<SUBMISSION>
<ACCESSION-NUMBER>0001193125-03-041663
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>4
<PERIOD>20030704
<FILING-DATE>20030825
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>STAAR SURGICAL COMPANY
<CIK>0000718937
<ASSIGNED-SIC>3851
<IRS-NUMBER>953797439
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0101
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-11634
<FILM-NUMBER>03864905
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1911 WALKER AVE
<CITY>MONROVIA
<STATE>CA
<ZIP>91016
<PHONE>8183037902
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1911 WALKER AVE
<CITY>MONROVIA
<STATE>CA
<ZIP>91016
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d10q.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML><HEAD>
<TITLE>Form 10-Q</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

<HR SIZE="3" NOSHADE COLOR="#000000" ALIGN="left"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="5"><B>UNITED STATES </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="5"><B>SECURITIES AND EXCHANGE COMMISSION </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="3"><B>WASHINGTON, D.C. 20549 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P><HR WIDTH="21%" SIZE="1" NOSHADE
COLOR="#000000"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="5"><B>FORM 10-Q </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="3"><B><FONT FACE="WINGDINGS">&#120;</FONT><B></B></B></FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="3"><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><B>For the quarterly period ended: July 4, 2003 </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>OR </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="3"><B></B></FONT><FONT FACE="WINGDINGS" SIZE="3" COLOR="#000000"><B>&#168;</B></FONT><FONT FACE="Times New Roman" SIZE="3"><B><B></B></B></FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="3"><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Commission file number: 0-11634 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P><HR WIDTH="21%" SIZE="1"
NOSHADE COLOR="#000000"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="6"><B>STAAR SURGICAL COMPANY </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Exact name of registrant as specified in its charter) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD VALIGN="top" ALIGN="center" WIDTH="47%"><FONT FACE="Times New Roman" SIZE="2"><B>Delaware</B></FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center" WIDTH="47%"><FONT FACE="Times New Roman" SIZE="2"><B>95-3797439</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center" WIDTH="47%"><FONT FACE="Times New Roman" SIZE="1"><B>(State or other jurisdiction of</B></FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center" WIDTH="47%"><FONT FACE="Times New Roman" SIZE="1"><B>(I.R.S. Employer</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center" WIDTH="47%"><FONT FACE="Times New Roman" SIZE="1"><B>incorporation or organization)</B></FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center" WIDTH="47%"><FONT FACE="Times New Roman" SIZE="1"><B>Identification No.)</B></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>1911 Walker Avenue
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Monrovia, California 91016 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="1"><B>(Address of principal executive offices) (Zip Code) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><B>(626) 303-7902 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Registrant&#146;s telephone number, including area code) </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P><HR WIDTH="21%" SIZE="1" NOSHADE COLOR="#000000"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">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.&nbsp;&nbsp;Yes&nbsp;&nbsp;<FONT
FACE="WINGDINGS">&#120;</FONT>&nbsp;&nbsp;No&nbsp;&nbsp;</FONT><FONT FACE="WINGDINGS" SIZE="2" COLOR="#000000">&#168;</FONT><FONT FACE="Times New Roman" SIZE="2"> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes&nbsp;&nbsp;<FONT FACE="WINGDINGS">&#120;</FONT>&nbsp;&nbsp;No&nbsp;&nbsp;</FONT><FONT FACE="WINGDINGS" SIZE="2" COLOR="#000000">&#168;</FONT><FONT FACE="Times New Roman" SIZE="2"> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The registrant has 18,291,682 shares of common stock, par value $0.01 per share, issued and outstanding as of August 22,
2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P><HR SIZE="3" NOSHADE COLOR="#000000" ALIGN="left">

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="toc"></A>INDEX </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD COLSPAN="3" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>PAGE</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="1"><B>NUMBER</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="3"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="79%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>PART I&#151;FINANCIAL INFORMATION</B></FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;1</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">Financial Statements</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_1">Condensed Consolidated Balance Sheets&#151;July 4, 2003 and January 3, 2003</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">1</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_2">Condensed Consolidated Statements of Operations&#151;Three and Six Months Ended July 4, 2003 and June 28, 2002</A></FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">2</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_3">Condensed Consolidated Statements of Cash Flows&#151;Six Months Ended July 4, 2003 and June 28, 2002</A></FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">3</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_4">Notes to the Condensed Consolidated Financial Statements</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">4</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;2</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_5">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">9</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;3</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_6">Quantitative and Qualitative Disclosures About Market Risk</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">22</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;4</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_7">Controls and Procedures</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">22</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="3"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="79%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>PART II&#151;OTHER INFORMATION</B></FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;1</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_8">Legal Proceedings</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">24</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;2</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_9">Changes in Securities and Use of Proceeds</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">24</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;3</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_10">Defaults Upon Senior Securities</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">24</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;4</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_11">Submission of Matters to a Vote of Security Holders</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">24</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;5</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_12">Other Information</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">24</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="5%"> <P STYLE="text-indent:1.00em"><FONT FACE="Times New Roman" SIZE="2">Item 6</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="8%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="79%"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx88907_13">Exhibits and Reports on Form 8-K</A></FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">24</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="3"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="79%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#toc88907_14">Signatures </A></FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">26</FONT></TD></TR>
</TABLE>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>PART I.&nbsp;&nbsp;&nbsp;&nbsp;FINANCIAL INFORMATION </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>ITEM 1.&nbsp;&nbsp;&nbsp;&nbsp;FINANCIAL STATEMENTS </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx88907_1"></A>CONDENSED CONSOLIDATED BALANCE SHEETS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(In thousands, except par value) </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July 4,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2003</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>January&nbsp;3,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2003</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Unaudited)</B></FONT></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Audited)</B></FONT></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>ASSETS</B></FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current assets:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash and cash equivalents</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,414</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,009</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable, net</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,932</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,992</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Inventories</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,874</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,761</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Prepaids, deposits, and other current assets</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,586</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,813</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total current assets</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29,806</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,575</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Investment in joint venture</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">462</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">462</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Property, plant and equipment, net</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,682</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,438</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Patents and licenses, net</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,566</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,038</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Goodwill</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,427</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,427</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other assets</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">173</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">280</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total assets</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52,116</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45,220</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current liabilities:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Notes payable</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,063</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,845</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,439</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,394</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other current liabilities</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,800</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,241</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total current liabilities</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,302</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">14,480</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other long-term liabilities</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">86</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">89</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total liabilities</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,388</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">14,569</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Minority interest</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">162</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">100</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Commitments and contingencies</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stockholders&#146; equity:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Preferred stock, $.01 par value; 10,000 shares authorized, none issued</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Common stock, $.01 par value; 30,000 shares authorized, issued and outstanding 18,228 and 16,962 shares</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">182</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">170</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Additional paid-in capital</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">85,085</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">74,977</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accumulated other comprehensive income (loss)</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(111</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accumulated deficit</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(43,284</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(41,421</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42,004</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33,615</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Notes receivable from officers and directors</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,438</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,064</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total stockholders&#146; equity</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">39,566</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">30,551</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total liabilities and stockholders&#146; equity</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52,116</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45,220</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Note:&nbsp;&nbsp;&nbsp;&nbsp;The
amounts presented in the January 3, 2003 balance sheet are derived from the audited financial statements for the year ended January 3, 2003. See accompanying notes to the condensed consolidated financial statements. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">1 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx88907_2"></A>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(In thousands, except per share amounts) </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(Unaudited) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Three Months Ended</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Six Months Ended</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July 4,<BR>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>June 28,<BR>2002</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July 4,<BR>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>June 28,<BR>2002</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Sales</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,950</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,008</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">25,729</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23,639</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Royalty and other income</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">80</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">48</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">180</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total revenues</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,951</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,088</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">25,777</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23,819</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cost of sales</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,895</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,064</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,742</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,083</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gross profit</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,056</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,024</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">14,035</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,736</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Selling, general, and administrative expenses:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">General and administrative</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,218</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,298</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,504</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,700</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Marketing and selling</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,421</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,500</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,582</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,502</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Research