-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vrwe0BJEzLetaILiJNswb41U71+xVFIN8r0QWJzo0FWfcHtLZdeWYC250Qk072T0 F91alxq6pDrFyafxrLEmEA== 0001141218-03-000132.txt : 20030806 0001141218-03-000132.hdr.sgml : 20030806 20030806172312 ACCESSION NUMBER: 0001141218-03-000132 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030731 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAAR SURGICAL COMPANY CENTRAL INDEX KEY: 0000718937 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 953797439 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11634 FILM NUMBER: 03827109 BUSINESS ADDRESS: STREET 1: 1911 WALKER AVE CITY: MONROVIA STATE: CA ZIP: 91016 BUSINESS PHONE: 8183037902 MAIL ADDRESS: STREET 1: 1911 WALKER AVE CITY: MONROVIA STATE: CA ZIP: 91016 8-K 1 staarjuly038k.txt CURRENT REPORT ON FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 23, 2003 STAAR SURGICAL COMPANY (Exact name of registrant as specified in its charter) Delaware 0-11634 95-3797439 (State or other jurisdiction) (Commission File Number) (I.R.S. Employer of incorporation or organization) Identification No.) 1911 Walker Avenue, Monrovia, California 91016 (Address of principal executive offices) (Zip Code) (626) 303-7902 (Registrant's telephone number, including area code) Item 7. Financial Statements and Exhibits. (c) Exhibits Exhibit Number Description - -------------- ----------- 99.1 Press Release dated July 31, 2003. 99.2 Transcript of presentation given by David Bailey and John Bily at a conference call conducted by STAAR Surgical Company on July 31, 2003. Item 12. Results of Operations and Financial Condition. On July 31, 2003, STAAR Surgical Company issued a press release announcing financial results for the second fiscal quarter of 2003. A copy is attached as Exhibit 99.1 to this report and is incorporated herein by this reference. On July 31, 2003, STAAR Surgical Company held an earnings conference call to discuss the financial results for the second fiscal quarter of 2003. A transcript of the presentation given by David Bailey and John Bily in the call is attached to this report as Exhibit 99.2 and is incorporated herein by this reference. The information in this Current Report on Form 8-K, including the exhibits, will not be treated as "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section. This information will not be incorporated by reference into a filing under the Securities Act of 1933, or into another filing under the Exchange Act, unless that filing expressly refers to specific information in this report. -2- 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. Date: August 6, 2003 STAAR SURGICAL COMPANY By: /s/ John Bily ___________________ John Bily Chief Financial Officer -3- Exhibit Index EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 99.1 Press Release dated July 31, 2003. 99.2 Transcript of presentation given by David Bailey and John Bily at a conference call conducted by STAAR Surgical Company on July 31, 2003. -4- EX-99 3 staarjuly038kex991.txt PRESS RELEASE EXHIBIT 99.1 ------------ Press Release Source: STAAR Surgical Company STAAR Surgical Reports Second Quarter 2003 Results Thursday July 31, 4:04 pm ET International ICL(R) Sales Up 38% in Second Quarter Gross Profit Margins Improve for Fifth Consecutive Quarter Company Devotes Additional R&D Resources to ICL MONROVIA, Calif., July 31 /PRNewswire-FirstCall/ -- STAAR Surgical Company (Nasdaq: STAA - News), a leading developer, manufacturer and marketer of minimally invasive ophthalmic products, today announced financial results for its second quarter which ended July 4, 2003. Total product sales for the quarter were 12,950,000 up 8% from the comparable period one year ago. Total revenue for the quarter was $12,951,000 up 7% from $12,088,000 reported in the same period one year ago. The difference between total revenue and product sales are royalties generated from previously licensed technology that terminated as of March 31, 2003. Gross margins improved for the fifth consecutive quarter and continued to be above 54% which compared favorably with the 49.8% reported in the same period one year ago. Comparable operating expenses (which exclude charges related to subsidiary closures during the second quarter of 2002) increased by 3% to $8,013,000 million, compared with the same period one year ago and reflect a 41% increase in spending for research and development as well as increased costs related to clinical and regulatory activities. However, general and administrative expenses were down 3.5% in the quarter from second quarter 2002 levels primarily as a result of a decrease in legal fees and other professional services. Net loss for the quarter was $1,115,000, or $0.06 per share. This compares with a net loss of $3,909,000 million, or $0.23 per share during the same period one year ago. During the second quarter of 2002, the Company incurred a $1,225,000 charge in conjunction with subsidiary closures that were primarily related to the recognition of deferred losses resulting from the translation of foreign currency statements in U.S. dollars. Without the charge, net loss for the second quarter of 2002 would have been $2,684,000 or $0.16 per share. For the six-month period ended July 4, 2003, total sales were $25,729,000, up 9% from the comparable six-month period of 2002. Total revenues for the same six-month period of 2003 increased 8 % from the same period of 2002. Net loss per share for the six-month period ended July 4, 2003 was $0.10, an improvement from the net loss of $0.29 per share reported during same period for last year. Without the costs related to the subsidiary closures, net loss for the six-month period ended June 28, 2002 would have been a loss of $0.27 per share. "During the second quarter, international sales remained strong, particularly with the ICL," said David Bailey, President and CEO of STAAR Surgical. "Total international sales were up 19% from the second quarter of last year and were led by a 38% increase in ICL sales. International ICL sales were also impacted favorably by an increase in Toric ICL sales. In addition, year to date ICL sales also improved with revenues up 42% from the same period last year. 1 "The U.S. market continued to be challenging during the quarter," continued Mr. Bailey. "Despite a 3% decline in U.S. sales as compared to the second quarter of 2002, we were encouraged that sales were actually up 3% sequentially and further, that the second quarter year-over-year comparison was more favorable than the yearly comparison for the first quarter of 2003, when U.S. sales declined 6%. We continue to generate operating efficiencies, which led to our fifth consecutive quarter of gross profit margin improvements and we believe we are well positioned to capitalize on a recovery in the U.S. IOL market. "Once again, unit sales of our specialty Toric and Collamer one-piece lenses in the U.S. grew during the quarter. In fact, growth in unit sales of the Collamer one-piece lenses have accelerated both sequentially and year over year. In addition we are working on the introduction of an improved injector system for the three-piece Collamer lens that we believe will eventually help us grow market share in the U.S.," he said. "ICL development continues to reach and surpass milestones," Mr. Bailey continued. "Obviously, the biggest news of the quarter was the FDA's acceptance of our ICL PMA with an expedited review status. We believe we are on track with the timeline that we outlined for shareholders during the first quarter, and would expect to be included on a panel this year with a target of commercializing the ICL in the U.S. early in 2004. "We also continued to gain additional mindshare among the scientific and medical communities with the publication of two significant articles based on two different studies. Among other findings, the articles highlighted the efficacy, safety, predictability and overall better image quality that the ICL offers compared with LASIK. Another important outcome of one of the studies was the creation of a mathematical model whereby doctors and patients will now be able to generate an actual image that will pictorially illustrate the superior image quality that the ICL offers over LASIK. We believe that image quality is a key component of postoperative patient satisfaction and will encourage patients to choose ICL as their vision correction procedure." During the second quarter, the Company completed a private placement transaction to sell 1,000,000 shares of newly issued common stock and collected approximately $830,000 for the repayment of notes and loan obligations of a former officer and director of the Company. The Company also recently announced that early in the third quarter of 2003 it had additionally collected approximately $2,300,000 for the repayment of notes and loan obligations of another former officer and director of the Company. Over the past year, STAAR has secured the repayment of about $5.2 million of a total of $7.2 million in loans to former officers and directors. $3.1 million was received in cash and the remaining $2.1 million was settled through the return of shares of the Company's common stock. As part of their review of historical financial reporting, STAAR's new auditors, McGladrey & Pullen, LLP, are evaluating the past accounting