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STAAR Surgical Generates $464,000 in Cash from Operations During Third Quarter

Wednesday, November 4, 2009 General News J E 4
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MONROVIA, Calif., Nov. 2 STAAR Surgical Company (Nasdaq: STAA), a leading developer, manufacturer and marketer of minimally invasive ophthalmic products, today reported that it generated $464,000 in cash from operating activities during the third quarter. The cash generated was the largest amount from operating activities for any quarterly period in the past six years. This achievement was made possible due to continued significant progress in the management of domestic operating expense despite recording over $400,000 in legal expenses during the quarter related to former sales representative litigation, net of approximately $300,000 in estimated insurance recoveries.

Third Quarter Financial Highlights

Recent Visian ICL Highlights

Recent Intraocular Lens (IOL) Highlights

"Our third quarter performance illustrates the continued successful execution in several areas of our overall strategy," said Barry G. Caldwell, President and CEO. "While we have focused sales resources on higher margin products, and our top line was flat versus year ago levels as a result, we generated the most cash from operating activities for any quarter since 2003. We remain vigilant about controlling costs and in the quarter reduced operation expenses by $0.9 million. We still have lots of work to do. One area requiring immediate attention is our gross margins in our international markets. Additional focus will be placed in this area as we finish the year and head into 2010."

"Since we released the nanoFLEX Collamer Aspheric IOL combined with the nanoPOINT Injector System with NTIOL pricing status in the second quarter, we've begun to see increased market interest and sales from this strategically important product line. Our sales team will be asking surgeons to compare their results with the nanoFLEX IOL to their current IOL of choice in ten patients by using standard visual measuring tools. Historically, STAAR had up to 10% domestic market share for IOLs and with a superior product we want to begin moving from our current 3% share level back to the position we earned in the past. Each market share point represents approximately $6 million sales, so if we are successful at moving toward our goal, we will be adding high margin revenue from increased IOL sales," added Mr. Caldwell.

Financial Performance for the Third Quarter Ended October 2, 2009

Gross profit for the third quarter was $9.8 million compared with $10.5 million in the comparable quarter of 2008, which was 54.3% and 57.7% of net sales in respective periods. The decline in gross profit and gross profit margin is primarily due to lower average selling prices in Japan due to intense price competition. Gross profit margin also reflects the negative impact of a 43% increase in sales of preloaded IOLs to international distributors, which carry low profit margins and lower ASPs on IOLs in Germany and Japan due to significant price competition. Factors that had a favorable effect on gross profit margin were increased sales of toric ICLs, favorable mix of ICLs and IOLs versus other products, and higher ASPs on ICLs and IOLs in the US. Gross profit for the first nine months of 2009 was $30.8 million, or 55.6% of net sales, compared with $29.7 million, or 52.4% of net sales in the prior year period. Gross profit for the first nine months of 2008 was negatively impacted by a $1.5 million purchase accounting charge associated with the acquisition of STAAR Japan.

Continued improvement in the management of operating expenses during the third quarter resulted in an approximate $0.9 million or 7.4% reduction from the year ago period. General and administrative expenses were unchanged compared to the third quarter of 2008 despite a $700,000 increase in legal fees associated with former sales representative litigation. These costs were partially offset by $300,000 in negotiated insurance reimbursements. Sales and marketing expenses were reduced by $542,000 during the quarter due to reduced salaries, travel, consulting, commissions, and promotional activities in the US. Research and development expenses declined by $348,000 as a result of reduced salaries, regulatory consulting and legal fees, although the investment level is still approximately 11% of all STAAR manufactured product sales. During the first nine months of 2009, the Company reduced its general and administrative, marketing and selling, and research and development expenses by $4.2 million compared with the same period in 2009 despite spending $1.2 million, net of estimated insurance recovery, in legal fees associated with former sales representative litigation.

Net loss for the third quarter ended October 2, 2009 was $2.0 million or $0.06 per share, compared with $2.2 million, or $0.08 per share for the third quarter of 2008. Non-cash charges for the quarter were $1.3 million or $0.04 per share and included depreciation, amortization and stock-based compensation. For the nine months ended October 2, 2009, the net loss was $4.7 million, or $0.15 per share, compared with a net loss of $13.7 million, or $0.47 per share for the first nine months of 2008. During the first nine months of 2009, non-cash charges were $4.2 million or $0.13 per share. Purchase accounting charges associated with the acquisition of STAAR Japan impacting the first nine months of 2008 were $5.3 million or $0.18 per share.

As of October 2, 2009, the Company reported cash, cash equivalents and restricted cash of $13.0 million compared with $5.2 million at the end of 2008 and $6.7 million at the end of the third quarter of 2008. During the second quarter, the Company raised $8.6 million to fund a restricted deposit to secure potential payment of the judgment in the Parallax case subject to our pending appeal.

Conference Call

The Company will host a conference call and webcast on Tuesday, November 3, 2009 at 10:00 a.m. Eastern Time to discuss the Company's third quarter and current corporate developments. The dial-in number for the conference call is 877-941-2927 for domestic participants and 480-629-9725 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 be available for seven days. This replay can be accessed by dialing 800-406-7325 for domestic callers and 303-590-3030 for international callers, both using passcode 4169709#. To access the live webcast of the call, go to STAAR Surgical's website at www.staar.com. An archived webcast will also be available at www.staar.com.