and development</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,374</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">977</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,551</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,053</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other charges</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,225</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,225</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total selling, general, and administrative expenses</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,013</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,000</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15,637</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,480</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Operating loss</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(957</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,976</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,602</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,744</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other income (expense):</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Equity in operations of joint venture</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(31</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(6</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">75</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest income</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">348</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest expense</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(63</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(166</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(206</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(293</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other income (expense)</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">262</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(422</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">208</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(445</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total other income (expense)</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">180</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(575</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">425</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(695</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Loss before income taxes and minority interest</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(777</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,551</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,177</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(5,439</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Income tax expense (benefit)</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">315</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">304</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">644</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(628</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Minority interest</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">24</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">54</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">95</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,116</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,909</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,863</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,906</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Basic and diluted net loss per share</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.06</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.23</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.11</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.29</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Weighted average shares outstanding &#150; Basic and diluted</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,289</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,163</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,148</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,161</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">See accompanying notes to the condensed consolidated financial statements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">2 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx88907_3"></A>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(In thousands) </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(Unaudited) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Six Months Ended</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July&nbsp;4,<BR>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;28,<BR>2002</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash flows from operating activities:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,863</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,906</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Adjustments to reconcile net loss to net cash used in operating activities:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Depreciation of property and equipment</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">962</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,188</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Amortization of intangibles</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">490</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">467</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Loss on disposal of fixed assets</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">64</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Equity in operations of joint venture</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(76</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock-based compensation expense</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">172</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">127</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Notes receivable reserve</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(83</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Subsidiary closure charges</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,225</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Minority interest</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">62</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(5</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Changes in working capital:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(940</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">566</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Inventories</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(113</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,546</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Prepaids, deposits, and other current assets</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">227</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(338</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(348</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other current liabilities</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">559</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">138</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net cash used in operating activities</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(488</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(306</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash flows from investing activities:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Acquisition of property and equipment</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(270</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(472</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Increase in patents and licenses</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(18</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(74</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Decrease (increase) in other assets</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">107</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(79</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Dividend received from joint venture</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">76</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from notes receivable and other</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">703</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net cash provided by (used in) investing activities</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">598</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(625</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash flows from financing activities:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Decrease in borrowings under notes payable</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,785</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(19</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net proceeds from private placement</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,982</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from stock options</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">966</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net cash provided by (used in) financing activities</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,163</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(13</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Effect of exchange rate changes on cash and cash equivalents</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">132</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">706</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Increase (decrease) in cash and cash equivalents</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,405</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(238</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash and cash equivalents, at the beginning of the period</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,009</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">853</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="82%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash and cash equivalents, at the end of the period</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,414</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">615</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">See accompanying notes
to the condensed consolidated financial statements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">3 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx88907_4"></A>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>July 4, 2003 </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Basis of Presentation </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The accompanying condensed consolidated financial statements include the
accounts of the Company, its wholly owned and its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Assets and liabilities of foreign subsidiaries are translated at rates of
exchange in effect at the close of the period. Revenues and expenses are translated at the weighted average of exchange rates in effect during the period. The resulting translation gains and losses are deferred and are shown as a separate component
of stockholders&#146; equity as accumulated other comprehensive income (loss). During the six months ended July 4, 2003 and June 28, 2002, the net foreign currency translation gain was $132,000 and $706,000, respectively. Net foreign currency
transaction gain (loss) for the three and six months ended July&nbsp;4, 2003 and June 28, 2002 was $197,000 and $141,000; and ($341,000) and ($344,000), respectively. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Investment in the Company&#146;s Japanese joint venture is accounted for using the equity method of accounting. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all the information and footnotes required by accounting principles generally accepted in the United&nbsp;States of America for complete financial statements. The financial statements for the three and six months ended July 4, 2003 and June
28, 2002, in the opinion of management, include all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations. These financial statements should be read in
conjunction with the audited financial statements and notes thereto included in the Company&#146;s Annual Report on Form 10-K for the year ended January 3, 2003. The results of operations for the three months ended July 4, 2003 and June 28, 2002 are
not necessarily indicative of the results to be expected for any other interim period or the entire year. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Each of the Company&#146;s reporting periods ends on the Friday nearest to the quarter ending date and generally consists of 13 weeks. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Pro forma net loss and loss per share for the three and six months ended July
4, 2003 and June 28, 2002, had the Company accounted for stock options issued to employees and others in accordance with the fair value method of SFAS 123, are as follows (in thousands, except per share data): </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD ROWSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ROWSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Three Months Ended</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Six Months Ended</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July&nbsp;4,<BR>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;28,<BR>2002</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July&nbsp;4,<BR>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;28,<BR>2002</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="17%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="42%"><FONT FACE="Times New Roman" SIZE="2">As reported</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,116</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,909</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,863</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,906</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="17%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Add:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="42%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock-based employee compensation expense included in reported net loss, net of related tax effects</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="17%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deduct:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="42%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax
effects</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(605</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(289</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(851</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(760</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="17%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="42%"><FONT FACE="Times New Roman" SIZE="2">Pro forma</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,721</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,198</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,714</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(5,666</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="17%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Loss per share:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="42%"><FONT FACE="Times New Roman" SIZE="2">Basic and diluted</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="42%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">As reported</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(0.06</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(0.23</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(0.11</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(0.29</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" COLSPAN="3" WIDTH="42%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Pro forma</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(0.10</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(0.24</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(0.16</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(0.33</FONT></TD>
<TD NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">4 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS&#151;(Continued)
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Due to the fact that the Company&#146;s stock option programs vest over many years and additional
awards are made each year, the above pro forma numbers are not indicative of the financial impact had the disclosure provisions of SFAS 123 been applicable to all years of previous option grants. The above numbers do not include the effect of
options granted prior to 1995 that vested in 1996 through the second quarter of 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>2.&nbsp;&nbsp;&nbsp;&nbsp;Geographic and Product Data </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">The Company develops, manufactures and distributes medical devices used in minimally invasive ophthalmic surgery. The Company distributes its medical devices in the cataract, refractive and glaucoma sectors within ophthalmology. During the