treatment of the notes, including prior reserves taken against income in 2000 and 2001 totaling $3.6 million, and the treatment of certain interest on the notes. At present, the results of this evaluation are unknown. The final determination could result in no changes, or it could affect the timing of past accruals, or result in non-cash charges, and corresponding credits, to various items on STAAR's balance sheet or income statement for current or historical periods, including the financial data reported by STAAR today. STAAR is currently consulting on these 2 issues with McGladrey & Pullen, LLP and with BDO Seidman, LLP, STAAR's former auditors, who advised STAAR in the original accounting treatment of the officer and director notes. Any changes that might be made in accounting treatment will not affect the availability of the cash received on repayment of the notes for STAAR's working capital and general corporate needs. STAAR exited the second quarter with approximately $8,414,000 in cash and cash equivalents on its balance sheet compared with $1,009,000 at the end of the fourth quarter of 2002. STAAR had $3,062,589 in debt at the end of the second quarter. Looking ahead, Mr. Bailey offered the following outlook for the full year 2003. "We believe we will continue to generate double-digit sales growth in international markets while the U.S. market will remain a challenge until we bring to market, perhaps late in the third quarter, our state of the art injector system for the three-piece collamer IOL product. We believe our new injector system will begin to meaningfully impact IOL sales starting in the beginning of 2004. Overall, we believe we can achieve sales growth in the high single digits to low double digits for the full year compared to 2002. We will continue to remain vigilant about expenses, but with the accelerated regulatory review progress on the ICL for the U.S. market, we will ramp up sales and marketing expenses over the next two quarters in anticipation of a robust 2004 launch for the product. As a result, we now expect operating profitability during the first half of next year, assuming a 2004 U.S. launch of the ICL." Conference Call The Company will host a conference call and webcast today Thursday, July 31, 2003 at 4:30 p.m. Eastern Time to discuss second quarter results and current corporate developments. The dial in number for the conference call is 800-257-1836 for domestic participants and 303-262-2140 for international participants. A taped replay of the conference call will also be available beginning approximately one hour after the call's conclusion and will remain available through 11:59 p.m. Eastern Time on Friday, August 1, 2003 and can be accessed by dialing 800-405-2236 for domestic callers and 303-590-3000 for international callers, using passcode 544651#. To access the live webcast of the call, go to STAAR Surgical's website at www.staar.com and select Investors/Media then go to the Calendar of Events. An archived webcast will also be available at www.staar.com until the release of the Company's third quarter 10-Q. About STAAR Surgical STAAR Surgical is a leader in the development, manufacture and marketing of minimally invasive ophthalmic products employing proprietary technologies. STAAR's products are used by ophthalmic surgeons and include the Implantable Contact Lens(TM) as well as innovative products designed to improve patient outcomes for cataracts and glaucoma. About the STAAR Surgical's ICL STAAR Surgical's ICL is a phakic refractive lens that is currently under FDA review for approval in the U.S. The current submission is for the correction of myopia, or near-sightedness, in the range of -3.0D to -20.0D. The Company is presently enrolling candidates in the clinical trial for the hyperopic ICL for 3 the correction of far-sightedness, as well as the Toric ICL, which reduces myopia combined with astigmatism. The ICL Pre-Market Approval Application (PMA) has been accepted for substantive review by the U.S. Food and Drug Administration (FDA) and has been granted an expedited review status. The official filing date for the ICL PMA was May 8, 2003. STAAR's ICL has received the CE Mark approving use in the countries of the European Union, is approved for sale in 37 countries and has been implanted in more than 30,000 eyes worldwide. If granted approval by the FDA, STAAR will be allowed to market the ICL in the United States for the reduction of near-sightedness. Safe Harbor All statements in this press release that are not statements of historical fact are forward-looking statements, including any projections of earnings, sales, or other financial items, any statements of the plans, strategies, and objectives of management for future operations, any statements concerning proposed new products, services or developments, any statements regarding future economic conditions or performance, statements of belief and any statements of assumptions underlying any of the foregoing. These statements are based on expectations and assumptions as of the date of this press release and are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties include the need to obtain regulatory approval for new products, acceptance of new products by medical practitioners and consumers, the rapid pace of technological change in the ophthalmic industry, general domestic and international economic conditions, and other factors beyond the control of STAAR Surgical Company, including those detailed from time to time in STAAR Surgical Company's reports filed with the Securities and Exchange Commission. STAAR Surgical Company assumes no obligation and does not intend to update these forward-looking statements. 4 STAAR Surgical Company Condensed Consolidated Statements of Income (In 000's except for per share data) Unaudited Three Months Ended Six Months Ended July 4, June 28, July 4, June 28, 2003 2002 2003 2002 Sales $12,950 $12,008 $25,729 $23,639 Royalties 1 80 48 180 Total revenues 12,951 12,088 25,777 23,819 Total cost of goods sold 5,895 6,064 11,742 12,083 Gross profit 7,056 6,024 14,035 11,736 General and administrative 2,218 2,298 4,504 4,699 Marketing and selling 4,421 4,500 8,582 8,502 Research and development 1,374 977 2,551 2,054 Other charges 0 1,225 0 1,225 Total selling, general and administrative expenses: 8,013 9,000 15,637 16,480 Operating loss (957) (2,976) (1,602) (4,744) Total other expense 180 (575) 425 (694) Loss before income taxes (777) (3,551) (1,177) (5,438) Income tax provision (benefit) 315 304 644 (627) Minority interest 23 54 42 95 Net loss ($1,115) ($3,909) ($1,863) ($4,906) Net loss per share ($0.06) ($0.23) ($0.10) ($0.29) Weighted average shares outstanding 18,112 17,163 18,228 17,161 Proforma Loss Per Share Net loss per share $(1,115) $(3,909) $(1,863) $(4,906) Other charges -- 1,225 -- 1,225 Income tax benefit -- -- --- (958) Proforma loss per share $(1,115) $(2,684) $(1,863) $(4,639) Proforma net loss per share $(0.06) $(0.16) $(0.10) $(0.27) 5 STAAR Surgical Company Condensed Consolidated Balance Sheet (in 000's) July 4, January 3, 2003 2003 Unaudited Audited Cash and cash equivalents $8,414 $1,009 Accounts receivable, net 6,932 5,992 Inventories, net 11,874 11,761 Prepaids, deposits, and other current assets 2,586 2,958 Deferred income tax -- -- Total current assets 29,806 21,720 Investment in joint venture 461 462 Property, plant, and equipment, net 6,682 7,438 Patents and licenses, net 8,566 9,038 Goodwill, net 6,427 6,427 Deferred income tax -- -- Other assets 174 280 Total assets $52,116 $45,365 Notes payable $3,063 $5,845 Accounts payable 4,439 4,394 Other current liabilities 4,799 4,386 Total current liabilities 12,301 14,625 Other-long term liabilities 86 89 Total liabilities 12,387 14,714 Minority interest 162 100 Stockholders' equity - net 39,567 30,551 Total liabilities and equity $52,116 $45,365 CONTACT: Investors, Douglas Sherk, +1-415-659-2285, or Jennifer Cohn, +1-415-659-2289, or Media, Sheryl Seapy, +1-949-640-4515, all of EVC Group, for STAAR Surgical Company. Source: STAAR Surgical Company 6 EX-99 4 staarjuly038kex992.txt TRANSCRIPT EXHIBIT 99.2 ------------ STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 1 STAAR SURGICAL Moderator: Doug Sherk July 31, 2003 3:30 pm CT Operator: Good afternoon, ladies and gentlemen. And welcome to the STAAR Surgical second quarter 2003 earnings conference. At this time all participants are in a listen only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press star followed by the zero. As a reminder, this conference is being recorded today, Thursday, July 31st, 2003. I would now like to turn the conference over to Doug Sherk with EVC. Please go ahead, sir. Doug Sherk: Thanks, operator and good afternoon, everyone. Thank you for joining us for the - this afternoon for the STAAR Surgical conference call to review the financial results for the second quarter that ended July 4th, 2003. If you have not received a copy of the results news release that was issued at market close today and would like one, please call our office at 415-659-2285 and we'll send you one immediately. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 2 Additionally, we have arranged for a taped replay of this call, which may be accessed by phone. This replay will take effect approximately one hour after the call's conclusion and remain in effect through tomorrow night, Friday, August 1st at 11:59 pm Eastern time. The dial in number to access the replay is 800-405-2236 or for international callers 303-590-3000. Both need to use the pass code 544651 # sign. In addition, this call is being web cast live with an archive replay also available. To access the web cast, go to STAAR's website at www.staar.com. The web cast archive of the call will be available until the company releases its third quarter results. Before we get started, during the course of this conference call the company will make projections or other forward-looking statements regarding future events including statements about its domestic sales, the planned submission of its FDA filing for implantable contact lenses and the company's beliefs about its revenues and earnings for the full year ending December 31, 2003 and December 31, 2004. We wish to caution you that such statements are just predictions and involve risks and uncertainties. Actual results may differ materially. Factors actually - excuse me - factors that may affect actual results are detailed in the company's filings the SEC including its most recent filing of Form 10Q and 10K. In addition, the factors underlying the company's forecasts are dynamic and subject to change and therefore the forecasts are to be only as of the date they are given. The company does not undertake to update them; however, they may choose to do so from time to time. And if they do so they will disseminate the updates to the investing public. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 3 Now I'd like to turn the call over to David Bailey, President and Chief Executive Officer of STAAR Surgical Company. David Bailey: Thanks, Doug and good afternoon, everyone. Thank you for joining us for the STAAR Surgical second quarter conference call. With me today is John Bily, our Chief Financial Officer and Deborah Andrews, our Global Controller along with Nick Curtis, our Sales and Marketing VP for the United States. Today I'm going to start off the call with an update on our progress during the second quarter. John will then review our financial performance and then we'll open up the floor to take any questions. Once again our financial performance during the quarter was led by the continued growth in our international sales, which was highlighted by a 38% increase in the ICL unit sales year-on- year. We are pleased with the progress that we continue to make and believe that it illustrates our commitment to successfully executing our long-term strategy. Total product sales grew nearly 8% to almost $13 million from quarter two '02 levels. For the fifth consecutive quarter, our gross profit margins improved to 54.5%. Our net loss increased slightly versus quarter one to a loss 6 cents per share reflecting the ramp up of investment in R&D and expenses related to clinical and regulatory issues primarily the ICL filing. Although we are still showing an operating loss for the quarter, it was $2 million less than the operating loss in quarter two '02. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 4 During the first half, international sales grew 19% versus the same period in 2002 and represented approximately 54% of total revenue. We believe that we are seeing a meaningful ramp up of European Toric ICL sales, which helped generate this growth. We continue to generate increased international operating efficiencies, which resulted in an increase in international gross margins. International gross margins were up 12% from the second quarter of 2002 and up 8% overall when we exclude the impact of foreign exchange. In Germany, which remains our biggest market beyond the U.S., after adjusting for exchange, gross margins grew by 8% from the second quarter versus last year's second quarter. In Australia, one of our fastest growing markets, they were also up significantly. Sales in Germany were up 28% from '02 levels and ahead by 32% for the six months year-to-date. Exchange effects contributed significantly to this outstanding growth but even discounting this there was growth in the business net of currency movements. On the domestic front, we faced another challenging quarter; however, we believe we are beginning to see a bottom out on the sales decline. Sales in the U.S. were down 3% from 02 2002 - (I'm sorry) quarter two 2002, which was a vast improvement over prior quarter on quarter comparisons. Eleven percent decline quarter four '02 and a 6% decline in quarter one '03. Critically, U.S. sales were up by 3% in quarter two versus quarter one. We have committed to turn around the U.S.-based cataract business during the second half of this year. To do this, we need to gain traction for IOL sales in this market. Although not yet occurring across the board, we are beginning to see STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 5 strong trends in our speciality lenses, the collamer plate lens and the Toric silicone product, which tend to both be premiumly priced. The modest growth trend we reported in quarter one for these products has accelerated significantly in quarter two comparisons versus quarter two last year, with unit growth at 31%. Each of these unique products is trending up very positively, not only in yearly revenue in units shipped comparisons, but also in sequential comparisons. This growth was partially offset by a decline in silicone plate lens sales due to market decline coupled with some cartridge delivery issues. The same issues also hindered the growth of our three-piece silicone franchise and are frustrating. All efforts have been expended to solve the inserter issues during quarter two. We firmly believe we have a robust solution to the plate delivery issues and expect to gain back some lost business in the third quarter. Overall we expect to see silicone lens growth in the second six months of '03 as compared to the first half. Regarding the collamer three-piece injector, our targeted, target date for launch has been delayed from September to November reducing the anticipated positive sales impact in '03. This system as I've reported in the past has been very challenging to develop due in part to the unique and proprietary characteristics of the collamer material. We have however made huge progress and are confident of launching an injector that gives an acceptable delivery this year. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 6 Despite this, all indications point to a positive sales trend emerging in the U.S. market during the second half. I want to reiterate that the issues that we are having with the injectors have been identified, targeted, and are solvable. As we have stated previously, the growth in the U.S. will underscore an acceleration of future company's profit growth. Despite all of the good news on the ICL, and there's been much of it, we remain determined to rebuild and fully exploit the potential of our cataract business in the U.S. Although this should be classed as work in progress, I believe the numbers are indicating that we are beginning to turn this into a reality. During the quarter, we continued to strategically control and manage expenses but have planned increases in two specific areas. With the ICL PMA, we were determined to deliver the strongest possible file to the FDA. This clearly had a significant payback in terms of achieving an expedited review. As a result, R&D expenditure during the quarter was up 16.7% sequentially. We planned for this expenditure to continue during the third quarter at a rate roughly comparable to the second quarter as we move towards panel and prepare accordingly. The second cost factor was our work on improved injectors for our IOL's. Having identified all of the issues at hand, we took a conscious decision to accelerate spending in order to get the issues behind us and move our IOL business forward at a faster rate. Conversely, I'm therefore please to note that once again we decreased our general and administrative expenses both year over year and sequentially. As you know, we have made a commitment to our shareholders that we will diligently work to collect all monies due to the corporation. Earlier this month we were pleased to announce STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 7 that we had collected in full a $2.3 million loan owed to STAAR by a former officer of the company. This repayment along with a successful private placement that we completed during the quarter allowed us to strengthen our financial platform tremendously. We also want you to know that with the appointment of new auditors in mid-June, the new firm McGladrey & Pullen has begun their review of our historical financial reporting, including the past accounting treatment of loans to officers and directors that were granted as far back as 1991. I would emphasize that there have been no new loans to officers and directors under the new management team. At present the results of this evaluation are unknown but McGladrey & Pullen has raised three issues that they are working closely with BDO Seidman to resolve. They are complex - extremely so - but I'll try and elaborate. Over the past two years as we have communicated often, the company has worked closely with our auditors and legal advisors and taken exceptional steps to secure