10-Q 1 uvic10q.htm FORM 10-Q uvic10q.htm - Generated by SEC Publisher for SEC Filing

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 (Mark One)

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2012

OR

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-17861 

 

 

UNILENS VISION INC.

(Exact name of registrant as specified in its charter)

   

 

 

 

 

Delaware

 

27-2254517

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

10431 72nd Street North, Largo, Florida

 

33777-1511

(Address of principal executive offices)

 

(Zip Code)

Registrant's telephone number, including area code: (727) 544-2531 

 

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.    þ  Yes    ¨ No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     þ Yes    ¨ No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨ 

  

Accelerated filer  ¨ 

  

Non-accelerated filer  ¨ 

  

Smaller reporting company  þ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨ Yes    þ  No  

As of November 14, 2012 there were 2,369,354 outstanding shares of common stock.


 

1


 
 

 

UNILENS VISION INC.

                                                                                                                               

FORM 10-Q

                                                                                                                               

For the Quarterly Period Ended September 30, 2012

                                                                                                                               

INDEX

                                                                                                                               

 

  

 

  

 

Page

Part I.

  

Financial Information

 

 

 

 

 

 

 

 

 

 

  

Item 1.

 

Unaudited Financial Statements

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income and Changes in Accumulated Deficit

4

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

 

 

 

 

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

6

 

 

 

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

10

 

 

 

 

 

 

 

  

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

 

 

 

 

 

 

 

  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

13

 

 

 

 

 

 

 

  

Item 4.

 

Controls and Procedures

13

 

 

 

 

 

 

 

 

 

 

 

 

Part II.

  

Other Information

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

14

 

 

 

 

 

 

 

  

Item 1A.

 

Risk Factors

14

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

14

 

 

Item 3.

 

Defaults Upon Senior Securities

14

 

 

Item 4.

 

Mine Safety Disclosures

14

 

 

Item 5.

 

Other Information

14

 

  

Item 6.

 

Exhibits

14

 

 

 

 

 

 

 

 

 

 

 

 

Signatures

 

 

 

 

15

2


 


PART I – FINANCIAL INFORMATION

Item 1 – Unaudited Financial Statements

 

Unilens Vision Inc.

Condensed Consolidated Balance Sheets

September 30, 2012 (Unaudited) and June 30, 2012

 

September 30, 2012

 

June 30, 2012

ASSETS

 

 

 

 

 

Current

 

 

 

 

 

Cash and cash equivalents

$

539,061

 

$

374,977

Accounts receivable, net of allowance of $88,638 and $101,117

 

 

 

 

at September 30, 2012 and June 30, 2012, respectively

728,972  

778,300  

Royalties and other receivables

 

529,377

 

 

619,939

Inventories

 

590,758

 

 

574,732

Prepaid expenses

 

107,044

 

 

51,484

Income taxes receivable

 

-

 

 

53,883

Deferred loan costs – current

 

11,853

 

 

11,853

Deferred tax asset – current

 

157,300

 

 

162,100

Total current assets

 

2,664,365

 

 

2,627,268

Property, plant, and equipment, net of accumulated depreciation of $4,986,244

 

 

 

 

 

and $4,939,067 at September 30, 2012 and June 30, 2012, respectively

 

966,619

 

 

996,072

Deferred loan costs

 

43,198

 

 

46,161

Other assets

 

159,351

 

 

154,843

Total assets

$

3,833,533

 

$

3,824,344

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

Current

 

 

 

 

 

Accounts payable

$

347,263

 

$

262,047

Accrued wages and employee benefits

 

242,901

 

 

264,097

Deferred income

 

415,785

 

 

409,879

Income taxes payable

 

35,094

 

 

-

Other accrued liabilities

 

77,535

 

 

55,119

Line of credit

 

-

 

 

81,441

Note payable – current

 

700,000

 

 

700,000

Total current liabilities

 

1,818,578

 

 

1,772,583

Accrued wages and employee benefits

 

114,908

 

 

113,097

Note payable – long-term

 

2,566,667

 

 

2,741,667

Deferred tax liability

 

73,500

 

 

85,500

Total liabilities

 

4,573,653

 

 

