9 million in cash in investing activities during the three
months ended March 30, 2002, primarily from the net proceeds of $2.0 million of
available-for-sale securities offset in part by the acquisition of $0.1 million
of property and equipment.
Net cash provided by financing activities during the three months ended
March 30, 2002 was $0.1 million which consisted of the issuance of common stock.
We believe that, based on current estimates, our cash and cash equivalents
and available-for-sale securities together with cash generated from operations
will be sufficient to meet our anticipated cash requirements for the next 12
months.
In December 1998, we instituted a stock repurchase program whereby up to
150,000 shares of our Common Stock may be repurchased in the open market. We
plan to utilize all of the reacquired shares for reissuance in connection with
employee stock programs. No shares were repurchased during the three months
ending March 30, 2002. To date, we have purchased 103,000 shares of our Common
Stock under this program.
-13-
FACTORS THAT MAY AFFECT FUTURE RESULTS
We Rely on Continued Market Acceptance of Our Existing Products. We
currently market visible and infrared light semiconductor-based photocoagulator
medical laser systems to the ophthalmic market. We also market a visible and
infrared light semiconductor-based photocoagulator medical laser system to the
dermatology market. We believe that continued and increased sales, if any, of
these medical laser systems is dependent up a number of factors including the
following:
- Product performance, procedures and price;
- Recommendations and opinions by ophthalmologists, dermatologists,
clinicians, and their associated opinion leaders;
- Performance of these laser systems and treatments which are a
beneficial alternative to competing technologies and treatments;
- The willingness of ophthalmologists and dermatologists to convert to
semiconductor-based or infrared laser systems from visible argon gas
or ion-based laser systems; and
- The level of reimbursement for treatments administered with our
products.
Any significant decline in market acceptance of our products would have a
material adverse effect on our business, results of operations and financial
condition.
We Face Strong Competition in Our Markets and Expect the Level of
Competition to Grow in the Foreseeable Future. Competition in the market for
devices used for ophthalmic and dermatological treatments is intense and is
expected to increase. This market is also characterized by rapid technological
innovation and change and our products could be rendered obsolete as a result of
future innovations. Our competitive position depends on a number of factors
including product performance, characteristics and functionality, ease of use,
scalability, durability and cost. Our principal competitors in ophthalmology
are Lumenis, Ltd., Nidek, Inc., Carl Zeiss, Inc., Alcon International and
Quantel. All of these companies, all currently offer a competitive
semiconductor-based laser system in ophthalmology. Our principal competitors in
dermatology are Lumenis Ltd., Laserscope, Candela Corporation and Altus Medical
Inc. Some competitors have substantially greater financial, engineering,
product development, manufacturing, marketing and technical resources than we
do. Some companies also have greater name recognition than us and long-standing
customer relationships. In addition to other companies that manufacture
photocoagulators, we compete with pharmaceutical solutions, other technologies
and other surgical techniques. Some medical companies, academic and research
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institutions or others may develop new technologies or therapies that are more
effective in treating conditions targeted by us or are less expensive than our
current or future products. Any such developments could have a material adverse
effect on our business, financial condition and results of operations.
Our Future Success Depends on Development of New Products and New
Applications. Our future success is dependent upon, among other factors, our
ability to develop, obtain regulatory approval, manufacture and market new
products. Introduction of new products and new applications will require that we
effectively transfer production processes from research and development to
manufacturing and effectively coordinate with our suppliers. In addition, we
must successfully sell and achieve market acceptance of new products and
applications and enhanced versions of existing products. The extent of, and rate
at which, market acceptance and penetration are achieved by future products, is
a function of many variables. These variables include price, safety, efficacy,
reliability, marketing and sales efforts, the development of new applications
for these products, the efficacy of competing products, treatments and
techniques and general economic conditions affecting purchasing patterns. Any
failure in our ability to successfully develop and introduce new products or
enhanced versions of existing products and achieve market acceptance of new
products and new applications could have a material adverse effect on our
operating results and would cause our net revenues to decline.