and collect these loans. As a result of our efforts we've collected $5.2 million of the total $7.2 million in loans to former officers and directors, and we're aggressively pursuing the remaining $2 million. There are three issues. In 2000 and 2001, we booked reserves against income that resulted in a $3.6 million charge against earnings, and we may or may not have to reverse those reserves. Secondly we have treated as interest income approximately $321,000 in interest from these loans that was collected in STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 8 cash by STAAR. And there is now a question as to whether this interest income should be treated in a different manner. Thirdly, while legally the loans were structured and treated by the company as full recourse loans, there is a question as to the characterization of the notes as non-recourse from an accounting perspective. This characterization in turn brings into question variable accounting treatment and the calculation of imputed compensation expense. We recognize that this issue is confusing and as of this afternoon we've given you the best available information we have on the issue. However, we have been assured by the new auditors that if there is a charge recorded as a result of their decision, it will be a non-cash charge and related specifically to notes from former officers and directors. We will report to you on this development as soon as the decision is reached. It is not an operational - I say it is not operational in nature and should not detract from the strong operational progress we are making at the company. Moving on to that progress, with the successful collection of loans to officers and directors as well as the proceeds from the private placement, we now have the cash to ensure, through effective execution in the U.S., that the ICL will represent the next paradigm shift in refractive surgery. While we continue to have significant and continued interest in partnership opportunities and are fully exploring that interest, we are as we speak actively executing a plan to market the ICL ourselves within the U.S. For competitive reasons we will not be discussing the specifics of this plan but we are actively engaging the organization to execute against it. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 9 We continue to make steady progress in growing our international business and we're certainly - we've certainly improved our cost structure. We also now believe that we have begun to see the beginnings of an up trend in the U.S. business based on the growth achieved in quarter two this year versus quarter last year. We expect to see more improvement throughout the second half of the year. With our cost strategies firmly aligned, we will continue to focus significant resources on the commercialization of the ICL and the Toric ICL. So let me quickly update you on some exciting developments that have occurred during the second quarter. Clearly the most exciting news of the quarter was the FDA's acceptance of our PMA for the ICL. On May the 8th, 2003, we filed the PMA and on July the 1st, we received notification that the FDA had not only accepted our PMA but also granted us an expedited review status. This expedited review covers myopia in the range -3.0D to -20.0D. Without going into details, I can tell you that we're already experiencing the burden of work that results from an expedited review. We believe that this action by the FDA further underscores our belief that the ICL represents the next paradigm shift in refractive surgery. With all of this activity, I'm confident that we will exceed our stated goal of getting to panel by November of this year. Please be aware that the September panel has been cancelled and tentatively rescheduled for early October. Also during quarter two, the ICL was the subject of two peer review journal articles. Both of these articles compared STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 10 various post-operative outcomes in ICL patients to those of LASIK patients. We are pleased with the results of these studies indicated that the ICL post-operative clinical outcomes were significantly better than LASIK. These objective studies underscore the results of our three-year data, which showed a 99.4% patient satisfaction rate. In July, a new study compared ICL to LASIK and demonstrated that patient satisfaction with the ICL is a result of a sharper image and less haze than is seen with LASIK. This is well demonstrated on STAAR's new website, which I hope you will visit. Remember what you see there will be used by ICL doctors as they counsel patients on the merits of the two procedures. As our research base grows, we are increasingly excited about the potential for the ICL and the Toric ICL. We currently have new ICL approvals pending in Taiwan and Australia. We're also working hard to gain extended approvals for the Toric ICL in both Korea and Canada. Our stated goal is for our international refractive business to double in 2003 versus prior year. Approval of the ICL in the U.S. would allow us to pursue significant revenue opportunities. Our most conservative estimates, which assume sole U.S. marketing by STAAR and minimal market penetration rates indicates that we could see a revenue impact of $47 million per year. Once approved, we expect to launch a dynamic focused marketing effort to support our products within the U.S. market. This will include a standardized training program as we have used in international along with the recruitment of direct employee proctors to ensure the systematic training programs are successfully rolled out. Overall we are delighted with the progress we are making with the ICL both domestically and internationally. We know we were STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 11 the first to submit a PMA to the FDA and continue to believe that we will be the first to market with a phakic lens in the United States. We also believe that we have the only phakic lens to be granted an expedited review and believe that compared to the nearest competitor we have third generation technology that is compatible with modern day surgical techniques. We do not envision that doctors will, despite strong marketing, be long-term supporters of a product that takes them back 15 years in surgical technique, takes three times longer to perform, and gives an atheistically displeasing outcome for the patients. In summary, the second quarter was yet another successful quarter for STAAR. We continue to make significant progress in our road map to commercialization of the ICL in the United States. At the same time, we built additional market share for the ICL and the Toric ICL internationally. The base cataract business is looking much stronger, with accelerating sales trends on the new technology IOLs in the critical United States market. Our gross margin improvements are solid with opportunity for acceleration as cataract market share builds in the U.S. All of these achievements resulted in increased interest in STAAR Surgical from the investment community, with increased analyst coverage and critically the entry of STAAR into the Russell 2000 Equity Index. We look forward to sharing our continued progress with you throughout the year. At this time, I'm going to hand over to John to recap in a little more detail on the financials. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 12 John Bily: Thank you, David. The financial fundamentals of the business continue to improve. Gross profit margins improved for the fifth consecutive quarter. SG&A expenses for Q2 and year-to- date 2003 were favorable to prior year. STAAR continues to fund and to grow our R&D investment. Interest expense and debt have been significantly reduced. Working capital management is on track. Manufacturing costs have been favorably impacted by yield and efficiency improvements. And the company today has over $10 million in cash. Let me briefly recap Q2 and year to date financial results. Net sales for the second quarter were $12,950,000 up 7.8% over prior year quarter. For the year to date period, the sales were $25,729,000, an increase of 8.8% over prior year. In the U.S. market, sales declined 3% during the quarter and 5% for the year to date period. The rate of U.S. sales decline continues to diminish as David mentioned earlier. International sales grew 19% for the quarter and 23% for the year-to-date period. Sales in our German subsidiary were favorably impacted by the effect of currency. The ICL and Toric ICL grew 38% in the quarter. STAARVISC sales increased 21% in Q2. AquaFlow sales declined 9%. Speciality lens sales increased 18% and silicone lens sales declined 19% during the second quarter. For the year to date period, the ICL and Toric ICL grew 42%. STAARVISC sales increased to 34% and AquaFlow sales declined 16%. Speciality lens sales increased 11 and silicone lens sales declined 15%. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 13 (Gross) profit excluding royalty income for the quarter was $7.1 million; a $1.1 million or 19% increase over prior year. Gross margin was 54.5%, a full six margin point improvement over prior year quarter. Year to date gross margin was 54.4, a 5.5% improvement over the prior year, year to date period. Gross margin improvements were the result of reduced cost structures in our manufacturing facilities, production yields and efficiency increases, and significant growth in the high margin ICL product lines. These improvements were partially offset by the unfavorable mix due to decline in the U.S. IOL business, which as we said before operates with a significantly higher gross margin percentage than the international IOL business. General and administrative expenses in Q2 were $2.2 million, 3.5% below prior year. Year to date G&A expenses were $4.5 million, 4.2% favorable to prior year. Reduced legal expenses and professional services and generally tighter expense controls contributed to the favorable performance in G&A. Sales and marketing expenses during the quarter were $4.4 million, $1.8 million below prior year. For the year to date period, expenses we $8.6 million, a less than 1% increase over the prior year period. Spending for R&D, clinical and regulatory activities increased in the second quarter. Spending was $1.41 - $1.4 million, up $400,000 or 41% over the prior year quarter. Accelerated activities during the second quarter included the completion and submission of the U.S. ICL clinical study, Toric ICL clinical activity, and lens insertion systems development program. Total SG&A and R&D spending for the second quarter was $8 million. Excluding the effect of a $1.2 million restructuring STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 14 charge in 2002, results were $240,000 or 3% over prior year. On a year to date basis, total SG&A and R&D was $15.6 million, (380) or 3% increase over prior year. Total operating expenses excluding R&D are below prior year for both the quarter and the year-to-date periods and reflect the company's success in reorganization and in cost reduction activities. The increase in R&D spending is result of significant activities associated with the successful submission of the U.S. ICL clinical study, Toric ICL clinical programs and a broad and in depth review of STAAR's portfolio of lens insertion systems. Operating loss for the quarter was $1 million compared to $3 million in the prior year. On a comparable basis and excluding restructuring charges, the operating loss in the prior quarter was $1.8 million. The year to date operating loss was $1.6 million, $3.1 million favorable to prior year. On a comparable basis and adjusting for restructuring costs, prior year to date operating loss was $3.5 million. Excluding restructuring the operating loss for the quarter and year to date period was $800,000 favorable in the quarter and $1.9 million favorable to the prior year year to date. Other income and expense for the quarter was $800,000 favorable to prior year due to a reduction in interest expense of $100,000 and a favorable exchange gains and loss with comparison of $500,000. For the year to date period, other income and expense was $1.1 million favorable due to reduced interest expense, interest income on notes collected from prior officers and directors, and favorable exchange gains and losses. Again as in prior quarters, the company recorded no income tax benefits on U.S. entity net operating losses. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 15 Net loss for the quarter was $1.1 million or 6 cents per share. Net loss for the prior year quarter 23 cents per share. On a comparable basis, net loss in the prior year was 16 cents per share adjusting for restructuring costs of $1.2 million. For the year to date period, net loss was $1.9 million or 10 cents per share. Net loss for prior year to date period was 29 cents per share. Again on a comparable basis, the net loss in the prior year was 27 cents per share excluding restructuring costs and one time U.S. income tax benefit. Cash flow from operating activities was $500,000 negative in Q2, which was $300,000 favorable to the prior year quarter. Significant yearly insurance payments and the (ASCRS) meeting were the primary factors for the negative cash flow quarter. Cash from investing activities was $700,000 positive, $1.1 million better than prior year and primarily due to collection of notes from prior officers of the company and $7.7 million in reductions in spending for property, plant and equipment. Let me re - let me do that once more. Cash from investing activities was $700,000 positive in the quarter and that's $1.1 million better than prior year. And that's collection of notes from prior officers of the company of $700,000 and reduction of spending for property, plant and equipment of $200,000. Cash from financing activities was $7.8 million positive, $9 million from our private placement, $1 million proceeds from stock options and $2.2 million used to pay down debt. Net increase in cash for the quarter was $8 million. At the end of quarter two, STAAR had $8.4 million in cash and $3.1 million in notes payable. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 16 Clearly the first half of 2003 has seen significant improvements in the fundamentals of the business both from a P&L operating prospective and on the balance sheet. As mentioned above, cash at the end of quarter two was $8.4 million and today after the collection of $2.3 million in notes (puts) that over $10 million. STAAR's total debt is approximately $3 million and at very favorable interest rates. I'll spend a minute on some guidance for the balance of the year. STAAR had previously forecast high single digit growth for the year based on sales of $47.9 million in 2002. We are still comfortable with this estimate. We had also given guidance, which indicated that the company would be profitable at some point and time in the second half of the year. Additionally, we had indicated that an annual incremental spend of $2.5 million would be required to launch the ICL and take it to market in the U.S. With the acceleration in and the optimism within the approval process in the U.S., we have taken the decision to accelerate this expenditure. This strategy will add $1.1 million in sales and marketing expenses in the second half of 2003. This will ramp up in the third and fourth quarters of '03. For 2004, our estimate for the incremental expenses for the ICL remains the same. As a result of this change and the acceleration of the ICL launch expenses, we will not achieve profitability in the second half of 2003 as previously indicated. Now some investor relation highlights, STAAR will be presenting at the Adams, Harkness and Hill Summer Seminar on Tuesday, August 5th in Boston. And we will be visiting investors - STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 17 various investors around the country the following week. I'd like to now turn the call back over to David. David Bailey: Thanks, John, very comprehensive. I'd now like to open up for questions and we'll summarize as usual with some milestones, which investors can use to judge performance for quarter three. Operator: Thank you, sir. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press the star followed by the 1 on your touchtone phone. If you would like to cancel the polling process, you may press the star followed by the 2. You will hear a three tone prompt acknowledging the selection and your questions will be pulled in the order that they are received. If you are using speaker equipment, please lift the handset before pressing in the numbers. Our first question comes from (Joanne Roonch) with (Harris, Smith, Fitzgerald). Please go ahead, ma'am. (Joanne Roonch): Good afternoon, everybody. So many good questions or so many questions to ask, first could you just address the decline in AquaFlow sales? We expected that it be a little bit more positive this quarter. David Bailey: Yes. As I said in the main script, this is a great product with excellent outcomes in the clinical area. But it needs dedicated resource to maintain a momentum of growth because the learning curve is relatively steep. Just to recap, year-to-date, units were down 16% versus last year but with a much lower rate of unit decline only 3% when we compare the quarter two quarter two comparison. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 18 The problem has been that over the last three months, our already limited proctoring resource for AquaFlow has been stretched and somewhat distracted with other critical activity. As a result, surgeon proctoring, a key component of the sales mix, has slowed. This is particularly critical, as the target surgeon for AquaFlow does not immediately overlap with our regular custom base - customer base. We have plans to realign focus, but only after we have turned the corner on our IOL business in the U.S. For the moment, field evaluations of the new injector systems and the recruitment and training of select direct sales reps is taking priority. The clinical evaluations of the new injector system allows me for example to say we were very confident we had a robust solution to the plate haptic delivery, and so that's paying off dividends. So what we've done, (Joanne), is realigned our objectives on AquaFlow and our short-term goal is to halt the decline on AquaFlow in the second half. So that's a clear goal just to prevent - stop the decline. And then once we get all of these injector evaluations and we free up proctoring resource, we'll be able to put more push behind AquaFlow. I should also point out at that - with the ramp-up of ICL that John indicated, we'll be bringing in a proctoring force, which we've started to recruit now. And although that proctoring is going to be directly focused on ICL, it will give us some leeway to get increased proctoring on AquaFlow. But there's no doubt that this quarter is really highlighted the pull that we're getting on the base business and that base customers and AquaFlow, which is a different customer base. So the short-term plan is to stop the decline. It's disappointing but it's understandable given our priorities that we've set. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 19 (Joanne Roonch): Okay. What is the chance that the collamer injector gets delayed not from September to November but from September to February or some later date? David Bailey: I think that is very low. As I said in my text, we've made a huge amount of progress. I'm very cautious on this because it has been challenging. But I'm pretty solid with those revised dates and the whole R&D group are behind that. And we've actually added some additional resources; you saw both from an expenditure point of view both variable expense and people cost to make sure we get over those hurdles. So I'm pretty - you can never be 100% sure, (Joanne), but I'm very confident with those. And we've added resource and increased expenditure to make sure the delivery is absolute. (Joanne Roonch): Okay. Two more questions and then I'll get in queue. The first is you said you think you will do better than getting on a November panel. Is that a roundabout way of saying you believe you're on an October panel? David Bailey: I don't know, (Joanne). I'm just very confident we've - having gotten the expedited review and all the activity that's going on, which as I said is - there's a lot. The - I will beat the estimates that we'd always talked to, which was November. And nothing's firm yet. That October panel is provisional as indicated on the FDA website but clearly we're pulling every stop out to get to an earlier round in the later panel review. Nothing is confirmed, however. (Joanne Roonch): Okay. Finally, I recognize the guidance you gave for the second half of the year. High single digits in that revenue and that you will not get to break-even during the year. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 20 Could you please be more specific what to expect for the third quarter and what to expect for the fourth quarter? David Bailey: I think you (must) - I think we - inline with the previous guidance, we've tried to stay fairly general and give everybody a framework to work within rather than specifics for the individual quarters. And I think - I'd want to stay with that guidance, (Joanne). I think based on what we've said the low single-digit growth, the fact that we're going to absolutely increase sales and marketing by $1.1 million over the two quarters, it's going to ramp up more in fourth quarter. We expect flat AquaFlow. That's the goal. That should give people, you know, a good range to work within. (Joanne Roonch): Okay. Thank you very much. David Bailey: Thanks, (Joanne). Operator: Our next question comes from Kate Sheridan with Pacific Growth Equities. Please go ahead, ma'am. (Kate Sheridan): Hi there everybody. David Bailey: Hey, (Kate). (Kate Sheridan): Actually just what was the FX contribution on a dollar basis, John? John Bily: For the quarter? (Kate Sheridan): Yes. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 21 John Bily: We think the FX was something right around a million dollars in the quarter. (Kate Sheridan): Okay. John Bily: Mostly in Germany, if not all in Germany. (Kate Sheridan): Right. Okay. And then... John Bily: (Is that what you need?). (Kate Sheridan): ...maybe this is sort of taking (Joanne)'s question that was giving us something to work with. We've got some - I think some expense information but I think most of us are probably looking at some, you know, fairly gradual increases in gross margins. Can you give us an idea of where you might exit, maybe even just where the next couple of quarters fall out? John Bily: Well, clearly up. (Kate Sheridan): Yes. John Bily: Let me... David Bailey: Yes, (Kate), just while John looks for that I just want to emphasize that ICL sales are not particularly affected by currency because it's out of Switzerland. (Kate Sheridan): Right. David Bailey: And it's dollar invoicing. But just to make that point while John was checking some... STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 22 John Bily: Yes, all of our - yes, most if not all of the currency is in Germany. (Kate Sheridan): Okay. John Bily: And not ICL related. (Kate Sheridan): Right. John Bily: Well, we're going to go up and if you look at the first half of the year, (Kate). You know, we're going to improve on that by at least a couple of percentage points - somewhere between two and three percentage points. (Kate Sheridan): Okay so that by the end of the fourth quarter then exiting the year up from here? John Bily: Right. (Kate Sheridan): Okay. Okay. Well, that'll be helpful. And just curious on the ASPs I mean I see the decline in IOL's but I'm wondering what ASPs are doing specifically? David Bailey: ASPs, (Kate), broad brush are doing reasonably well because as I said the speciality lenses are growing, which command that - a much higher price. So ASPs overall in the U.S. are holding up pretty well and so in, you know, gross margin is improving in the U.S. ASP for ICL is actually getting pushed up slightly as we start to sell more Toric ICL's, which sell for a premium. But overall on the silicone lenses, ASP's holding up really well- STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 23 reasonably well. Although as we indicated we were losing market share on the base business and the speciality lenses are actually taking ASPs up by somewhere in the region of a 30% premium. (Kate Sheridan): Okay. David Bailey: Thirty to 35% premium. (Kate Sheridan): Okay. David Bailey: Collamer to silicone and about the same on the Toric's silicone. (Kate Sheridan): Okay. All right and then, Dave, you just - you made up a pass at the $47 - the $47 million ICL potential opportunity and I was just wondering if that was sort of (the first) year or once you get to, you know, out of the gate and then on a run rate per year? And then if that's the case sort of when do you get to that point after the roll out? David Bailey: Yes. I think that $47 million is consistent with the presentation I've given to, you know, investors showing the potential at low penetration rates that's the .6 and .8 that we've talked about. I think, you know, that's obviously a ramp up number. In terms of an absolute growth in ICL, now we have the - our plans firmed up I think we're going to be - we'll give - we'll wait to give more guidance on that absolutely, (Kate). But that's surely a ramp up number. (Kate Sheridan): Okay. So there's like... STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 24 David Bailey: And, you know, as with international, we'll go for a steady ramp up over time with solid outcomes. They must be highly successful in the markets where we've done it but I think that from the get go it's going to be faster in the U.S. given the interest we're seeing in the products, assuming of course we do get approval. (Kate Sheridan): Okay and then this last thing and then I'll leave. I'm curious about the trends in Europe with respect to the ICL, particularly with the Toric. And was wondering if with the Toric are you gaining new surgeons now that you have that to offer or it sort of the same few people? I've talked to a couple over there not a lot but just if you could give us some feel for that - how that - help us out? David Bailey: Yes. The first thing I would say we got CE Mark in December. And there is a 60-day lead-time to fulfill an order to set - that's the delivery promise. So, you know, effectively you're only launching towards late first quarter against the orders that you're generating. We're seeing some trade-up where customers are adding the Toric ICL to their usage and that's replacing ICL. But I do think we're starting to see new customers being attracted to the ICL because of the dual benefit. You know, being able to correct two procedures in one. But the early adopters to be fair, are more existing users than purely new users. (Kate Sheridan): Okay. Fine. Thanks very much. David Bailey: Thanks, (Kate). Operator: Our next question comes from (Jason Bedford) with Adams, Harkness and Hill. Please go ahead, sir. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 25 (Jason Bedford): Hi, guys. Just a few quick questions and I hate to do this to you. But just any word on Taiwanese approval for the ICL and just are the questions going back and forth or what's the timeline there? David Bailey: Honest, that's a very timely question. What - I'm - first off I have to say I'm very frustrated with Taiwanese approval because we expected it before now. But we were able to actually get a meeting with the Taiwanese authorities, or our representative, was last week. Yes, late last week. And it was really clear during that meeting - two things were very clear. One was that the SARS issue, which I really hadn't factored in from this point of view, had taken a toll on the health authorities in Asia with the Ministries of Health being in turmoil and numerous head count changes. And that delayed a lot of the processing of applications in Taiwan in particular. I don't know the details in Korea because we didn't have a pending approval during this process. We'd already gotten the ICL approval. So that caused chaos and I know that the number of companies - specifically in ophthalmology - that are in the same situation. During that meeting, we met with a pretty senior person, the section chief, and he confirmed that both SARS and some process changes relatively minor had caused delays in the approval process for a number of products including the ICL. And his estimate was that the average delay and I repeat an average delay was at least six months. And so based on that meeting where we went through the detail of what they had and anything else they needed, which was fairly limited, we would revise our approval date to say late STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 26 this year. So that really is quite out of most recent news, (Jason). (Jason Bedford): Okay. That's fine. And then when do you expect to hear from the FDA regarding a panel meeting, you know, if you were to be on the panel meeting in October, when would you expect to hear? David Bailey: It would be some time in about the third week of August. (Jason Bedford): Third week of August. Okay great and then, finally, you know, you mentioned your intention to distribute the ICL yourself here in - or have STAAR do it here in the U.S. Have you stopped discussions with partnerships? Are you still open to that? David Bailey: No as I said in the main text, there's considerable interest and we continue to explore that interest but we're locked and loaded on a direct campaign. And we're actively recruiting and hence, while we've added in that additional expenditure, which I think is the right move, since we've got the accelerated review. (Jason Bedford): Okay. Great. Thanks, guys. Operator: Our next question comes from (Vivian Wolf) with (Costman Fund). Please go ahead. (Vivian Wolf): Dave, so should we read into that that there is indeed a possibility of getting final approval on that before year end in the U.S.? STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 27 David Bailey: (Vivian), I couldn't be that specific. I really couldn't be that specific. I mean there's a tentative panel date in October. We've got an accelerated review. We've got frantic activity going on. And... (Vivian Wolf): We have optimism. David Bailey: ...that, you know, we'll see. (Vivian Wolf): And we have optimism. That's good. Do you - just one question there's an update from CMS out on some of their hospital rates today and I wasn't - I haven't seen anybody write about whether that affects the IOL business but do you have any information on that? David Bailey: I'm not familiar with that, (Vivian). (Vivian Wolf): Okay. David Bailey: We'll have to have a look at that and get back to you if we may. (Vivian Wolf): Okay, well that was just earlier out today and I haven't seen anything on the ophthalmic side so it may not. David Bailey: Nick and I are looking at each other. We're not aware of anything but we'll be happy to have a look at that and give you any comment after. (Vivian Wolf): Okay. Thanks. I'll come back in the queue. David Bailey: Great. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 28 Operator: Ladies and gentlemen, if there's any additional questions, please press the star followed by the 1 on your telephone keypad. As a reminder, if you're using speaker equipment, please lift the handset before pressing the numbers. One moment please for the next question. Our next question comes from (Larry Hemovich) with (HMGC). Please go ahead, sir. (Larry Hemovich):Good afternoon, gentlemen. David Bailey: Hi, (Larry). John Bily: Afternoon, (Larry). (Larry Hemovich):Actually a question for Nick, I didn't realize he was there. I'm delighted he is. Hi, Nick. Can you give us any updates on the marketing and sales front? I know you've been working extremely hard to improve the selling and marketing effort in the field. Is any - any qualitative and quantitative data points you have for us, Nick? Nick Curtis: Yes, having a hard time hearing you there a little bit, (Larry), but I completed my relocation from Chicago to California a couple of weeks ago. And so that's positive. I'm here now for good. We've restructured the sales and marketing department. And in fact we physically moved the departments together, which really I think from an accountability and a productivity perspective really, you know, bringing the departments together is very positive. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 29 We do have a new head of marketing and this person - she's got a tremendous experience in refractive surgery. And we've got a new director of sales, which really is helping us provide a much better support to our regional managers in the field. As a result of the ICL, you know, we've - there's so much excitement surrounding that that it's created a pretty keen interest in our company and so we've had a lot of people coming to us that are interested in careers at STAAR. I'm looking to continue to strengthen the marketing department on - with specific strong product directors in some of the product areas so we can really focus in the various product areas and have someone accept responsibility for those specific areas. The relationships as far as between corporate management and field management I think is really very much improved and we've spent a lot of time really trying to develop that relationship as well as to really articulate our goals and sort of align our goals much more in the field. I think that - I think we've really made some good progress in that regard. In fact, I'm really encouraged in that regard. And I feel like the region managers are really revitalized and pretty committed to growing their business. I think they realize with the ICL that a strong profitable company is critical to their futures and long-term success there. So, you know... David Bailey: And I think quantitatively, you know, as I said, Nick grew the sales quarter two versus quarter one modestly 3% but that was growth. And the rate of decline versus prior year quarter's has STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 30 decreased significantly as I indicated. So I think, you know, Nick's making a lot of changes not just underscores it. The other thing I would say to investors is Nick is actually going to be in attendance at the - some of the meetings next week, so people will have an opportunity to question and delve and get into that detail a little bit more. (Larry Hemovich):Next, a couple - a follow-up question. Can you tell us who the new hires - the key hires are the director of sales and head of marketing are? Nick Curtis: Pardon me? (Larry Hemovich):Can you identify who the new hires are that you talked about? The new director of sales and the director - the head of marketing? Nick Curtis: Yes, in the marketing side, Darcy Smith and in the - as director of sales, Rick Prell. (Larry Hemovich):Darcy's already been with the company so but Rick is a new addition? Nick Curtis: No, Rick was actually with the company on the marketing side and he has a lot of sales management - very strong sales management experience. (Larry Hemovich):So what I'm hearing you say is you've promoted some people from within? Nick Curtis: Yes. And like I say restructured when we put the departments together so it really has increased our efficiencies and really, you know, we're not having to go out and incrementally spend in certain areas we looked through and really have been pretty strict with our budgets. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 31 (Larry Hemovich):Okay. Thank you. Operator: Our next question comes from (Koya No) with Presidio Management. Please go ahead. (Van Brady): This is (Van Brady). Dave, I have a question for you that came up as a result of my having a conversation with one of the analysts that was - been very involved with LASIK early on. And I asked him about procedure and it was his opinion he felt that many of the doctors that have been comfortable with LASIK would kind of weigh pretty heavily just what risks there were long-term in introducing a foreign body in the eye in particularly as much as there hadn't been any real long-term results with it. Is this - how much of an issue is this in your dialogue with practitioners et cetera for the long-term uptake of the ICL? David Bailey: Yes. Hi, (Van). It's a great question. Unfortunately I think you'll get different answers from different people but I'll have a shot at that. First off, if you're going to put something in the eye, you've got to be sure that it's highly biocompatible and is not going to create any kind of inflammatory reaction. And the ICL is made in that sense from what we regard as a perfect material. The real comparison is whether you attack the window to the eye - the cornea, which is anatomically perfect. It might not have enough refractive power but it's functioning perfectly. And what are the risks associated that - with that versus the risks of putting an implant in the eye. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 32 Now from STAAR's point of view, we believe we have the best technology, the best lens, and the best material to minimize the risks of putting a lens in the eye. And so on that - and certainly our clinical data shows that. Putting aside the patient satisfaction levels in terms of the quality of the outcomes and the fact that people can see more lines on the chart than they could often with their glasses before - over 50% of them fall into that category. You have - we have clearly looked during the clinical trial at inflammatory reactions, side effects, complication profiles, and we feel very good about those. I mean any surgical procedure has risk and can result in complications. The real question is what's the balance of risk versus benefit. And that has to be weighed for both a corneal based procedure and an intraocular procedure. What I can tell you is that there is a significant move within ophthalmology that says refractive surgery is going to go inside the eye of one form or another, surgeons are very keen to look at implants going in towards to the eye rather than staying on the cornea. It's amazing how five years ago a corneal based procedure would have - was when I introduced LASIK in Europe, the corneal based procedure was viewed as extremely radical. Ophthalmologists were always taught to leave the cornea intact. So for sure there's concern over going inside the eye. I think we've got an exceptionally well performing product, which has a low complication profile versus the benefits and therefore I think people will choose to do that. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 33 And I think people will now - once you get a phakic implant approved in the U.S. people will have a comparison, they will have an alternative, they will have an option to the current corneal procedures. And they will be able to see in their patients the differences. And I think as I've said, an intraocular procedure with an ICL will hold up very well in terms of a low complication profile and excellent outcomes. Sorry, (Van), a long answer to your question but hopefully that gives you a feel for my view on that. (Van Brady): Well, okay, Dave, thanks very much. David Bailey: Welcome. Thank you. Operator: Our next question is a follow up question from (Vivian Wolf). Please go ahead. (Vivian Wolf): Hi, this is to both Nick and Dave. Nick, with the injector really delayed until it looks like November, is it fair to say that most of the growth or all the growth comes from the OUS market? And if I look at the projections that you had given earlier for the international refractive business to double, if it's running up - what was it running up in the forties year-over- year, up 42% year over year? I mean for you to make a doubling implies a very healthy growth rate coming out of Q4 so I'm just wondering if you could both comment on those two assumptions? David Bailey: Well, let me just reiterate - related to your question let me just reiterate a couple of points I made and then Nick may want to comment. We do expect some growth in the base IOL business in the U.S. in the second half versus the first half. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 34 And that growth is come - going to come from a continuation of a positive trend on the speciality lenses. And then a stemming of the decrease on the silicone, specifically the plate, and actually gaining back some lost business on that. That's going to come because we do have a robust fix to those injector issues, which is going to drive incremental. The injector that's delayed it really gives an acceleration to the growth rate on the speciality lenses because it makes us competitive with the three-piece collamer and the growth rates I quoted are based on only the one-piece collamer. So you're going to increase dramatically the growth rate once we get that injector. (Vivian Wolf): So is the injector - the new injector on the silicone that you introduced I think in - late in Q2 is that - what kind of response are you seeing from that in the market? David Bailey: Well as I said in my text, (Vivian), we introduced that and then on both that injector and the one for the plate, we had inconsistency of lubricity. So we've got to fix that inconsistency of lubricity on both for you to see the merits of the... (Vivian Wolf): On both - on the silicone and the collamer? David Bailey: On the silicone for the three-piece and on the silicone for the plate. And we expect - we have a fix for that and we expect that to give us real growth on silicone in the second half. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 35 We also expect continued growth with the collamer plate and then that will get accelerated when we come out with the three-piece injector, which is the one that's being delayed. So the real downside or risk that we're looking at is the fact that we've been delayed on that three-piece injector by a few months. (Vivian Wolf): Okay. And then on international, Dave, are you still - I mean the fourth quarter has to be a hell of quarter to double the international refractive business? David Bailey: Yes, I mean we're expecting a lot from the ICL internationally. We've put a lot of work in. We had good growth in the first six months despite the fact we know that refractive procedures slowed down in Asia because of that whole SARS thing. And we also know that it slowed down in some of the hotter European countries like Spain and Italy, that that's starting to pick up. We also know that we've done reasonably well in some markets to bring them back like South Africa and then we're taking some steps in two countries in particular, which is Italy and France, where we've had some growth but we know we've been limited because of the distribution channel we're move - we're using. So we're going - we've actually started to open up additional channels in those two countries so that the product can reach its full potential. So yes it - there - we've got a lot going on and we're expecting a lot, (Vivian). (Vivian Wolf): Okay. David Bailey: But the interest in the product and the results we're getting now with the repositioning on the V4 and the fact that we have the Toric all augur well for growth. Whether we'll get STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 36 exactly a doubling remains to be seen but certainly we'll be pushing out to get that. (Vivian Wolf): Okay. Fair enough. Thank you. David Bailey: Thanks, (Vivian). Operator: Ladies and gentlemen, if there's any final questions, please press the star followed by the 1 on your telephone keypad. As a reminder, if you're using speaker equipment, please lift the handset before pressing the numbers. At this time, it looks like we have no further questions. I'll turn the conference back over to David Bailey for any closing comments. Please go ahead. David Bailey: Thank you. Thank you for those very strong questions. In line with prior calls, I'll just finish up by reiterating some milestones for investors to use going forward. For the ICL, our next milestone is obviously going to panel. We expect to be reviewed in the very near future. You should continue to look for ICL approvals in Taiwan and Australia but as I explained Taiwan is delayed as well as an expansion of the Canadian and the Korean approvals to include the Toric ICL. We also recommend that you watch for new peer review articles, which will further build the case for the ICL against other procedures and against other phakic implants. For the Toric, we aim to close enrollment in the U.S. study by the end of the year and that's well on track. The silicone IOL's expected to begin gaining back lost plate business as I answered to (Vivian)'s question and to gain overall market share in the second half. STAAR SURGICAL Moderator: Doug Sherk 07-31-03/3:30 pm CT Confirmation #544651 Page 37 For the Collamer, expect the growth rate to continue pending the introduction of the three-piece collamer injector by the AA in November. After which we would expect to see an acceleration in the current growth rates. Look for the phased introduction of a limited number of direct sales people in the U.S. to further strengthen the sales and proctoring efforts and for our consequential incremental spend as we indicated. We will be further strengthening international sales channels as I talked to in Europe, particularly in Italy and France. All of this is aimed at removing limitations for growth of the ICL and the Toric ICL in these markets. Expect increased proctoring activity for the AquaFlow to halt the sales decline we have seen in the first month - six months, sorry. That's a great product that delivers exceptional outcomes but once - but which demands dedicated resource as I had indicated in one of the answers to the questions. And see us continue to make overall progress with the business. And we look forward to updating you on that progress on future calls. Thank you very much. Operator: Ladies and gentlemen, this concludes the STAAR Surgical second quarter 2003 earnings conference. If you would like to listen to a replay, you may dial 1-800-405-2236 or international participants may dial 303-590-3000 using pass code 544651. Thank you again for your participation on today's conference and you may now disconnect. END -----END PRIVACY-ENHANCED MESSAGE-----