4,712,847

Stockholders’ deficit

 

 

 

 

 

Capital stock

 

 

 

 

 

Preferred shares, par value $0.001 per share; 3,000,000 shares authorized;

 

 

 

 

 

no shares issued and outstanding

- 

Common shares, par value $0.001 per share; 30,000,000 shares authorized;

 

 

 

 

 

shares issued and outstanding 2,369,354

2,369 

2,369 

Additional paid-in capital

 

20,286,663

 

 

20,286,663

Deficit

 

(21,029,152)

 

 

(21,177,535)

Total stockholders’ deficit

 

(740,120)

 

 

(888,503)

Total liabilities and stockholders’ deficit

$

3,833,533

 

$

3,824,344



The accompanying notes are an integral part of these unaudited interim consolidated financial statements

 

  3


 
 
Table of Contents

Unilens Vision Inc.

Condensed Consolidated Statements of Income and Changes in Accumulated Deficit

For Three Months Ended September 30, 2012 and 2011

 (Unaudited) 

 

 

Three Months

Ended

September 30,

2012

 

Three Months

Ended

September 30,

2011

Revenues:

 

 

 

 

 

Sales

$

1,509,654

 

$

1,576,530

Royalty income

 

528,957

 

 

631,200

Total revenues

 

2,038,611

 

 

2,207,730

Operating costs and expenses:

 

 

 

 

 

Cost of sales

 

890,766

 

 

930,065

Sales and marketing

 

370,955

 

 

361,222

Administration

 

345,668

 

 

343,285

Research and development

 

20,014

 

 

20,958

Total operating costs and expenses

 

1,627,403

 

 

1,655,530

Operating income

 

411,208

 

 

552,200

Other non-operating items:

 

 

 

 

 

Other income (expense)

 

1,630

 

 

1,030

Net interest expense

 

(31,057)

 

 

(70,794)

Total other non-operating items:

 

(29,427)

 

 

(69,764)

Income before income tax expense

 

381,781

 

 

482,436

Income tax expense

 

126,777

 

 

158,982

Net income for the period

 

255,004

 

 

323,454

Deficit, beginning of period

 

(21,177,535)

 

 

(21,894,989)

Dividends paid

 

(106,621)

 

 

(106,621)

Deficit, end of period

$

(21,029,152)

 

$

(21,678,156)

Net income per common share:

 

 

 

 

 

Basic

$

0.11

 

$

0.14

Diluted

$

0.11

 

$

0.14

Weighted average number of common shares outstanding during the period:

 

 

 

 

 

Basic

 

2,369,354

 

 

2,369,354

Effect of dilutive options

 

-

 

 

-

Diluted

 

2,369,354

 

 

2,369,354

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

 4


 
 
Table of Contents

Unilens Vision Inc.

Condensed Consolidated Statements of Cash Flows

For Three Months Ended September 30, 2012 and 2011

(Unaudited)

 

 

 

 

 

 

 

 

Three Months

Ended

September 30,

2012

 

Three Months

Ended

September 30,

2011

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income for the period

$

255,004

 

$

323,454

Items not affecting cash:

 

 

 

 

Depreciation and amortization

 

47,178

 

 

29,960

Deferred tax expense

 

(7,200)

 

 

48,400

Change in working capital items

 

249,889

 

 

316,510

Net cash provided by operating activities

 

544,871

 

 

718,324

Cash Flows from Investing Activities

 

 

 

 

 

Purchase of property, plant and equipment and other assets

 

(17,725)

 

 

(350,193)

Net cash used in investing activities

 

(17,725)

 

 

(350,193)

Cash Flows from Financing Activities

 

 

 

 

 

Repayment of borrowings under term loan

 

(175,000)

 

 

(164,286)

Net repayments under line of credit

 

(81,441)

 

 

-

Common stock dividends paid

 

(106,621)

 

 

(106,621)

Net cash used in financing activities

 

(363,062)

 

 

(270,907)

Change in cash and cash equivalents during the period

 

164,084

 

 

97,224

Cash and cash equivalents, beginning of period

 

374,977

 

 

601,360

Cash and cash equivalents, end of period

$

539,061

 

$

698,584

Supplemental cash flow disclosure information:

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

Change in fair value of interest rate swap

$

-

 

$

(13,924)

Cash paid during the period for interest

$

28,663

 

$

65,615

Cash paid during the period for income taxes

$

45,000

 

$

-

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

  5


 

 

Unilens Vision Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2012

(Unaudited)

Note 1 — Basis of Presentation and Consolidation

 

Basis of Presentation

 

Unilens Vision Inc. operates through our wholly-owned subsidiary, Unilens Corp. USA, located in Largo, Florida. The accompanying consolidated financial statements (the “Financial Statements”) for the interim periods ended September 30, 2012 and 2011 (the “Interim Period”) are i) prepared on the basis of accounting principles generally accepted in the United States, ii) conform in all material respects with accounting principles generally accepted in Canada, and iii) are unaudited, but in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial position, operations, and changes in financial results of the Interim Period.  The Financial Statements are not necessarily indicative of the results to be expected for the full year.  The Financial Statements do not contain the detail or footnote disclosure concerning accounting policies and other matters which would be included in full year financial statements, and therefore should be read in conjunction with our audited financial statements for the year ended June 30, 2012. Additional information concerning us is contained in the Management Discussion and Analysis included in this quarterly report. 

 

Basis of Consolidation

 

These consolidated financial statements include the accounts of Unilens Vision Inc. and its wholly-owned subsidiary, Unilens Corp. USA and its wholly-owned subsidiary, Unilens Vision Sciences Inc. All significant intercompany transactions and balances have been eliminated in consolidation. 

 

 

Note 2 — Stock-Based Compensation, Stock Options and Stock

 

Stock-based payments are recorded using the fair value method of accounting for stock options.  Under this method, in addition to reflecting compensation expense for new share-based awards, expense is also recognized to reflect the remaining vesting period of awards that had been included in pro-forma disclosures in prior periods. There was no   stock compensation expense attributable to stock options charged against income for the fiscal quarters ended September 30, 2012 and 2011, since no options were granted during such periods and all options outstanding at the beginning of such periods were fully vested.

 

Stock Option Plan and Stock Options

We have adopted a stock option plan (the “Stock Option Plan”).  The purpose of the Stock Option Plan is to advance the interests of the Company by providing directors, officers, employees and consultants with a financial incentive to continue to improve the performance of the Company and encourage them to remain with the Company.  The term of any option granted under the Stock Option Plan may not exceed 10 years.  The exercise price of each option must equal or exceed the market price of our stock as calculated on the date of grant. The maximum number of our common shares reserved for issuance under the Stock Option Plan cannot exceed 10% percent of our issued and outstanding common shares.  Options, in general, vest immediately except options granted to consultants performing investor relations activities vest at a minimum over a period of at least 12 months, 25% at the end of each three-month period.  No more than 5% of our issued and outstanding capital stock may be granted to any one individual in any twelve-month period and no more than 2% of our issued and outstanding capital stock may be granted to any one consultant in any twelve-month period.  

 

 6


 

Unilens Vision Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 2012

 (Unaudited) 

 

At the Annual General Meeting of Shareholders held on March 25, 2010, the shareholders approved the Unilens’ Incentive Stock Option Plan. The initial maximum number of shares available for option grants under the Stock Option Plan is 236,935.

 

The following table describes the number and the exercise price of options that have been granted, exercised, or cancelled under the Stock Option Plan approved on March 25, 2010 during the three month period ended September 30, 2012:

 

 

 

 

 

 

 

 

Number of

Options

 

Weighted Average Exercise Price

 

Weighted Average Remaining Life

Outstanding, beginning of year

160,000

 

$4.83

 

7.67 Years

Exercised

-

 

 

 

 

Granted

 

 

 

 

 

Directors/Employees

-

 

 

 

 

Consultants

-

 

 

 

 

Sub-total granted

-

 

 

 

 

Expired/cancelled

-

 

 

 

 

Outstanding, end of period

160,000

 

$4.83

 

7.42 Years

Options exercisable, end of period

160,000

 

$4.83

 

7.42 Years

 

As of September 30, 2012 we have 160,000 options outstanding and an additional 76,935 options available for future grants under the existing Incentive Stock Option Plan.