We Face Risks of Manufacturing. The manufacture of our infrared and
visible light photocoagulators and the related delivery devices is a highly
complex and precise process. We assemble critical subassemblies and the final
product at our facility in Mountain View, California. Although our OcuLight
Systems, DioLite 532 and our Apex 800 have been introduced, we continue to face
risks associated with manufacturing these products. Various difficulties may
occur despite testing. Furthermore, we may experience delays, disruptions,
capacity constraints or quality control problems in our manufacturing operations
and, as a result, product shipments to our customers could be delayed, which
would negatively impact our net revenues.
We Depend on Sole Source Or Limited Source Suppliers. We rely on third
parties to manufacture substantially all of the components used in our products.
Some of our suppliers and manufacturers are sole or limited source. In
addition, some of these suppliers are relatively small private companies that
may discontinue their operations at any time. There are risks associated with
the use of independent manufacturers, including unavailability of or delays in
obtaining adequate supplies of components, including optics, laser diodes, and
crystals and potentially reduced control of quality, production costs and timing
of delivery. We may experience difficulty identifying alternative sources of
supply for certain components used in our products. For example, we experienced
delays in shipping our green laser systems (such as the DioLite 532 for
dermatology and the OcuLight GL and GLx for ophthalmology) during the first
fiscal quarter of 2001 due to a supply shortage of a key component. We
qualified additional sources for this component during the first fiscal quarter
of 2001; however, the process of qualifying suppliers is ongoing and may be
lengthy, particularly as new products are introduced. In addition, the use of
alternate components may require design alterations which may delay installation
and increase product costs. We have some long term or volume purchase
agreements with our suppliers and currently purchase components on a purchase
order basis. These components may not be available in the quantities required,
on reasonable terms, or at all. Financial or other difficulties faced by our
suppliers or significant changes in demand for these components or materials
could limit their availability. Any failures by such third parties to
adequately perform may impair our ability to offer our existing products, delay
the submission of products for regulatory approval, impair our ability to
deliver products on a timely basis or otherwise impair our competitive position.
Establishing our own capabilities to manufacture these components would be
expensive and could significantly decrease our profit margins. Our business and
-15-
results of operations would be adversely affected if we are unable to continue
to obtain components in the quantity and quality desired and at the prices we
have budgeted.
We Depend on International Sales for a Significant Portion of Our Operating
Results. We derive and expect to continue to derive a large portion of our
revenue from international sales. In 2001 and 2000, our international sales
were $11.3 million and $11.7 million, or 41.3% and 35.6%, respectively, of total
sales. For the three months ended March 30, 2002 and March 31, 2001, our
international sales were $3.0 million and $2.6 million, representing 42.6% and
45.6%, respectively, of total sales. We anticipate that international sales
will continue to account for a significant portion of our revenues in the
foreseeable future. None of our international revenues and costs have been
denominated in foreign currencies. As a result, an increase in the value of the
U.S. dollar relative to foreign currencies makes our products more expensive and
thus less competitive in foreign markets. For example, the current high U.S.
dollar relative value to the European currency (the Euro) is making our products
less competitive in Europe when compared to European competitors and could
negatively impact future sales levels from the region. The factors stated above
could have a material adverse effect on our business, financial condition or
results of operations. Our international operations and sales are subject to a
number of risks including:
- longer accounts receivable collection periods;
- impact of recessions in economies outside of the United States;
- foreign certification requirements, including continued ability to use
the "CE" mark in Europe;
- reduced or limited protections of intellectual property rights;
- potentially adverse tax consequences; and
- multiple protectionist, adverse and changing foreign governmental laws
and regulations.
The factors stated above could have a material adverse effect on our business,
financial condition or results of operations. For additional discussion about
our foreign currency risks, see Item 3, "Quantitative and Qualitative
Disclosures About Market Risk."
We Depend on Third Party Coverage and Reimbursement Policies. Our products
are typically purchased by doctors, clinics, hospitals and other users, which
bill various third-party payers, such as governmental programs and private
insurance plans, for the health care services provided to their patients.