periods presented, revenues from the refractive and glaucoma sectors were less than 10% of total revenue, which is not significant enough for the Company to account for these products separately or to justify segmented reporting by product type.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The Company markets and sells its products in over 39
countries and has manufacturing sites in the United States and Switzerland. Other than the United States and Germany, the Company does not conduct business in any country in which its sales in that country exceed 5% of the Company&#146;s
consolidated sales. Sales are attributed to countries based on the location of customers. The composition of the Company&#146;s sales to unaffiliated customers between those in the United States, Germany, and other locations for each period is set
forth below (in thousands): </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="5" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Three Months Ended</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="5" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Six Months Ended</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July&nbsp;4,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2003</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;28,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2002</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July&nbsp;4,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2003</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;28,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2002</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Sales to unaffiliated customers</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">United States</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,941</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,136</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,700</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,263</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Germany</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,103</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,995</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10,132</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,687</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,906</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,877</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,897</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,689</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="64%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,950</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,008</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">25,729</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23,639</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The Company sells its
products internationally, which subjects the Company to several potential risks, including fluctuating exchange rates (to the extent the Company&#146;s transactions are not in U.S. dollars), regulation of fund transfers by foreign governments,
United States and foreign export and import duties and tariffs and possible political instability. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>3.&nbsp;&nbsp;&nbsp;&nbsp;Inventories </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market and consisted of the following at July 4, 2003 and January 3, 2003 (in thousands): </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="90%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July&nbsp;4,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2003</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>January&nbsp;3,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2003</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Raw materials and purchased parts</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">817</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">710</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Work-in-process</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">702</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">798</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Finished goods</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10,355</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10,253</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,874</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,761</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="5%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">5 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>4.&nbsp;&nbsp;&nbsp;&nbsp;Intangible Assets </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The Company has intangible assets consisting of patents and licenses, with a gross book value of $14.0&nbsp;million and
accumulated amortization of $5.5 million as of July 4, 2003. The Company capitalizes the costs of acquiring patents and licenses as well as the legal costs of successfully defending its rights to these patents. Amortization is computed on the
straight-line basis over the estimated useful lives, which are based on legal and contractual provisions, and range from 10 to 20 years. Amortization expense for the three and six months ended July 4, 2003 and June 28, 2002, was $249,000 and
$490,000; and $240,000 and $467,000, respectively. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The
weighted average amortization period for other intangible assets is approximately 15 years. The following table shows the estimated amortization expense for these assets for each of the five succeeding years (in thousands): </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="80%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom" WIDTH="91%"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Fiscal Year</B></FONT></P><HR WIDTH="62" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2003</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,001</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2004</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">719</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2005</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">719</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2006</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">715</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2007</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">543</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,697</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>5.&nbsp;&nbsp;&nbsp;&nbsp;Notes
Payable </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">On March 26, 2003, the Company and its domestic
lender executed an agreement to extend the maturity date of the Company&#146;s $3.0 million line of credit for one year to March 31, 2004. The line of credit carried an interest rate equal to the prime rate (4.04% at July 4, 2003) plus an interest
margin of 5%. In addition, the Company was required to pay a commitment fee of 1.25% per annum of the unused amount of the line of credit. The line of credit was secured by a first priority lien on substantially all of the Company&#146;s assets and
required the Company to comply with certain financial covenants including the maintenance of specified levels of liquidity, tangible net worth, operating cash flow and operating income. During the quarter ended July 4, 2003, the Company paid off and
cancelled the line of credit. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>6.&nbsp;&nbsp;&nbsp;&nbsp;Reclassifications
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Certain reclassifications have been made to the 2002
condensed consolidated financial statements to conform to the 2003 presentation. These reclassifications have had no effect on previously reported results of operations or retained earnings. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>7.&nbsp;&nbsp;&nbsp;&nbsp;Net Loss Per Share </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Basic net earnings (loss) per common share is computed by dividing the net
earnings (loss) applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of shares outstanding
during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods where losses are reported, the weighted-average number of common shares
outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>8.&nbsp;&nbsp;&nbsp;&nbsp;Supply Agreement </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">In May 1999, the Company entered into a license and supply agreement with another manufacturer to license and re-sell one of the manufacturer&#146;s products. Under the terms of the agreement, the Company was </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">6 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS&#151;(Continued)
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">committed to purchase the specified product for a total sum of $3.2 million over 18 months. In September 2001, the supply agreement was amended reducing the
minimum contractual amount that the Company is obligated to purchase from the manufacturer to $2.5 million over a 24-month period commencing September 1, 2001. The agreement, as amended, can be cancelled at the end of the 24-month period by either
party upon four months written notice with a maximum liability of $100,000 should the Company fail to meet the minimum contractual quantities under the agreement. Purchases under the agreement for the three and six months ended July 4, 2003 were
approximately $257,000 and $547,000, respectively. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In December
2000, the Company entered into a minimum purchase agreement with another manufacturer for the purchase of viscoelastic solution. In addition to the minimum purchase requirement, the Company is also obligated to pay an annual regulatory maintenance
fee. The agreement contains provisions to increase the minimum annual purchases in the event that the Seller gains regulatory approval of the product in other markets, as requested by the Company. Purchases under the agreement during the three and
six months ended July 4, 2003 were approximately $128,000 and $270,000, respectively. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">As of July 4, 2003, estimated annual purchase commitments under these contracts are as follows (in thousands): </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="80%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom" WIDTH="91%"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Fiscal Year</B></FONT></P><HR WIDTH="62" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2003</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">863</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2004</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">600</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2005</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">600</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2006</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="91%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,263</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>9.&nbsp;&nbsp;&nbsp;&nbsp;New
Accounting Pronouncements </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In June 2002, the Financial
Accounting Standards Board (&#147;FASB&#148;) issued Statement of Financial Accounting Standards (&#147;SFAS&#148;) No. 146, &#147;Accounting for Costs Associated with Exit or Disposal Activities,&#148; which addresses accounting for restructuring
and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (&#147;EITF&#148;) Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after
December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a
company&#146;s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as
the amount recognized. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In November 2002, the FASB issued
Interpretation No. 45, &#147;Guarantor&#146;s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,&#148; an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34. This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the interpretation are applicable to guarantees issued or modified after December
31, 2002. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 31, 2002. No guarantees were entered into or modified after December 31, 2002. Significant guarantees of the Company as
of July 4, 2003 are disclosed in Note 8 of the consolidated financial statements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">7 </FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS&#151;(Continued)
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In December 2002, the FASB issued SFAS No. 148, &#147;Accounting for Stock-Based
Compensation&#151;Transition and Disclosure,&#148; which amends SFAS No. 123, &#147;Accounting for Stock-Based Compensation.&#148; SFAS&nbsp;148 provides alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing condensed financial statements for
interim periods beginning after December 15, 2002. The adoption of SFAS 148 did not have a material impact on the Company&#146;s financial position or results of operations. The Company has provided the interim disclosures required by SFAS 148 in
Note 1 of the consolidated financial statements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In January
2003, the FASB issued FASB Interpretation No. 46, &#147;Consolidation of Variable Interest Entities,&#148; an interpretation of Accounting Research Bulletins (&#147;ARB&#148;) No. 51, Consolidated Financial Statements (&#147;FIN 46&#148;). FIN 46
clarifies the application of ARB No. 51 to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The Company does not believe the adoption of FIN 46 will have a material impact its financial position or results of operations. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In April 2003, the FASB issued SFAS No. 149, &#147;Amendment of Statement of
Accounting Standards 133 on Derivative Instruments and Hedging Activities&#148; (&#147;SFAS 149&#148;). SFAS 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts,
and for hedging activities under SFAS No. 133, &#147;Accounting for Derivative Instruments and Hedging Activities.&#148; SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of SFAS 149 is not expected to have a material effect on the Company&#146;s financial position, results of operations, or cash flows. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In May 2003, the FASB issued SFAS No. 150, &#147;Accounting for Certain Instruments with Characteristics of Both Liabilities
and Equity,&#148; (&#147;SFAS 150&#148;) which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify a financial
instrument that is within its scope, which may have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning after June 15, 2003 for public companies. The Company does not believe the adoption of SFAS 150 will have a material impact on its financial statements. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>10.&nbsp;&nbsp;&nbsp;&nbsp;Subsequent Event </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">On July 10, 2003, the Company received early repayment on the note of a
former officer of the Company totaling $2.2 million plus accrued interest. The note would have matured on March 29, 2006. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">8 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx88907_5"></A>ITEM 2&#151;MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:9%"><FONT FACE="Times New Roman" SIZE="2"><B>RESULTS OF OPERATIONS
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The matters addressed in this Item 2 that are not historical information
constitute &#147;forward-looking statements&#148; within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that the expectations
reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and the Company can give no assurances that its expectations will prove to be correct. Actual results could differ from those described in
this report because of numerous factors, many of which are beyond the control of the Company. These factors include, without limitation, those described below under the heading &#147;Factors That May Affect Future Results of Operations.&#148; The
Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unexpected events.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The following discussion should be read in conjunction with the Company&#146;s
financial statements and the related notes provided under Item 1&#151;Financial Statements above. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Results of Operations </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">The following table sets forth the percentage of total revenues represented by certain items reflected in the Company&#146;s statements of operations for the periods indicated and the percentage increase or decrease in such items over the
prior period. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="4" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B><I>Percentage&nbsp;of&nbsp;Total</I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B><I>Revenues for</I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B><I>Three Months</I></B></FONT></P><HR SIZE="1" NOSHADE
COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B><I>Percentage</I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B><I>Change&nbsp;for</I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B><I>Three&nbsp;Months</I></B></FONT></P><HR SIZE="1" NOSHADE
COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="4" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B><I>Percentage&nbsp;of&nbsp;Total</I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B><I>Revenues for</I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B><I>Six Months</I></B></FONT></P><HR SIZE="1" NOSHADE
COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B><I>Percentage<BR>Change&nbsp;for<BR>Six&nbsp;Months</I></B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July<BR>4,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="1"><B>2003</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;28,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2002</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="1"><B>vs.</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2002</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>July<BR>4,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="1"><B>2003</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;28,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>2002</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="1"><B>vs.</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2002</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" ><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total revenues</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">100.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">100.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">7.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">100.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">100.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">8.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;%</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cost of sales</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">45.5</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">50.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(2.8</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">45.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">50.7</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(2.8</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gross profit</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">54.5</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">49.8</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">17.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">54.4</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">49.3</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">19.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Costs and expenses:</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">General and administrative</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">17.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">19.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(3.5</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">17.5</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">19.8</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(4.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Marketing and selling</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">34.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">37.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(1.8</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">33.3</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">35.7</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">0.9</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Research and development</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">10.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">8.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">40.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">9.9</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">8.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">24.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other charges</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">10.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(100.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">5.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(100.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total costs and expenses</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">61.9</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">74.4</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(11.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">60.7</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">69.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(5.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Operating loss</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(7.4</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(24.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(67.8</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(6.3</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(19.9</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(66.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other income (expense), net</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">1.4</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(4.8</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">1.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(2.9</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Loss before income taxes</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(6.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(29.4</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(78.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(4.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(22.8</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(78.4</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Income taxes</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">2.4</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">2.5</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(3.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">2.5</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(2.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Minority interest</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">0.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">0.4</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(56.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">0.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">0.4</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(56.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="50%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(8.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(32.3</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(71.5</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(7.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">(20.6</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)%</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">(62.0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">)%</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>Revenues </I></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Revenues for the three months ended July 4, 2003 were $13.0 million, which
is $.9 million or 7.1% greater than the $12.1 million in revenues for the three months ended June 28, 2002. Sales increases were realized across </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">9 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>AND RESULTS OPERATIONS&#151;(Continued) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">all product lines over the same period last year, except in silicone intraocular lenses (IOLs) and the AquaFlow device. The most significant increases were
the result of a 38% increase in sales internationally of the Company&#146;s implantable contact lens (&#147;ICL<FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>&#153;<FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></SUP><FONT
FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></FONT>&#148;) and an 18.3% increase in sales (primarily in the U.S.) of the Company&#146;s specialty lenses, the Toric silicone IOL and the Collamer IOL. ICL unit volume increased 32% while
average selling price (&#147;ASP&#148;) increased 4% over the same quarter last year. Revenues in international markets also benefited from the favorable impact of exchange rate changes relative to the U.S. dollar. Sales of the AquaFlow device
decreased 8.5% (3.1% decrease in volume and a 5.6% decrease in ASP) over the same quarter last year. This sales decrease was a result of sales and marketing resources which have been diverted from AquaFlow proctoring and training to trouble-shooting
injection system issues and preparing for possible U.S. Food and Drug Administration approval of the ICL. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Total IOL sales increased .1% over the second quarter of 2002 despite a 40% decrease in unit volume of the Company&#146;s single-piece silicone IOL,
primarily in the U.S. market, as a result of problems with its delivery system and believed contraction of this market segment. The decrease in sales of the single-piece silicone IOL was partially offset by increased sales in the U.S. of Collamer
IOLs (37% increase in volume partially offset by an 8% decrease in ASP) and other IOL models sold in international markets which were favorably impacted by exchange rate changes offset partially by decreased volume. As a result of the decreased IOL
sales in the U.S., overall sales in that market declined 3%. The Company expects IOL sales to increase in the U.S. in the second half of the year as it resolves its delivery system issues. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Revenues for the six months ended July 4, 2003 were $25.8 million, which is
$2.0 million or 8.2% greater than the $23.8 million in revenues for the six months ended June 28, 2002. Sales increases over the same period last year were realized across all product lines, except in silicone intraocular lenses (IOLs) and the
AquaFlow device. The most significant increases were the result of a 42% increase in sales internationally of the Company&#146;s implantable contact lens (&#147;ICL<FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>&#153;<FONT
FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></SUP><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></FONT>&#148;) and a 10.8% increase in sales (primarily in the U.S.) of the Company&#146;s specialty lenses, the Toric silicone
IOL and the Collamer IOL. ICL unit volume increased 38% while average selling price (&#147;ASP&#148;) increased 2.8% over the same period last year. Revenues in international markets also benefited from the favorable impact of exchange rate changes
relative to the U.S. dollar. Sales of the AquaFlow device decreased 16% (16.6% decrease in volume and a .6% decrease in ASP) over the same quarter last year. This sales decrease was a result of sales and marketing resources which have been diverted
from AquaFlow proctoring and training to trouble-shooting injection system issues and preparing for possible U.S. Food and Drug Administration approval of the ICL. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Total IOL sales increased .2% over the first six months of 2002 despite a 30% decrease in unit volume of the Company&#146;s
single-piece silicone IOL, primarily in the U.S. market, as a result of problems with its delivery system and believed contraction of this market segment. The decrease in sales of the single-piece silicone IOL was partially offset by increased sales
in the U.S. of Collamer IOLs (23% increase in volume partially offset by an 5% decrease in ASP) and other IOL models sold in international markets which were favorably impacted by exchange rate changes offset partially by decreased volume. As a
result of the decreased IOL sales in the U.S., overall sales in that market declined 5%. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B><I>Gross Profit Margin </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">Gross profit margin increased to 54.5% and 54.4% of revenues for the three and six months ended July 4, 2003, respectively from 49.8% and 49.3% of revenues for the three and six months ended June 28, 2002, respectively. The increase in
gross profit margin is principally due to reduced cost structures in the Company&#146;s manufacturing facilities, production yield and efficiency increases, and increased sales of the higher margin ICL </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">10 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>AND RESULTS OPERATIONS&#151;(Continued) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">in international markets. These improvements were partially offset by unfavorable mix among sales of IOLs due to the decline in the U.S. IOL market which
realizes higher gross margins than the international IOL market. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B><I>Research and Development </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Research and
development expense increased to 10.6% and 9.9% of revenues for the three and six months ended July 4, 2003, respectively, from 8.1% and 8.6% of revenues for the three and six months ended June 28, 2002, respectively. The increased spending is
related to costs associated with the filing of the pre-market approval application for the ICL with the U.S. Food and Drug Administration (FDA), costs incurred in the clinical investigation of the Toric ICL, and costs from lens insertion system
development projects. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>Other Income (Expense) </I></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Other income for the three and six months ended July 4, 2003 was $180,000
and $425,000, respectively, as compared to other expense of $575,000 and $694,000 for the three and six months ended June 28, 2002, respectively. The increase in other income for the quarter is the result of foreign currency transaction gains,
decreased expense associated with legal settlements, and decreased interest expense as a result of lower borrowings. The increase in other income for the six months is the result of foreign currency transaction gains, decreased expense associated
with legal settlements, and increased interest income as a result of the settlement of certain officer&#146;s notes. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>Income Taxes </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The Company recorded income taxes for the three and six months ended July 4, 2003 of $315,000 and $644,000, respectively, based on the income of its
German subsidiary. For the three and six months ended &nbsp;June 28, 2002, the Company recorded income taxes (net benefit) of $304,000 and ($627,000), respectively. The income tax benefit of $932,000 was recorded based on legislation enacted March
9, 2002 (HR 3090), which enabled the Company to carryback portions of its federal 2000 and 2001 losses to 1996, 1997 and 1998. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>Liquidity and Capital Resources </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Cash and cash equivalents at July 4, 2003 increased by approximately $7.4 million relative to January 3, 2003, as a result of net proceeds of $9.0
million, received during the quarter, from a private placement of the Company&#146;s common stock and $966,000 received in proceeds from the exercise of stock options. The Company used approximately $2.1 million of the proceeds to pay off the note
to its domestic lender. Cash and cash equivalents also increased as a result of the early repayment of a loan obligation to the Company of a former officer of the Company totaling $659,000 plus accrued interest of $171,000. The notes, which would
have matured on September 4, 2003, were paid in full on May 6, 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">During the quarter ended July 4, 2003, accounts receivable increased $940,000 relative to January 3, 2003. The increase in accounts receivable relates to extended terms given to certain international customers. Day&#146;s sales outstanding
(DSO) were 49 days at July 4, 2003 compared to 45 days at January 3, 2003. The Company expects to maintain DSO within a range of 45 to 50 days during the course of the 2003 fiscal year. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Other current liabilities during the quarter ended July 4, 2003 increased $559,000 relative to January 3, 2003. The increase
in other current liabilities is due to an increase in accrued salaries and wages and taxes payable. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">11 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>AND RESULTS OPERATIONS&#151;(Continued) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">On March 26, 2003, the Company and its domestic lender executed an agreement to extend the maturity
date of the Company&#146;s $3.0 million line of credit for one year to March 31, 2004. The line of credit carried an interest rate equal to the prime rate (4.04% at July 4, 2003) plus an interest margin of 5%. In addition, the Company was required
to pay a commitment fee of 1.25% per annum of the unused amount of the line of credit. The line of credit was secured by a first priority lien on substantially all of the Company&#146;s assets and required the Company to comply with certain
financial covenants including the maintenance of specified levels of liquidity, tangible net worth, operating cash flow and operating income. During the quarter ended July 4, 2003, the Company paid off and cancelled the line of credit. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">A subsidiary of the Company has a revolving credit facility with a Swiss
bank, which, as amended in fiscal 2001, provides for borrowings of up to 4.25 million Swiss Francs &#147;CHF&#148; ($3.1 million based on the exchange rate on July 4, 2003). The credit facility is divided into two parts: Part A provides for
borrowings of up to CHF 3.0 million ($2.2 million based on the exchange rate on July 4, 2003) and does not have a termination date; Part B provides for borrowings of up to CHF 1.25 million ($0.9 million based on the exchange rate on July 4, 2003).