 

There was no cash proceeds, related to options exercised during the three months ended September 30, 2012, as no options were exercised.

 

The following table describes the number of options, exercise price, and expiry date of the options granted by the Company that were outstanding at September 30, 2012

 

Number

of Options

 

Vested

Exercise

Price

Expiry Date

160,000

160,000

$4.83

March 1, 2020

 

We use the Black-Scholes pricing model to estimate the fair value of stock-based awards. The expected volatilities are based on the historical volatility of our stock price. Historical data is used to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is based on historical exercise patterns of employees and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U S Treasury yield curve in effect at the time of the grant. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

As of September 30, 2012 the aggregate intrinsic value of options outstanding and options exercisable were both zero since the closing price of our common shares on that date of $3.25 were less than the exercise price.

 

7


 

 

Table of Contents


Unilens Vision Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 2012

(Unaudited)

 

 

Note 3 — Income per Common Share

 

Basic income per common share is calculated by dividing the income for the period by the weighted-average number of common shares outstanding during the period.

 

Diluted income per common share is calculated using the treasury stock method.  Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of diluted income per share assumes that the proceeds to be received on the exercise of dilutive stock options and warrants are used to repurchase common shares at the average market price during the period.

 

Note 4 — Inventories 

 

 

 

 

 

 

 

 

As at September 30, 2012

 

As at June 30,

2012

Raw materials

$

260,615

 

$

295,742

Work in progress

 

28,328

 

 

29,005

Finished goods

 

315,092

 

 

262,928

 

 

604,035

 

 

587,675

Less allowance for obsolescence

 

13,277

 

 

12,943

 

$

590,758

 

$

574,732

 

 

 

 

 

 

 

Note 5 — Supplemental Disclosure with Respect to Cash Flows

 

 

 

 

 

 

 

 

 

Three Months

Ended

September 30,

2012

 

Three Months

Ended

September 30,

2011

 

 

 

 

Cash provided by (used in):

 

 

 

 

 

Accounts and royalties and other receivables

$

139,891

 

$

484,086

Inventories

 

(16,026)

 

 

(8,281)

Prepaid expenses and other assets

 

(57,106)

 

 

(67,505)

Accounts payable and accrued liabilities

 

94,153

 

 

(202,372)

Income taxes payable

 

88,977

 

 

110,582

Change in working capital items

$

249,889

 

$

316,510


 

  8


 


Unilens Vision Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 2012

(Unaudited)

 

Note 6 — Revenue Information

 

All of our assets and operations are located in the United States in one business segment. Our revenues are derived from royalty income received from our exclusive agreement with Bausch + Lomb Incorporated (“Bausch + Lomb”), for the use of our patented multifocal designs and technology, and from sales from our specialty optical lens business, which manufactures and distributes optical products that use our proprietary design and manufacturing technology. Sales from our specialty optical lens business come from the following lens categories, for the three months ended September 30, 2012 and 2011:

 

 

Three Months

 Ended

September 30,

2012

 

Three Months

 Ended

September 30,

2011

Disposable lenses

$

820,725

 

$

899,583

Custom soft lenses

 

471,604

 

 

408,119

Gas permeable lenses

 

81,766

 

 

98,305

Replacement and other lenses

 

135,559

 

 

170,523

Total sales

$

1,509,654

 

$

1,576,530

 

Note 7 — Term Loan, Line of Credit and Interest Rate Swap

 

On May 23, 2012, the Company closed on a new $3,500,000 5-year term loan facility and a $1,500,000 line of credit with Hancock Bank, which replaced the term loan facility and line of credit then in place with Regions Bank. Costs related to the Hancock Bank term loan facility and line of credit, were $59,265, which are amortized over the life of the 5-year term loan facility. The minimum monthly principal payments under the Hancock Bank term loan facility are $58,333, plus accrued interest. The Hancock Bank term loan and line of credit both bear interest at a floating rate of 30-day LIBOR plus 3.00%.