Third-party payers are increasingly scrutinizing and challenging the coverage of
new products and the level of reimbursement for covered products. Doctors,
clinics, hospitals and other users of our products may not obtain adequate
reimbursement for use of our products from third-party payers. While we believe
that the laser procedures using our products have generally been reimbursed,
payers may deny coverage and reimbursement for our products if they determine
that the device was not reasonable and necessary for the purpose used, was
investigational or was not cost-effective. For example, during July 2000, the
Center for Medicare and Medicaid Services (CMS) advised that claims for
reimbursement for certain AMD procedures, which use our OcuLight SLx laser
system, would not be reimbursed by CMS. As a result, since July 2000, sales of
the OcuLight SLx laser system have dropped significantly. In September 2000,
CMS changed its position and advised that claims for reimbursement for two of
the AMD procedures can be submitted for reimbursement, with coverage and payment
to be determined by the local medical carriers in their discretion. Sales of
the OcuLight SLx continue, albeit at a lower level, because the OcuLight SLx can
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also be used for other retinal procedures with CMS reimbursement. We believe
domestic sales of the OcuLight SLx laser system will continue at these lower
levels until more medical carriers reimburse for performing such AMD procedures
or until CMS advises that claims for these procedures may be submitted directly
to CMS at the national level. Two carriers, Noridian Mutual Insurance, which is
the CMS Part B Carrier for Alaska, Arizona, Colorado, Hawaii, Iowa, Nevada,
North Dakota, Oregon, South Dakota, Washington and Wyoming, as well as Cigna,
which is the carrier for North Carolina, Tennessee and Idaho, have made coverage
decisions approving the use of TTT protocol for the treatment of wet AMD. We
believe that more medical carriers will reimburse for these procedures and CMS
will allow direct reimbursement for them when they are further validated by
clinical studies. We are sponsoring a randomized clinical trial to further
validate Transpupillary Thermal Therapy, the most significant of the subject AMD
procedures.
Changes in government legislation or regulation or in private third-party
payers' policies toward reimbursement for procedures employing our products may
prohibit adequate reimbursement. Denial of coverage and reimbursement for our
products could have a material adverse effect on our business, results of
operations and financial condition. We are unable to predict what legislation
or regulation, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted in the future, or what effect such
legislation or regulation may have on us.
Our Operating Results Fluctuate from Quarter to Quarter and Year to Year.
Our sales and operating results may vary significantly from quarter to quarter
and from year to year in the future. Our operating results are affected by a
number of factors, many of which are beyond our control. Factors contributing
to these fluctuations include the following:
- General economic uncertainties both preceding and following the
terrorist attacks on September 11, 2001;
- The timing of the introduction and market acceptance of new products,
product enhancements and new applications;
- Changes in demand for our existing line of dermatological and
ophthalmic products;
- The cost and availability of components and subassemblies, including
the ability of our sole or limited source suppliers to deliver
components at the times and prices that we have planned;
- Fluctuations in our product mix between dermatological and ophthalmic
products and foreign and domestic sales;
- The effect of regulatory approvals and changes in domestic and foreign
regulatory requirements;
- Introduction of new products, product enhancements and new
applications by our competitors, entry of new competitors into our
markets, pricing pressures and other competitive factors;
- Our long and highly variable sales cycle;
- Decreases in the prices at which we can sell our products;
- Changes in customers' or potential customers' budgets as a result of,
among other things, reimbursement policies of government programs and
private insurers for treatments that use our products; and
- Increased product development costs.
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In addition to these factors, our quarterly results have been and are expected
to continue to be affected by seasonal factors.
Our expense levels are based, in part, on expected future sales. If sales
levels in a particular quarter do not meet expectations, we may be unable to
adjust operating expenses quickly enough to compensate for the shortfall of
sales, and our results of operations may be adversely affected. In addition, we
have historically made a significant portion of each quarter's product shipments
near the end of the quarter. If that pattern continues, any delays in shipment
of products could have a material adverse effect on results of operations for
such quarter. As a result of the above factors, sales for any future quarter
are not predictable with any significant degree of accuracy and operating
results in any period should not be considered indicative of the results to be
expected for any future period.
Our Business Has Been Adversely Impacted By the Worldwide Economic Slowdown
and Related Uncertainties. Weaker economic conditions worldwide, particularly in
the U.S., have contributed to the current slowdown in our business in general.
