UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2013

OR

Commission File Number 000-17861  

UNILENS VISION INC.

(Exact name of registrant as specified in its charter)

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.

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, 2013 there were 1,750,832 outstanding shares of common stock.

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UNILENS VISION INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2013

Unilens Vision Inc.

September 30, 2013 (Unaudited) and June 30, 2013

For Three Months Ended September 30, 2013 and 2012

 (Unaudited) 

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

4

For Three Months Ended September 30, 2013 and 2012

(Unaudited)

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

5

(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, 2013 and 2012 (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, 2013. 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. There was no   stock compensation expense attributable to stock options charged against income for the fiscal quarters ended September 30, 2013 and 2012, 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 for the continued improvement in the performance of the Company and encouragement for 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.  

At the annual general meeting held on March 25, 2010, the stockholders approved the Unilens’ Incentive Stock Option Plan. The initial maximum number of shares reserved for option grants under the Stock Option Plan is 236,935.

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, 2013 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 30, 2013, 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, 2013 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

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, 2013 (the “Financial Statements”), as well as our Annual Report on Form 10-K for the fiscal year June 30, 2013, 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, 2013 the Company’s C-Vue disposable products accounted for approximately 53 % of sales.

Sales of our specialty optical lens products accounted  for the largest percentage of our total revenues, constituting approximately 77% while royalty income derived from our exclusive license of our patented multifocal design to Bausch + Lomb was approximately 23% during the three months ended September 30, 2013.

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 specialty contact lenses will continue to be the fastest growing segment of the contact lens market. Specialty contact lenses include multifocal, toric, toric multifocal, and cosmetic lenses. We believe that our specialty disposal and custom soft lenses 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 February 2013, we launched our new silicone hydrogel disposable C-Vue® HydraVUE™ Multifocal contact lens for monthly replacement. The new product continues to incorporate our highly developed, world-class patented multifocal design technology in a silicone hydrogel material, which offers the benefit of higher oxygen transmissibility for better eye health. In January 2011, we launched our 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 and 2013 fiscal years and into the first quarter of the 2014 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. In April 2013, we announced that, we had extended our license agreement with Bausch + Lomb. The amended agreement continues to cover the exclusive worldwide license for our multifocal technology and in addition grants Bausch + Lomb an exclusive worldwide license for our new multifocal technology. Under the terms of the arrangement, existing royalty rates will remain in effect and will apply for both technologies. Bausch + Lomb most recently introduced the PureVision® 2 for Presbyopia in the US, and previously in certain European markets. The new addition to the PureVision portfolio incorporates Bausch + Lomb’s own innovative lens technology, using certain licensed elements of our next generation technology. We expect that this new contact lens offering by Bausch + Lomb will help grow our future royalty income. 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, a unit of Valeant Pharmaceuticals International Inc., 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. This agreement was amended in February 2013 to include silicone hydrogel multifocal lenses. Together these lenses account for a significant portion of our sales (approximately 46% during the 2014 first quarter). 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 assurance that it will continue to meet its obligations under our agreement or as to any renewal of our supply agreement.

First Quarter Highlights

·         Sales for the first quarter of fiscal 2014 were $1.6 million or 4.6% more than the first quarter of fiscal 2013. Disposal lens sales increased 2.3% while the custom soft lens sales category increased 12.8%.

·         Royalty revenue declined 9.3% compared to the first quarter of fiscal 2013, resulting in an increase in total revenue of 1.0% to $2.1 million.

·         Operating expenses increased 2.6% compared to the first quarter of fiscal 2013, primarily due to increases in administration expenses.

·         Interest expense was 15% less when compared to the first quarter of fiscal 2013, due to lower debt levels.

·         Net income decreased 15.9% compared to the first quarter of fiscal 2013.

·         Earnings per share were $0.09 compared to $0.11 in the first quarter of fiscal 2013.

·         Paid our 28^th consecutive quarterly dividend, at $0.045 per share in August 2013. On November 1, 2013 we declared our 29^th consecutive quarterly dividend, at an annual rate of $0.18 per share or $0.045 per share quarterly, a dividend yield of 3.5% based on the October month end closing price of $5.10.

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:

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:

First Quarter

During the three months ended September 30, 2013 (the “Current Quarter”) we earned income before tax of $309,608 compared to income before tax of $381,781 for the three months ended September 30, 2012 (the “Prior Quarter”).  The decrease in income before tax during the Current Quarter of $72,173 was primarily from the decrease in royalty income from Bausch + Lomb of $49,343 to $479,614 in the Current Quarter as compared to $528,957 in the Prior Quarter, (ii) a decrease in gross margin of $10,702 from lower gross margin (iii) excluding cost of sales, an increase in expenses of $18,844 as described below, and (iv) a decrease in other items primarily interest expense, and other income of $6,716. After recording income tax expense of $95,047, we had net income of $214,561 or $0.09 per diluted share for the Current Quarter. In comparison, in the Prior Quarter we had net income of $255,004 or $0.11 per diluted share after recording income tax expense of $126,777.

Financing activities during the Current Quarter consisted primarily of principal repayments of $175,000 on the term loan facility and for working capital purposes net borrowings of $99,964 on the line of credit, compared to term loan and line of credit repayments of $175,000 and $81,441in the Prior Quarter. In addition financing activities in each of the Current and Prior Quarters include payments of $106,621 for dividends to our stockholders. The Current Quarter term loan monthly principal repayments are $58,333 with a floating interest rate of 30-day LIBOR plus 3.00%. On  October 4, 2013 the Company funded the 618,522 common stock share repurchase with a $3.3 million expansion and modification of the existing term loan provided by Hancock Bank. The expanded term loan facility will have monthly principal payments of $68,075, amortize over a longer seven-year period, bear interest at a floating rate of 30-day LIBOR plus 3.5% and continue to be secured by certain assets of the Company. There were no cash income taxes paid during the Current Quarter compared to $45,000 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 three months of fiscal 2014.

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 2013 Form 10-K.

Our market risks in the normal course of business are related to changes in interest rates, which at September 30, 2013 are similar to those disclosed in the 2013 Annual Report on Form 10-K.

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, 2013.

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.

None

There have been no material changes to the risk factors set forth under Part I, Item 1A of our 2013 Annual Report on Form 10-K.

None

None

None

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.