 

Monthly interest only payments are due under the Hancock Bank line of credit, with the maximum borrowings at any time not to exceed the lesser of (i) $1,500,000 or (ii) a sum equal to 85% of Eligible royalty receivables, plus 75% of Eligible Accounts Receivables plus 50% of Eligible Raw Material and Finished Goods Inventory. The maximum borrowing amount under this line of credit facility at September 30, 2012 was $1,034,000. The Company expects to extend this line of credit which expires on February 1, 2013.

 

The term loan and the line of credit are secured by a security interest in favor of Hancock Bank in our inventory, accounts receivable, general intangibles, cash and principal United States patent. Under the term loan facility and the line of credit, the Company is required to meet customary covenants regarding, among other things, tangible net worth, fixed charge coverage, dividend distributions and the requirement of lender consent for significant transactions such as mergers, acquisitions, dispositions and other financings.

 

The Company was in compliance with all financial covenants and had no outstanding balance on the Hancock Bank line of credit, and $3,266,667 outstanding on the term loan at September 30, 2012.

 

Note 8 — Recent Accounting Standards

 

Recent codified pronouncements by the FASB are not believed by management to have a material impact on the Company’s present or future financial statements.

 

 

Note 9 — Subsequent Event

 

On November 1, 2012, our Board of Directors declared our regular quarterly cash dividend, at the rate of $0.045 per common share, payable November 23, 2012, to stockholders of record at the close of business on November 12, 2012. This is the 25rd consecutive quarterly cash dividend declared.

 

 9


 

Report of Independent Registered Public Accounting Firm

 

 

 

 

Board of Directors

Unilens Vision Inc.

Largo, Florida

  

 

We have reviewed the accompanying condensed consolidated balance sheet of Unilens Vision Inc. as of September 30, 2012 and the related condensed consolidated statements of income and changes in accumulated deficit for the three month periods ended September 30, 2012 and 2011 and the condensed consolidated statements of cash flows for the three month periods ended September 30, 2012 and 2011. These condensed consolidated financial statements are the responsibility of the management of Unilens Vision Inc. 

 

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole.  Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Unilens Vision Inc. as of June 30, 2012 and the related consolidated statements of income, stockholders’ deficit, and cash flows for the year then ended (not presented herein); and in our report dated September 28, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed  consolidated balance sheet as of June 30, 2012 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

 

/s/ Pender Newkirk & Company LLP

 

Pender Newkirk & Company LLP

Certified Public Accountants

Tampa, Florida 

November 14, 2012

 

10

 


 


Table of Contents

Item 2 – Management’s Discussion & Analysis of Financial Condition and Results of Operations

 

The following management discussion and analysis (“MDA”) provides information on the activities of Unilens Vision Inc. and should be read in conjunction with our quarterly condensed consolidated financial statements and notes thereto for the three months ended September 30, 2012 (the “Financial Statements”), as well as our Annual Report on Form 10-K for the fiscal year June 30, 2012, filed with the Securities and Exchange Commission.  The Financial Statements have been prepared in United States dollars and in conformity with United States generally accepted accounting principles (“US GAAP”). Unless otherwise indicated, all dollar amounts disclosed in this MDA are expressed in United States Dollars.

 

Operating results are not necessarily indicative of results that may occur in future periods. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in the forward-looking statements as a result of many factors including, but not limited to, those set forth under “Cautionary Statement About Forward-Looking Statements” and “Risk Factors” in Item 1A. included in our Annual Report on Form 10-K. All forward-looking statements included in this document are based on the information available to us on the date of this document and we assume no obligation to update any forward-looking statements contained in this Quarterly Report on Form 10-Q.

 

Overview

 

We license, manufacture, distribute and market specialty optical lens products using our proprietary design and manufacturing technology. Our products are sold primarily in the United States solely to eye care professionals through in house sales representatives and a network of distributors. Our lens products are marketed as a family of specialty vision correction products that can serve the majority of the population’s vision correction needs. Our specialty optical lens business is divided into four categories: (i) disposable lenses; (ii) custom soft lenses; (iii) gas permeable lenses; and (iv) replacement and other lenses. During the three months ended September 30, 2012 the Company’s C-Vue disposable products accounted for approximately 54% of sales.

Sales of our specialty optical lens products accounted  for the largest percentage of our total revenues, constituting approximately 74% while royalty income derived from our exclusive license of our patented multifocal design to Bausch + Lomb was approximately 26% during the three months ended September 30, 2012.