This has resulted in reduced demand for some of our products, particularly in
our dermatology products, such as the Apex 800, excess manufacturing capacity
under current market conditions and higher overhead costs, as a percentage of
revenue. In addition, these economic conditions are making it very difficult for
us, our customers and our distributors to forecast and plan future business
activities. This level of uncertainty strongly challenges our ability to operate
profitably or grow our business. If the economic or market conditions continue
or further deteriorate, this may have a material adverse impact on our financial
position, results of operation and cash flows.
We Depend on Collaborative Relationships to Develop, Introduce and Market
New Products, Product Enhancements and New Applications. We have entered into
collaborative relationships with academic medical centers and physicians in
connection with the research and development and clinical testing of our
products. We plan to collaborate with third parties to develop and commercialize
existing and new products. In May 1996, we executed an agreement with Miravant
Medical Technologies, a maker of photodynamic drugs, to collaborate on a device
that emits a laser beam to activate a photodynamic drug developed by Miravant
for the treatment of wet AMD. The Phase III clinical trial was fully enrolled in
December 1999. In January 2002, Miravant announced that the top line results of
the trial indicated that SnET2, the photodynamic drug developed, did not meet
the primary efficacy endpoint in the study population. As a result, the future
place for SnET2 in the treatment of wet AMD is unclear and we cannot assure you
that SnET2 will be timely or successfully pursued through clinical trials by
Miravant. In the fourth quarter of 2001, we charged to expense $0.3 million of
inventory related to the laser used by Miravant in the Phase III clinical
trials. Additionally, our reliance on others for clinical development,
manufacturing and distribution of our products may result in unforeseen
problems. Further, our collaborative partners may develop or pursue alternative
technologies either on their own or in collaboration with others. The failure of
any current or future collaboration efforts could have a material adverse effect
on our ability to introduce new products or applications and therefore could
have a material adverse effect on our business, results of operations and
financial condition.
We Rely on Patents and Proprietary Rights. Our success and ability to
compete is dependent in part upon our proprietary information. We rely on a
combination of patents, trade secrets, copyright and trademark laws,
nondisclosure and other contractual agreements and technical measures to protect
our intellectual property rights. We file patent applications to protect
technology, inventions and improvements that are significant to the development
of our business. We have been issued twelve United States patents and one
foreign patent on the technologies related to our products and processes. We
have approximately eight pending patent applications in the United States and
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six foreign pending patent applications that have been filed. Our patent
applications may not issue as patents, any patents now or in the future may not
offer any degree of protection, or our patents or patent applications may be
challenged, invalidated or circumvented in the future. Moreover, our
competitors, many of which have substantial resources and have made substantial
investments in competing technologies, may seek to apply for and obtain patents
that will prevent, limit or interfere with our ability to make, use or sell our
products either in the United States or in international markets.
In addition to patents, we rely on trade secrets and proprietary know-how
which we seek to protect, in part, through proprietary information agreements
with employees, consultants and other parties. Our proprietary information
agreements with our employees and consultants contain industry standard
provisions requiring such individuals to assign to us without additional
consideration any inventions conceived or reduced to practice by them while
employed or retained by us, subject to customary exceptions. Proprietary
information agreements with employees, consultants and others may be breached,
and we may not have adequate remedies for any breach. Also our trade secrets
may become known to or independently developed by competitors.
The laser and medical device industry is characterized by frequent
litigation regarding patent and other intellectual property rights. Companies
in the medical device industry have employed intellectual property litigation to
gain a competitive advantage. Numerous patents are held by others, including
academic institutions and our competitors. Because patent applications are
maintained in secrecy in the United States until patents are issued and are
maintained in secrecy for a period of time outside the United States, we have
not conducted any searches to determine whether our technology infringes any
patents or patent applications. We have from time to time been notified of, or
have otherwise been made aware of, claims that we may be infringing upon patents
or other proprietary intellectual property owned by others. If it appears
necessary or desirable, we may seek licenses under such patents or proprietary
intellectual property. Although patent holders commonly offer such licenses,
licenses under such patents or intellectual property may not be offered or the
terms of any offered licenses may not be reasonable. This may adversely impact
our operating results.
Any claims, with or without merit, could be time-consuming, result in
costly litigation and diversion of technical and management personnel, cause
shipment delays or require us to develop noninfringing technology or to enter
into royalty or licensing agreements. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. An adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling our products, which would have a material
adverse effect on our business, results of operations and financial condition.