The loan amount under Part B of the agreement reduces by CHF 250,000 ($185,000 based on the exchange rate on July 4, 2003) semi-annually beginning June 30, 2002. The credit facility is secured by a general assignment of claims and includes positive
and negative covenants, which among other things requires the subsidiary to maintain equity at or above CHF 15.8 million (approximately $11.7 million based on the exchange rate on July 4, 2003), prevents the subsidiary from entering into secured
obligations except as already disclosed to the lender or guaranteeing the obligations of its subsidiaries or any third party. The agreement also prevents payment on loans made to the subsidiary by the Company without prior consent of the lender.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The loan agreement provides for borrowings on a current or
fixed-term basis. The interest rate on current advances is 6.0% per annum at July 4, 2003 plus a commission rate of 0.25%, payable each quarter. The base interest rate for fixed-term advances follows Euromarket conditions for loans of a
corresponding term and currency plus an individual margin. The fixed-term rate at July 4, 2003 was 4.3%. There were no borrowings outstanding under the current account as of July 4, 2003. Fixed term advances at July 4, 2003 were CHF 4.0 million
($2.9 million based on the exchange rate on July 4, 2003). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">A
subsidiary of the Company has a revolving credit facility with a German bank which provides for borrowings of up to approximately 50,000 EUR ($57,000 at the exchange rate on July 4, 2003) at an interest rate of 8.5%. The loan, originally due
February 28, 2003, was extended on October 8, 2002 to August 31, 2003. Payments in the amount of 50,000 EUR ($57,000 at the exchange rate on July 4, 2003) were due monthly beginning December 31, 2001. The amended agreement reduced the monthly
payment to 25,000 EUR ($28,000 at the exchange rate on July 4, 2003). The bank also agreed to waive the September 2002 and October 2002 payments. There were no other changes to the original terms of the agreement. The loan is secured by an
assignment of the subsidiary&#146;s accounts receivable and inventory and is personally guaranteed by the subsidiary&#146;s president. There are no financial covenants included in the agreement and no borrowings outstanding as of &nbsp;July 4, 2003.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The subsidiary of the Company negotiated another credit
facility with a different German bank to replace the one that expires on August 31, 2003. The new agreement, effective January 13, 2003, provides for borrowings of up to 210,000 EUR ($241,000 at the exchange rate on July 4, 2003) at an interest rate
of 8.5%. The note is due November 30, 2003 and is personally guaranteed by the subsidiary&#146;s president. The agreement includes a covenant which prevents the subsidiary from paying dividends. Borrowings outstanding as of July 4, 2003 were 93,000
EUR ($107,000 at the exchange rate on July 4, 2003). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">12 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>AND RESULTS OPERATIONS&#151;(Continued) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The following table represents the Company&#146;s known contractual obligations at July 4, 2003 (in
thousands). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom" WIDTH="52%"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Contractual Obligations</B></FONT></P><HR WIDTH="127" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Total</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Less&nbsp;Than<BR>1 Year</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>1-3&nbsp;Years</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>3-5&nbsp;Years</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>More&nbsp;Than<BR>5 Years</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="52%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Long-term debt obligations</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,063</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,063</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="52%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Capital lease obligations</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">46</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="52%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Operating lease obligations</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,303</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">412</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,602</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">289</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="52%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Purchase obligations</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,263</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">863</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,400</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="52%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other long-term liabilities</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">86</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">86</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="52%"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,766</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,384</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,093</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">289</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="1%"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">As of July 4, 2003,
the Company had a current ratio of 2.4:1, net working capital of $17.5 million and net equity of $39.6 million compared to January 3, 2003 when the Company&#146;s current ratio was 1.5:1, its net working capital was $7.1 million, and its net equity
was $30.6 million. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The Company&#146;s liquidity requirements
arise from the funding of its working capital needs, primarily inventory, work-in-process and accounts receivable. The Company&#146;s primary sources for working capital and capital expenditures are cash flow from operations, proceeds from the
private placement of Common Stock, proceeds from option exercises, debt repayments by former officers, and borrowings under the Company&#146;s bank credit facilities. Any withdrawal of support from its banks could have serious consequences on the
Company&#146;s liquidity. The Company&#146;s liquidity is dependent, in part, on customers paying within credit terms, and any extended delays in payments or changes in credit terms given to major customers may have an impact on the Company&#146;s
cash flow. In addition, any abnormal product returns or pricing adjustments may also affect the Company&#146;s short-term funding. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">13 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Critical Accounting Policies </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The preparation of financial statements in accordance with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventory reserves and income taxes, among
others. Our estimates are based upon historical experiences, market trends and financial forecasts and projections, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in
time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The Company believes the following represent its critical accounting policies. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Revenue Recognition</I>.&nbsp;&nbsp;In general, the Company supplies foldable IOLs on a consignment basis to customers, primarily ophthalmologists, surgical centers, hospitals
and other eye care providers, and recognizes sales when the IOLs are implanted. Sales of all other products, including sales to foreign distributors, are generally recognized upon shipment, which is when title passes. </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:7%"><FONT FACE="Times New Roman" SIZE="2">Revenue from license and technology agreements is recorded as income, when
earned, according to the terms of the respective agreements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Impairment of Long-Lived Assets.</I>&nbsp;&nbsp;Intangible and other long lived-assets are reviewed for impairment whenever events such as product discontinuance, plant closures,
product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable. In reviewing for impairment, the Company compares the carrying value of such assets to the estimated undiscounted future cash flows
expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets&#146; fair value
and their carrying value. <I></I> </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:7%"><FONT FACE="Times New Roman" SIZE="2">Goodwill,
which has an indefinite life and was previously amortized on a straight-line basis over the periods benefited, is no longer amortized to earnings, but instead is subject to periodic testing for impairment. Intangible assets determined to have
definite lives are amortized over their remaining useful lives. Goodwill of a reporting unit is tested for impairment on an annual basis or between annual tests if an event occurs or circumstances change that would reduce the fair value of a
reporting unit below its carrying amount. As of July 4, 2003, the carrying value of goodwill was $6.4 million.<I></I> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:7%"><FONT FACE="Times New Roman" SIZE="2">The Company also has other intangible assets consisting of patents and licenses, with a gross book value of $14.0 million and accumulated amortization of
$5.5 million as of July 4, 2003. The Company capitalizes the costs of acquiring patents and licenses as well as the legal costs of successfully defending its rights to these patents. Amortization is computed on the straight-line basis over the
estimated useful lives, which are based on legal and contractual provisions, and range from 10 to 20 years. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Deferred Taxes</I>.&nbsp;&nbsp;The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the
Company&#146;s assets and liabilities along with net operating loss and credit carryforwards. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax
asset may not be realized. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and reflected in the financial statements in the period of
enactment. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Critical Accounting Policies (continued) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:7%"><FONT FACE="Times New Roman" SIZE="2">In 2002, due to the Company&#146;s recent history of losses, an increase to the valuation allowance was recorded as a
non-cash charge to tax expense in the amount of $9.2 million. As a result, the valuation allowance fully offsets the value of deferred tax assets on the Company&#146;s balance sheet as of July 4, 2003. If in the future the Company determines it will