Economic conditions in the United States have restrained our growth. We are however optimistic about the long-term outlook for the contact lens market and the specialty contact lens market, in particular.

 

Market demographics indicate that speciality contact lenses will continue to be the fastest growing segment of the contact lens market. Specialty contact lenses include toric, toric multifocal, and cosmetic lenses. We believe that our custom soft speciality lenses including our C-Vue multifocal lens for presbyopia, our C-Vue custom toric lens for correcting astigmatism and the C-Vue Advanced toric multifocal lens, will grow over time due to market demographics favoring  specialty lenses and our patented multifocal technology.  

 

We believe market demographics favoring specialty contact lenses will continue to drive our revenue and earnings. In January 2011, we launched our new C-VUE Advanced® HydraVUE™ line of silicone hydrogel custom contact lenses for monthly replacement. They are completely customizable, and feature a risk-free trial program, and sales have grown steadily during the 2012 fiscal year and into the first quarter of the 2013 fiscal year.

A significant portion of our net income is derived from our exclusive license with Bausch + Lomb and such royalty income is a major component of our profitability. However, there can be no assurance, that such royalty income from Bausch + Lomb will grow or that Bausch + Lomb will continue to sell products in the future utilizing our technology.

The contact lens market is highly competitive.  We compete with industry leaders, such as Vistakon, Inc. a unit of Johnson and Johnson Vision Care, Inc., Bausch + Lomb, Alcon Laboratories, Inc., a division of Novartis AG, and Cooper Vision, Inc., a unit of Cooper Vision Companies, Inc.  Our ability to compete successfully is dependent in part on eye care professionals’ perceptions of product quality, product development, technical innovation, and price.   

We have a supply agreement with one supplier for the manufacture of our molded C-Vue multifocal lens, which currently accounts for approximately 46% of our quarterly sales.  The agreement is renewable from year to year and is terminable pursuant to customary termination clauses. Although to date the supplier has met our requirements, there can be no assurances that it will continue to do so.

 

                                                                                                                                                              
11


 

 

Table of Contents

 

First Quarter Highlights

 

·         Sales for the first quarter of fiscal 2013 were $1.5 million or 4.2% less than the first quarter of fiscal 2012.

·         Custom soft lens sales increased 15.6% while the disposable lens category declined 8.8%.

·         Royalty income for 2013 declined 16.2% compared to the first quarter of 2012, resulting in a decline in total revenue of 7.7% to $2.0 million.

·         Operating expenses increased 1.5% compared to the first quarter of fiscal 2012.

·         Interest expense was 56% less when compared to the first quarter of fiscal 2012, due to lower debt levels and the Hancock bank refinancing in May, 2012.

·         Net income decreased 21.2% compared to the first quarter of fiscal 2012.

·         Earnings per share were $0.11 compared to $0.14 in the first quarter of fiscal 2012.

·         Paid our 24th consecutive quarterly dividend, at $0.045 per share in August 2012. On November 1, 2012 we declared our 25th consecutive quarterly dividend, at an annual rate of $0.18 per share or $0.045 per share quarterly, a dividend yield of 5.5% based on the October month end closing price of $3.27.

 

Results of Operations

The following table sets forth, for the periods indicated, certain data derived from our Condensed Consolidated Statements of Income and Changes in Accumulated Deficit and certain of such data expressed as a percentage of total revenues:

 

 

Three Months Ended September 30

 

2012

 

2011

 

$

% of Revenues

 

$

% of Revenues

Revenues

2,038,611

100.0

 

2,207,730

100.0

Operating costs and expenses

1,627,403

  79.8

 

1,655,530

  75.0

Operating income

   411,208

  20.2

 

   552,200

  25.0

Other non-operating items

     (29,427)

    (1.4)

 

     (69,764)

    (3.2)

Income before income tax expense

   381,781

  18.8

 

   482,436

  21.8

 

The following table sets forth, for the periods indicated, certain data derived from our Condensed Consolidated Statements of Income and Changes in Accumulated Deficit and certain of such data expressed as a percentage of sales:

 

 