Conversely, litigation may be necessary to enforce patents issued to us, to
protect trade secrets or know-how owned by us or to determine the
enforceability, scope and validity of the proprietary rights of others. Both
the defense and prosecution of intellectual property suits or interference
proceedings are costly and time consuming.
We Are Subject To Government Regulation. The medical devices that we
market and manufacture are subject to extensive regulation by the FDA and by
foreign and state governments. Under the FDA Act and the related regulations,
the FDA regulates the design, development, clinical testing, manufacture,
labeling, sale, distribution and promotion of medical devices. Before a new
device can be introduced into the market, the manufacturer must obtain market
clearance through either the 510(k) premarket notification process or the
lengthier premarket approval ("PMA") application process. Obtaining these
approvals can take a long time and delay the introduction of a product. For
example, the introduction of the OcuLight GL in the United States was delayed
about three months from our expectations due to the longer than expected time
period required to obtain FDA premarket clearance. Noncompliance with
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applicable requirements, including Quality System Regulations ("QSRs"), can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing approvals, and criminal prosecution. The FDA also has
the authority to request repair, replacement or refund of the cost of any device
we manufacture or distribute. Our failure to obtain government approvals or any
delays in receipt of such approvals would have a material adverse effect on our
business, results of operations and financial condition.
In addition, we are also subject to varying product standards, packaging
requirements, labeling requirements, tariff regulations, duties and tax
requirements. As a result of our sales in Europe, we are required to have all
products "CE" registered, an international symbol affixed to all products
demonstrating compliance to the European Medical Device Directive and all
applicable standards. While currently all of our released products are CE
registered, continued registration is based on successful review of the process
by our European Registrar during their annual audit. Any loss of registration
would have a material adverse effect on our business, results of operations and
financial condition.
We Must Manage Growth. We have experienced, and may continue to experience
growth in production, the number of employees, the scope of our business, our
operating and financial systems and the geographic area of our operations. This
growth has resulted in new and increased responsibilities for management
personnel and our operating, inventory and financial systems. To effectively
manage future growth, if any, we have been required to continue to implement and
improve operational, financial and management information systems, procedures
and controls. We implemented an enterprise-wide management information system
in 1998. We must also expand, train, motivate and manage our work force. Our
personnel, systems, procedures and controls may not be adequate to support our
existing and future operations. Any failure to implement and improve our
operational, financial and management systems or to expand, train, motivate or
manage employees could have a material adverse effect on our business, results
of operations and financial condition.
We Face Product Liability Risks That May Adversely Affect Our Business or
Results of Operations. We may be subject to product liability claims in the
future. Our products are highly complex and are used to treat extremely
delicate eye tissue and skin conditions on and near a patient's face. Although
we maintain product liability insurance with coverage limits of $11.0 million
per occurrence and an annual aggregate maximum of $12.0 million, our coverage
from our insurance policies may not be adequate. Such insurance is expensive
and in the future may not be available on acceptable terms, if at all. A
successful claim brought against us in excess of our insurance coverage could
have a material adverse effect on our business, results of operations and
financial condition.
If We Cannot Increase Our Sales Volumes, Reduce Our Costs or Introduce
Higher Margin Products to Offset Anticipated Reductions in the Average Unit
Price of our Products, Our Operating Results May Suffer. The average unit price
of our products may decrease in the future in response to changes in product
mix, competitive pricing pressures, new product introductions by us or our
competitors or other factors. If we are unable to offset the anticipated
decrease in our average selling prices by increasing our sales volumes, our net
revenues will decline. In addition, to maintain our gross margins, we must
continue to reduce the manufacturing cost of our products. Further, should
average unit prices of our current products decline, we must develop and
introduce new products and product enhancements with higher margins. If we
cannot maintain our gross margins, our business could be seriously harmed,
particularly if the average selling price of our products decreases
significantly without a corresponding increase in sales.