be able to utilize all or part of the deferred tax assets, which have a valuation allowance of $18.2 million at July 4, 2003, we would reverse the valuation allowance, which would result in an income tax benefit. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Factors That May Affect Future Results of Operations </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our short and long-term success is subject to many factors that are beyond our control. You
should consider carefully the following risk factors, in addition to other information contained in this report. This Quarterly Report on Form l0-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Our
actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including those set forth below. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>We have a history of losses. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We have reported losses in each of the last three fiscal years and have an accumulated deficit of $43.3 million as of July
4, 2003. If losses from operations continue, they could adversely affect the market price for our common stock and our ability to obtain new financing. In June 2000, we began implementing a restructuring plan aimed at reducing costs and improving
operating efficiency. In connection with this plan, we recognized pre-tax charges to earnings of $15.3 million, $7.8 million, and $1.5 million in fiscal 2000, 2001 and 2002. While the restructuring plan has generally improved our profit margins, we
cannot be certain that we will succeed in restoring our profitability. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2"><B><I>We have been in default of the terms of our domestic loan agreement and have limited access to credit. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We have recently failed to comply with some of the financial covenants of our principal domestic loan agreement, including a failure to maintain minimum
levels of tangible net worth in the first fiscal quarter of 2003, a failure to maintain minimum levels of operating income in the second and third fiscal quarters of 2002 and a failure to maintain minimum levels of cash flow in the second fiscal
quarter of 2002. Accordingly, we have had to obtain waivers from our lender or modifications of our loan agreement. As of June 19, 2003, we have paid off and eliminated our domestic loan, and have outstanding balances on the loans of our European
subsidiaries of approximately $3.1 million, based on exchange rates on July 4, 2003. In the near term, we believe that sufficient cash to fund operations and current growth plans will be provided by cash generated from operations and the proceeds of
our June 11, 2003 private placement, in which we raised proceeds, net of placement agent fees, of approximately $9 million by selling 1,000,000 shares of the Company&#146;s common stock. However, it is likely that in the future we will need access
to credit to finance operations and fund future growth. Because of our history of losses we may not be able secure adequate financing for these purposes on terms that are favorable to us or on any terms. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Our success depends on the ICL, which has not been approved for use in
the United States. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We have devoted significant
resources and management attention to the development and introduction of our ICL and TICL. Our management believes that the future success of STAAR depends on the approval of the ICL by the FDA and a successful launch of the ICL in North America.
The ICL is already approved for use in Europe and Canada and in parts of Asia. The TICL is approved for use in Europe. In May 2003, we submitted the final module of our Pre-Market Approval Submission for the ICL to the FDA, which granted expedited
review </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">15 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">status to the submission on July 1, 2003. If the FDA does not grant approval of the ICL, or significantly delays its approval, our prospects for success will
be severely diminished. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Our success depends on the
successful marketing of the ICL in the United States market. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">Even if it is approved by the FDA, the ICL will not reach its full sales potential unless we successfully plan and execute its launch and marketing in the United States. This will present new challenges to our sales and marketing staff and
to our independent manufacturers&#146; representatives. In countries where the ICL has been approved to date, our sales have grown steadily, but slowly. In the United States in particular, patients who might benefit from the ICL have already been
exposed to a great deal of advertising and publicity about laser refractive surgery, but have little if any awareness of the ICL. As a result, we expect to make extensive use of advertising and promotion targeted through providers to potential
patients, and to carefully manage the introduction of the ICL. We do not have unlimited resources and we cannot predict whether the particular marketing, advertising and promotion strategies we pursue will be as successful as we intend. If we do not
successfully market the ICL in the United States, we will not achieve our planned profitability and growth. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Our core domestic business has suffered declining sales, which sales of new products have only partially offset. </I></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">STAAR pioneered the foldable IOL for use in cataract surgery, and the
foldable silicone IOL remains our largest source of revenue. Since we introduced the product, however, competitors have introduced IOLs employing a variety of designs and materials. Over the years these products have gradually taken a larger share
of the IOL market, while the market share for STAAR IOLs has decreased. In particular, many surgeons now choose lenses made of acrylic material rather than silicone for their typical patients. In an effort to maintain our competitive position we
have introduced a new biocompatible lens material, Collamer, to our line of IOLs. We have also introduced new IOL designs, such as the Toric IOL, pioneered cartridge-injector systems for lens insertion, and have continued to improve and refine the
silicone IOL. Sales of these new products, however, have only partially offset declining sales of our silicone IOLs. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>We depend on independent manufacturer&#146;s representatives. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In an effort to reduce costs and bring our products to a wider market, we have entered into long-term agreements with
several independent regional manufacturers&#146; representatives, who introduce our products to eye surgeons and provide proctoring needed to begin using some of our products. Under our agreements with these representatives, each receives a
commission on all of our sales within a specified region, including sales on products we sell into their territories without their assistance. Because they are independent contractors, we have a limited ability to manage these representatives or
their employees. In addition, a representative may represent manufacturers other than STAAR, although not in competing products. We have been relying on the independent representatives to introduce our new products like Collamer IOLs, Toric IOLs and
the AquaFlow Device, and we will rely on them, in part, to help introduce the ICL if it is approved. However, we are also introducing a direct sales force to assist in marketing and surgeon training to minimize the risks of complete dependence on
independent representatives. If we do not introduce a direct sales force and our independent manufacturers&#146; representatives do not devote sufficient resources to marketing our products, or if they lack the skills or resources to market our new
products, our new products will fail to reach their full sales potential and sales of our established products could decline. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Product recalls have been costly and may be so in the future. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Implantable medical devices must be manufactured to the highest standards and tolerances, and often incorporate newly
developed technology. Despite all efforts to achieve the highest level of quality control and </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">16 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">advance testing, from time to time defects or technical flaws in our products may not come to light until after the products are sold or consigned. In those
circumstances, we have previously made voluntary recalls of our products. Recalls significantly impacted our revenue in 2001 when, in separate instances, we voluntarily recalled our three-piece Collamer lens and certain silicone lenses, and as a
result wrote down approximately $3.4 million in inventory in that year. Similar recalls could take place again. Courts or regulators can also impose mandatory recalls on us, even if we believe our products are safe and effective. Recalls result in
lost sales of the recalled products themselves, and can result in further lost sales while replacement products are manufactured, especially if the replacements must be redesigned. If recalled products have already been implanted, we may bear some
or all of the cost of corrective surgery. Recalls may also damage our professional reputation and the reputation of our products. The inconvenience caused by recalls and related interruptions in supply, and the damage to our reputation, could cause
some professionals to discontinue using our products. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>We
compete with much larger companies. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Our competitors,
including Bausch &amp; Lomb, Inc., Advanced Medical Optics, Inc. (AMO), Alcon, Inc., Pfizer, Inc. and the CIBA Vision division of Novartis AG, have much greater financial resources than we do and some of them have large international markets for a
full suite of ophthalmic products. Their greater resources for research, development and marketing, and their greater capacity to offer comprehensive products and equipment to providers, make it difficult for us to compete. We have lost significant
market share to some of our competitors. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Most of our
products have single-site manufacturing approvals, exposing us to risks of business interruption. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We manufacture all of our products either at our facility in Monrovia, California or our facility in Nidau, Switzerland. Most of our products are approved