Three Months Ended September 30

 

2012

 

2011

 

$

% of Sales

 

$

% of Sales

Sales

1,509,654

100.0

 

1,576,530

100.0

Cost of sales

   890,766

  59.0

 

   930,065

  59.0

Sales and marketing

   370,955

  24.6

 

   361,222

  22.9

Administration

   345,668

  22.9

 

   343,285

  21.8

Research and development

     20,014

    1.3

 

     20,958

    1.3

 

First Quarter

During the three months ended September 30, 2012 (the “Current Quarter”) we earned income before tax of $381,781 compared to income before tax of $482,436 for the three months ended September 30, 2011 (the “Prior Quarter”).  The decrease in income before tax during the Current Quarter of $100,655 was primarily from the decrease in royalty income from Bausch + Lomb of $102,243 to $528,957 in the Current Quarter as compared to $631,200 in the Prior Quarter, (ii) an decrease in gross margin of $27,577 from lower sales (iii) excluding cost of sales, a increase in expenses of $11,172 as described below, and (iv) a decrease in other items primarily interest expense, and other income of $40,337. After recording income tax expense of $126,777, we had net income of $255,004 or $0.11 per diluted share, for the Current Quarter. In comparison, in the Prior Quarter we had net income of $323,454 or $0.14 per diluted share after recording income tax expense of $158,982.

 

Sales during the Current Quarter were $1,509,654, a decrease of $66,876 (4.2%), as compared to sales of $1,576,530 during the Prior Quarter. The disposable lens category decreased by 8.8% as sales of our C-Vue disposable multifocal lenses continue to be affected by competition from competitor product offerings and promotional programs. Our custom soft lens category increased by 15.6%, primarily due to increased demand of our new C-Vue Advanced® HydraVUE™ line of silicone hydrogel custom contact lenses for monthly replacement, launched over a year ago in January of 2011. Our  gas permeable lens category decreased 16.8% primarily due to the continued overall decline in gas permeable fits in the contact lens industry. The replacement and other lens category decreased as expected by 20.5% due to the expected decline in product lines that are nearing the end of their life cycle, offset some by sales increases for Unilens replacement products due to the discontinuation of replacement lens products from several of our competitors.

 

                                                                                                                                                            
  
12


 

 

 

Gross margin was flat at 41.0% in the Current Quarter compared to the same 41.0% in the Prior Quarter, due primarily to manufacturing improvements implemented during the Current Quarter offset by lower margins.

 

During the Current Quarter, as compared to the Prior Quarter, expenses increased 1.5% or $11,172. Administrative expenses increased $2,383 primarily due to increases in payroll and related expenses offset by decreases in corporate governance expenses. Sales and marketing expenses increased $9,733 primarily due to advertising costs associated with a new corporate logo and future new product launches while research and development expenses decreased $944 during the Current Quarter, as compared to the Prior Quarter.

 

We record income tax and income taxes payable at the statutory rates. During the Current Quarter and the Prior Quarter we recorded income tax expense of $126,777 and $158,982, respectively. The effective tax rate for the Current Quarter and Prior Quarter was 33.2% and 33.0%, respectively

 

Liquidity and Capital Resources

 

Cash and cash equivalents were $539,061 at September 30, 2012 compared to $ 374,977 at June 30, 2012.  The following is a summary of the change in our cash and cash equivalents:

 

 

September 30,

 

2012

 

2011

Net cash provided by operating activities

$

544,871

 

$

718,324

Net cash used in investing activities

 

(17,725)

 

 

(350,193)

Net cash used in financing activities

 

(363,062)

 

 

(270,907)

Net decrease in cash and cash equivalents

$

164,084

 

$

97,224

 

As of September 30, 2012, we had working capital of $845,787 representing a decrease of $8,898 from our working capital at June 30, 2012. The decrease in working capital was due to an increase in cash, and the payoff of the line of credit, offset by decreases in accounts receivable, royalty and other receivables, and an increase in accounts payable. 

 

During the three months ended September 30, 2012, we generated $544,871 positive cash from operations representing a decrease of $173,453 from $718,324 generated during the Prior Quarter. The decrease was due primarily to the reduction of royalty and other receivables in the Current Quarter, compared to the Prior Quarter which included the payment of the one-time price correction recorded in the fourth quarter of fiscal year 2011, offset by increases in accounts payable and accrued expenses.
 