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 Visian ICL, a tiny, flexible lens implanted to correct refractive errors, as well as innovative products designed to improve patient outcomes for cataracts and glaucoma. Manufactured in Switzerland by STAAR, the ICL is approved by the FDA for use in treating myopia, has received CE Marking and is sold in more than 50 countries. CollamerŪ is the brand name for STAAR's proprietary collagen copolymer lens material. More information is available at www.staar.com.

Safe Harbor

All statements in this press release that are not statements of historical fact are forward-looking statements, including statements about any of the following: projections of earnings, revenue, sales, cash or any other financial items; the plans, strategies, and objectives of management for future operations or prospects for achieving such plans; future sale; prospects for approval of the Visian Toric ICL supplemental premarket approval application, or any other future approval by the FDA or other regulatory agencies; our future 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 our limited capital resources and limited access to financing, the fact that our public accounting firm has expressed doubt about our ability to continue as a going concern in their opinion on our financial statements, the broad discretion of the FDA in approving any medical device and the inherent uncertainty that new devices will be approved, the likelihood of administrative delays, the need in certain future FDA submissions to satisfy additional and potentially costly requirements such as third party audits, the cost of defending pending litigation and satisfying judgment in the event of an adverse ruling, for which we have taken no reserve, the fact that insurance covers only a portion of the cost of pending litigation, cannot cover punitive damages, and may not cover compensatory damages in the event of an adverse ruling; the negative effect of the global recession on sales of products, especially products such as the ICL used in non-reimbursed elective procedures, the challenge of managing our foreign subsidiaries, the risk that sales of our newly introduced products may not restore profitability to our U.S. IOL product line, our ability to overcome negative publicity resulting from warning letters and other correspondence from the FDA Office of Compliance and to demonstrate to the agency that its past concerns have been resolved, the willingness of surgeons and patients to adopt a new product and procedure, and the potential effect of recent negative publicity about LASIK on the demand for refractive surgery in general in the U.S. STAAR assumes no obligation to update its forward-looking statements to reflect future events or actual outcomes and does not intend to do so.

STAAR's current data on the accommodating properties of the Collamer material derive from the reports of individual independent clinicians and have not been subjected to large scale clinical studies. STAAR's current nanoFLEX IOL does not currently have an FDA labeling claim for accommodation. STAAR cannot assure that its further research will support a claim that either its current Collamer lenses or future designs restore the eye's ability to accommodate. If clinical research does not support these claims, or supports only a narrow range of accommodation, STAAR's Collamer accommodation project may not result in increased sales. New lens designs may require clinical research studies and applying for the FDA's premarket approval, which are expensive and could result in delay or denial of approval.

Use of Non-GAAP Information

This news release presents selected items from the Company's Condensed Consolidated Statements of Operations as reported in accordance with U.S. generally accepted accounting principles ("GAAP"), and also on a non-GAAP basis after excluding certain non-recurring expenses, and excluding changes in currency. None of these measures are a substitute for measures determined in accordance with GAAP, and may not be comparable to the same measures as reported by other companies.

When reviewing financial information to assess the effectiveness of initiatives to enhance long-term performance by reducing expenses, management may eliminate the effect of significant non-recurring expenses in order to discern underlying trends. In the 2008 fiscal year, the Company's results were significantly affected by the following non-recurring expenses classified in the GAAP reconciliation table as "purchase A/C [accounting] charges": a $1.5 million purchase accounting charge related to inventory purchased in the acquisition of STAAR Japan, Inc. and a $3.8 million charge for the settlement of a pre-existing distribution arrangement in connection with the STAAR Japan, Inc. acquisition. Because the effect of purchase accounting charges can overwhelm the effect of meaningful trends in the Company's business performance, management evaluates its performance excluding these non-recurring items. The Company believes that this non-GAAP measure is also helpful to investors in discerning underlying trends. The table below shows the effects of the excluded non-recurring items.

The Company conducts a significant part of its activities outside the U.S. It receives sales revenue and pays expenses principally in U.S. dollars, Swiss francs, Japanese yen and Euros. The exchange rates between dollars and non-U.S. currencies can fluctuate greatly and can have a significant effect on our results when reported in U.S. dollars. When preparing its financial statements in conformance with GAAP, the Company translates foreign currency sales and expenses to dollars at the weighted average of exchange rates in effect during the period. As a result, the Company's reported performance may be significantly affected by currency fluctuations. In order to compare the Company's performance from period to period without the effect of currency, the Company will apply the same average exchange rate applicable in the prior period, or the "constant currency" rate to sales or expenses in the current period as well. Because changes in currency are outside of the control of the Company and its managers, management finds this non-GAAP measure useful in determining the long term progress of its initiatives and determining whether its managers are achieving their performance goals. The Company believes that the non-GAAP constant-currency sales results measures provided in this press release are similarly useful to investors to give insight on long term trends in the Company's performance without the external effect of changes in relative currency values. The table below shows sales results calculated in accordance with GAAP, the effect of currency, and the resulting non-GAAP measure expressed in constant currency.

(Tables to Follow)

-- Cash provided by operating activities was $464,000, compared to cash used in operating activities of $1.1 million during the third quarter of 2008. This reflects continuous improvement for the past seven quarters as shown below:

SOURCE STAAR Surgical Company
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