for manufacturing only at one of these sites. Before we can use a second manufacturing site for an implantable device we must obtain the approval of regulatory authorities. Because this process is expensive we have generally not sought approvals
needed to manufacture at an additional site. If a natural disaster, fire, or other serious business interruption struck one of our manufacturing facilities, it could take a significant amount of time to validate a second site and replace lost
product. We could lose customers to competitors, thereby reducing sales, profitability and market share. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Risks Related to the Ophthalmic Products Industry </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2"><B><I>If we fail to keep pace with advances in our industry or fail to persuade physicians to adopt the new products we introduce, customers may not buy our products and our revenue may decline. </I></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Constant development of new technologies and techniques, frequent new
product introductions and strong price competition characterize the ophthalmic industry. The first company to introduce a new product or technique to market usually gains a significant competitive advantage. Our future growth depends, in part, on
our ability to develop products to treat diseases and disorders of the eye that are more effective, safer, or incorporate emerging technologies better than our competitors&#146; products. Sales of our existing products may decline rapidly if one of
our competitors introduces a substantially superior product, or if we announce a new product of our own. Similarly, if we fail to make sufficient investments in research and development or if we focus on technologies that do not lead to better
products, our current and planned products could be surpassed by more effective or advanced products. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In addition, we must manufacture these products economically and market them successfully by persuading a sufficient number of eye care professionals to
use them. For example, glaucoma requires ongoing treatment over a long period of time; thus, many doctors are reluctant to switch a patient to a new treatment if the patient&#146;s current treatment for glaucoma remains effective. This has been a
challenge in selling our Aquaflow Device. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">17 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Resources devoted to research and development may not yield new products that achieve
commercial success. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We spent 9.9% of our revenue on
research and development in during the first six months of 2003 and we expect to spend comparable amounts annually in the future. Development of new implantable technology, from discovery through testing and registration to initial product launch,
is expensive and typically takes from three to seven years. Because of the complexities and uncertainties of ophthalmic research and development, products we are currently developing may not complete the development process or obtain the regulatory
approvals required for us to market the products successfully. It is possible that few or none of the products currently under development will become commercially successful. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Failure of users of our products to obtain adequate reimbursement from third-party payors could limit market
acceptance of our products, which could affect our sales and profits. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">Many of our products, in particular IOLs and products related to the treatment of glaucoma, are used in procedures that are typically covered by health insurance, HMO plans, Medicare or Medicaid. These third-party
payors have recently been trying to contain costs by restricting the types of procedures they reimburse to those viewed as most cost-effective and capping or reducing reimbursement rates. These polices could adversely affect sales and prices of our
products. Physicians, hospitals and other health care providers may be reluctant to purchase our products if third-party payors do not adequately reimburse them for the cost of our products and the use of our surgical equipment. For example:
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Major third-party payors for hospital services, including government insurance plans, Medicare, Medicaid and private health care insurers, have substantially revised their payment
methodologies during the last few years, resulting in stricter standards for reimbursement of hospital and outpatient charges for some medical procedures, including cataract procedures and IOLs; </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Numerous legislative proposals have been considered that, if enacted, would result in major reforms in the United States&#146; health care system, which could have an adverse effect
on our business; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Our competitors may reduce the prices of their products, which could result in third-party payors favoring our competitors; </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">There are proposed and existing laws and regulations governing maximum product prices and the profitability of companies in the health care industry; and </FONT></TD></TR></TABLE>
<P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">There have been recent initiatives by third-party payors to challenge the prices charged for medical products. Reductions in the prices for our products in response to these trends
could reduce our profits. Moreover, our products may not be covered in the future by third-party payors, which would also reduce our sales. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>We are subject to extensive government regulation, which increases our costs and could prevent us from selling our products. </I></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Government regulations and agency oversight apply to every aspect of our
business, including testing, manufacturing, safety and environmental controls, efficacy, labeling, advertising, promotion, record keeping, the sale and distribution of products and samples. We are also subject to government regulation over the
prices we charge and the rebates we offer to customers. Complying with government regulation substantially increases the cost of developing, manufacturing and selling our products. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In the United States, we must obtain approval from the FDA for each product that we market. Competing in the ophthalmic
products industry requires us to continuously introduce new or improved products and processes, </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">and to submit these to the FDA for approval. Obtaining FDA approval is a long and expensive process, and approval is never certain. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Products distributed outside of the United States are also subject to
government regulation, which may be equally or more demanding. Our new products could take a significantly longer time than we expect to gain regulatory approval and may never gain approval. If a regulatory authority delays approval of a potentially
significant product, the potential sales of the product and its value to us can be substantially reduced. Even if the FDA or another regulatory agency approves a product, the approval may limit the indicated uses of the product, or may otherwise
limit our ability to promote, sell and distribute the product, or may require post-marketing studies. If we cannot obtain regulatory approval of our new products, or if the approval is too narrow, we will not be able to market these products, which
would eliminate or reduce our potential sales and earnings. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2"><B><I>The global nature of our business may result in fluctuations and declines in our sales and profits. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Our products are sold in more than 39 countries. Revenues from international operations make up a significant portion of our total revenue, reaching 55%
for the six months ended July 4, 2003. The results of operations and the financial position of our offshore operations are generally reported in the relevant local currencies and then translated into United States dollars at the applicable exchange
rates for inclusion in our consolidated financial statements, exposing us to translation risk. In 2003, our most significant currency exposures were to the Euro, the Swiss Franc, and the Australian dollar. The exchange rates between these and other
local currencies and the United States dollar may fluctuate substantially. In addition, we are exposed to transaction risk because some of our expenses are incurred in a different currency from the currency in which our revenues are received. We
have not attempted to offset our exposure to these risks by investing in derivatives or engaging in other hedging transactions. Fluctuations in the value of the United States dollar against other currencies have had a material adverse effect on our
operating margins and profitability in the past, and may have similar effects in the future. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">Economic, social and political conditions, laws, practices and local customs vary widely among the countries in which we sell our products. Our operations outside of the United States are subject to a number of risks
and potential costs, including lower profit margins, less stringent protection of intellectual property and economic, political and social uncertainty in some countries, especially in emerging markets. Our continued success as a global company
depends, in part, on our ability to develop and implement policies and strategies that are effective in anticipating and managing these and other risks in the countries where we do business. These and other risks may have a material adverse effect
on our operations in any particular country and on our business as a whole. We price all of our products in U.S. dollars, and as a result changes in exchange rates can make our products more expensive in some offshore markets and reduce our
revenues. Inflation in emerging markets also makes our products more expensive there and increases the credit risks to which we are exposed. We have experienced currency fluctuations, inflation and volatile economic conditions, which have affected
our profitability in the past in several markets, including Japan, Switzerland, the European Union and Australia, and we may experience such effects in the future. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>We depend on proprietary technologies, but may not be able to protect our intellectual property rights adequately.