-20-
If We Fail to Accurately Forecast Demand For Our Product and Component
Requirements For The Manufacture of Our Product, We Could Incur Additional Costs
or Experience Manufacturing Delays And May Experience Lost Sales or Significant
Inventory Carrying Costs. We use quarterly and annual forecasts based primarily
on our anticipated product orders to plan our manufacturing efforts and
determine our requirements for components and materials. It is very important
that we accurately predict both the demand for our product and the lead times
required to obtain the necessary components and materials. Lead times for
components vary significantly and depend on numerous factors, including the
specific supplier, the size of the order, contract terms and current market
demand for such components. If we overestimate the demand for our product, we
may have excess inventory, which would increase our costs. If we underestimate
demand for our product and, consequently, our component and material
requirements, we may have inadequate inventory, which could interrupt our
manufacturing, delay delivery of our product to our customers and result in the
loss of customer sales. Any of these occurrences would negatively impact our
business and operating results.
If Our Facilities Were To Experience Catastrophic Loss, Our Operations
Would Be Seriously Harmed. Our facilities could be subject to a catastrophic
loss such as fire, flood or earthquake. All of our research and development
activities, manufacturing, our corporate headquarters and other critical
business operations are located near major earthquake faults in Mountain View,
California. Any such loss at any of our facilities could disrupt our
operations, delay production, shipments and revenue and result in large expense
to repair and replace our facilities.
We May Need Additional Capital, Which May Not Be Available, and Our Ability
to Grow May be Limited as a Result. We believe that our existing cash balances,
available-for-sale securities, credit facilities and cash flow expected to be
generated from future operations, will be sufficient to meet our capital
requirements at least through the next 12 months. However, we may be required,
or could elect, to seek additional funding prior to that time. The development
and marketing of new products and associated support personnel requires a
significant commitment of resources. If cash from available sources is
insufficient, we may need additional capital, which may not be available on
favorable terms, if at all. If we cannot raise funds on acceptable terms we may
not be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
Any inability to raise additional capital when we require it would seriously
harm our business.
Our Stock Price is Volatile. The trading price of our Common Stock has been
subject to wide fluctuations in response to a variety of factors, some of which
are beyond our control, including:
- Quarterly variations in operating results;
- Changes in financial estimates by securities analysts;
- Announcements by us or our competitors of new products or of
significant clinical achievements;
- Changes in market valuations of other similar companies; and
- Any deviations in our net sales or levels of profitability from levels
expected by securities analysts.
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In addition, the stock market has recently experienced extreme volatility
that has often been unrelated to the performance of particular companies. These
broad market fluctuations could have a significant impact on the market price of
our common stock regardless of our performance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
QUANTITATIVE DISCLOSURES
We are exposed to market risks inherent in our operations, primarily
related to interest rate risk and currency risk. These risks arise from
transactions and operations entered into in the normal course of business. We
do not use derivatives to alter the interest characteristics of our marketable
securities or our debt instruments. We have no holdings of derivative or
commodity instruments.
Interest Rate Risk. We are subject to interest rate risks on cash and cash
equivalents, available-for-sale marketable securities and any future financing
requirements. Interest rate risks related to marketable securities are managed
by managing maturities in our marketable securities portfolio. We have no
long-term debt as of March 30, 2002.
The fair value of our investment portfolio or related income would not be
significantly impacted by changes in interest rates since the marketable
securities maturities do not exceed fiscal year 2002 and the interest rates are
primarily fixed.
QUALITATIVE DISCLOSURES
Interest Rate Risk. Our primary interest rate risk exposures relate to:
- The available-for-sale securities will fall in value if market
interest rates increase.
- The impact of interest rate movements on our ability to obtain
adequate financing to fund future operations.
We have the ability to hold at least a portion of the fixed income
investments until maturity and therefore would not expect the operating results
or cash flows to be affected to any significant degree by a sudden change in
market interest rates on its short- and long-term marketable securities
portfolio.
Management evaluates our financial position on an ongoing basis.
Currency Rate Risk
We do not hedge any balance sheet exposures against future movements in
foreign exchange rates. The exposure related to currency rate movements would
not have a material impact on future net income or cash flows.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which
this report is filed.
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SIGNATURE
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.
IRIDEX Corporation
(Registrant)
Date: May 14, 2002 By: /s/ Robert Kamenski
----------------------------------
Robert Kamenski
Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
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