Investing activities for the Current Quarter were for the purchase of capital additions. Cash used for these capital additions were $17,725 a decrease of $332,468 from $350,193 in the Prior Quarter, which was primarily for the  purchase of manufacturing equipment.
 
Financing activities during the Current Quarter consisted primarily of principal repayments of $175,000 on the term loan facility and the payoff of the outstanding balance of $81,441 on the line of credit, compared to term loan repayments of $164,286 in the Prior Year. In addition financing activities in both the Current and Prior Quarters included the payment of $106,621 of dividends to our shareholders. The slightly higher term loan principal repayments are from the May 23, 2012, Hancock Bank refinancing of our term loan and line of credit facilities with a new five-year term loan and line of credit, which increased our term loan principal payments to $58,333 per month from $54,762, while at the same time extending the term of the loan and reducing the interest rate to a floating rate of 30-day LIBOR plus 3.00%. Cash income taxes paid during the Current Quarter were $45,000 compared to no required cash income tax payments paid in the Prior Quarter.

 

Critical Accounting Policies & Estimates

 

This Management’s Discussion and Analysis is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make certain estimates and apply judgment. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our consolidated financial statements.  While we believe the historical experience, current trends and other factors considered, support the preparation of our consolidated financial statements in conformity with generally accepted accounting principles, actual results could differ from our estimates, and such differences could be material.

 

There have been no changes to our critical accounting policies during the first three months of fiscal 2013.

 

For a further discussion of the judgments we make in applying our accounting policies, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our 2012 Form 10-K.

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

 

Our market risks in the normal course of business are related to changes in interest rates, which at September 30, 2012 are similar to those disclosed in the 2012 Annual Report on Form 10-K.

 

Item 4Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(f) under the Exchange Act) as of the end of the period covered by this Quarterly Report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2012.

 

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

13


 

 

 

Part II. Other Information

 

Item 1Legal Proceedings

 

None

 

Item 1ARisk Factors

 

There have been no material changes to the risk factors set forth under Part I, Item 1A of our 2012 Annual Report on Form 10-K.

 

Item 2 –  Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3 – Defaults Upon Senior Securities

 

None

 

Item 4 – Mine Safety Disclosures

 

None

 

Item 5 – Other Information

 

None

Item 6Exhibits 

 

 

 

Incorporated by Reference

 

 

Exhibit No.

Exhibit Description

Form

 

SEC

File No.

 

Exhibit

 

Filing

Date

 

Filed (†) or

Furnished

(‡) Herewith

(as indicated)

3.1

Memorandum, Certificate of Incorporation and Articles of Association of Unilens Vision Inc. (British, Columbia)  

 

20-F

 

001-17861

 

3.1

 

07/03/1989

 

 

3.2

Certificate of Incorporation Unilens Vision Inc. (Delaware)

 

10-K

 

001-17861

 

3.2

 

09/28/2010

 

 

3.3

Unilens Vision Inc. By-Laws (Delaware)

 

10-K

 

001-17861

 

3.3

 

09/28/2010

 

 

31.1

Certification of Michael J. Pecora pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

31.2

Certification of Leonard F. Barker pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

32.1

Certification of Michael J. Pecora pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

32.2

Certification of Leonard F. Barker pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

 

 

 14


 

 

 

Table of Contents


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.

 

 

 

 

UNILENS VISION INC.

 

 

 

    (Registrant)

 

 

 

 

 

 

Date: November 14, 2012

 

By

 

/s/Michael J. Pecora

 

 

Name:

 

Michael J. Pecora

 

 

Title:

 

President and Chief Executive Officer

 

 

 

 

(Principal Executive Officer)

 

 

 

 

 

Date: November 14, 2012

 

By

 

/s/Leonard F. Barker

 

 

Name:

 

Leonard F. Barker

 

 

Title:

 

Vice President, Chief Financial Officer

 

 

 

 

(Principal Financial Officer and

 

 

 

 

Principal Accounting Officer)

 

 

 15