</I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We have numerous patents and pending patent
applications. We rely on a combination of contractual provisions, confidentiality procedures and patent, trademark, copyright and trade secrecy laws to protect the proprietary aspects of our technology. These legal measures afford limited protection
and may not prevent our competitors from gaining access to our intellectual property and proprietary information. Any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. Furthermore, we cannot be certain that any
pending patent application held by us will result in an issued patent or that if patents are issued to us, the patents </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">19 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">will provide meaningful protection against competitors or competitive technologies. Litigation may be necessary to enforce our intellectual property rights,
to protect our trade secrets and to determine the validity and scope of our proprietary rights. Any litigation could result in substantial expense, may reduce our profits and may not adequately protect our intellectual property rights. In addition,
we may be exposed to future litigation by third parties based on claims that our products infringe their intellectual property rights. This risk is exacerbated by the fact that the validity and breadth of claims covered by patents in our industry
may involve complex legal issues that are not fully resolved. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">Any litigation or claims against us, whether or not successful, could result in substantial costs and harm our reputation. In addition, intellectual property litigation or claims could force us to do one or more of the following: to cease
selling or using any of our products that incorporate the challenged intellectual property, which would adversely affect our revenue; to negotiate a license from the holder of the intellectual property right alleged to have been infringed, which
license may not be available on reasonable terms, if at all; or to redesign our products to avoid infringing the intellectual property rights of a third party, which may be costly and time-consuming or impossible to accomplish. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>We obtain some of the components of our products from a single source,
and an interruption in the supply of those components could reduce our revenue. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">We obtain some of the components for our products from a single source. For example, only one supplier produces the raw material for the STAARVISC II viscoelastic product. Although we believe we could find alternate
supplies for any of these components, the loss or interruption of any of these suppliers could increase costs, reducing our revenue and profitability, or harm our customer relations by delaying product deliveries. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>We may not successfully develop and launch replacements for our
products that lose patent protection. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Most of our
products are covered by patents that give us a degree of market exclusivity during the term of the patent. We have also earned revenue in the past by licensing some of our patented technology to other ophthalmic companies. The legal life of a patent
is 20 years from application. Patents covering our products will expire from this year through the next 20 years. Upon patent expiration, our competitors may introduce products using the same technology. As a result of this possible increase in
competition, we may need to charge a lower price in order to maintain sales of our products, which could make these products less profitable. If we fail to develop and successfully launch new products prior to the expiration of patents for our
existing products, our sales and profits with respect to those products could decline significantly. We may not be able to develop and successfully launch more advanced replacement products before these and other patents expire. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Our activities involve hazardous materials and emissions and may
subject us to environmental liability. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Our
manufacturing, research and development practices involve the controlled use of hazardous materials. We are subject to federal, state and local laws and regulations in the various jurisdictions in which we have operations governing the use,
manufacturing, storage, handling and disposal of these materials and certain waste products. Although we believe that our safety and environmental procedures for handling and disposing of these materials comply with legally prescribed standards, we
cannot completely eliminate the risk of accidental contamination or injury from these materials. Remedial environmental actions could require us to incur substantial unexpected costs, which would materially and adversely affect our results of
operations. If we were involved in a major environmental accident or found to be in substantial non-compliance with applicable environmental laws, we could be held liable for damages or penalized with fines. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>We risk losses through litigation. </I></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We are currently party to various claims and legal proceedings arising out
of the normal course of our business. These claims and legal proceedings relate to contractual rights and obligations, employment matters, and claims of product liability. While we do not believe that any of the claims known to us is likely to have
a material adverse effect on our financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>We depend on key employees. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We depend on the continued service of our senior management and other key employees. The loss of a key employee could hurt
our business. We could be particularly hurt if any key employee or employees went to work for competitors. Our future success depends on our ability to identify, attract, train and motivate other highly skilled personnel. Failure to do so may
adversely affect future results. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Risks Related to Ownership of Our Common
Stock </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Our Certificate of Incorporation could delay
or prevent an acquisition or sale of our company. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Our
Certificate of Incorporation empowers the Board of Directors to establish and issue a class of preferred stock, and to determine the rights, preferences and privileges of the preferred stock. We also have a Stockholders&#146; Rights Plan, which
could discourage a third party from making an offer to acquire us. These provisions give the Board of Directors the ability to deter, discourage or make more difficult a change in control of our company, even if such a change in control would be in
the interest of a significant number of our stockholders or if such a change in control would provide our stockholders with a substantial premium for their shares over the then-prevailing market price for the common stock. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Our bylaws contain other provisions that could have an anti-takeover
effect, including the following: </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">only one of the three classes of directors is elected each year; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">stockholders have limited ability to remove directors; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">stockholders cannot call a special meeting of stockholders; and </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">stockholders must give advance notice to nominate directors. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>Anti-takeover provisions of Delaware law could delay or prevent an acquisition of our company. </I></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We are subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which regulates corporate acquisitions. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging
others from making tender offers for our common stock or preventing changes in our management. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2"><B><I>Future sales of our common stock may depress our stock price. </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The market price of our common stock could be subject to downward price pressure as a result of sales of our recent private placement of 1,000,000 shares
of common stock, which have been registered for resale, or the perception that these sales could occur. In addition, the perception that we might conduct similar private placements followed by public offering of the privately placed shares could
make it more difficult for us to raise funds through future offerings of common stock. As of August 22, 2003, there were 18,291,682 shares of our common stock outstanding, with another 2,439,710 shares of common stock issuable upon exercise of
options granted under our stock option plans or under certain agreements with our senior officers. Some of the stock underlying these options has been registered for resale with the SEC. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I>The market price of our common stock is likely to be volatile. </I></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Our stock price has fluctuated widely, ranging from $2.10 to $15.44 within
the past year. As of August 21, 2003, the closing price of our common stock was $11.35. Our stock price could continue to experience significant fluctuations in response to factors such as quarterly variations in operating results, operating results
that vary from the expectations of securities analysts and investors, changes in financial estimates, changes in market valuations of competitors, announcements by us or our competitors of a material nature, additions or departures of key personnel,
future sales of common stock and stock volume fluctuations. Also, general political and economic conditions such as recession or interest rate fluctuations may adversely affect the market price of our stock. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx88907_6"></A>ITEM 3&#151;QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In the normal course of business, our operations are exposed to risks associated with fluctuations in interest rates and foreign currency exchange rates.
The Company manages its risks based on management&#146;s judgment of the appropriate trade-off between risk, opportunity and costs. Management does not believe that market risks are material to the results of operations or cash flows of the Company,
and, accordingly, does not generally enter into interest rate or foreign exchange rate hedge instruments. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>Interest rate risk</I>. Our $3.1 million of debt is based on the borrowings of our international subsidiaries. The majority of our international
borrowings bear an interest rate that is linked to Euro market conditions and, thus, our interest rate expense will fluctuate with changes in those conditions. If interest rates were to increase or decrease by 1% for the year, our annual interest
rate expense would increase or decrease by approximately $30,000. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2"><I>Foreign currency risk</I>. Our international subsidiaries operate in and are net recipients of currencies other than the U.S. dollar and, as such, we benefit from a weaker dollar and are adversely affected by a stronger dollar relative
to major currencies worldwide (primarily, the Euro and Australian dollar). Accordingly, changes in exchange rates, and particularly the strengthening of the US dollar, may negatively affect our consolidated sales and gross profit as expressed in
U.S. dollars. Additionally, approximately 97% of our debt is denominated in Swiss Francs and as such, we are subject to fluctuations of the Swiss Franc as compared to the U.S. dollar in converting the value of the debt in U.S. dollars. The U.S.
dollar value of the debt is increased by a weaker dollar and decreased by a stronger dollar relative to the Swiss Franc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx88907_7"></A>ITEM 4&#151;CONTROLS AND PROCEDURES </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">The Company&#146;s Chief Executive Officer, David Bailey, and Chief Financial Officer, John Bily, with the participation of the Company&#146;s management, carried out an evaluation of the effectiveness of the Company&#146;s disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this report, the Company&#146;s disclosure
controls and procedures are effective in making known to them material information relating to the Company (including its consolidated subsidiaries) required to be included in this report. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Disclosure controls and procedures, no matter how well designed and
implemented, can provide only reasonable assurance of achieving an entity&#146;s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact
that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes or intentional circumvention of the established processes. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">22 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">There was no change in the Company&#146;s internal control over financial reporting, known to the
Chief Executive Officer or the Chief Financial Officer, that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company&#146;s internal control over financial reporting.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">23 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>STAAR SURGICAL COMPANY AND SUBSIDIARIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>PART II&#151;OTHER INFORMATION </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>
<A NAME="tx88907_8"></A>ITEM 1&nbsp;&nbsp;&nbsp;&nbsp;LEGAL PROCEEDINGS </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">We are currently party to various claims and legal proceedings arising out of the normal course of our business. These claims and legal proceedings relate to contractual rights and obligations, employment matters, and
claims of product liability. We do not believe that any of the claims known to us is likely to have a material adverse effect on our financial condition or results of operations. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>
<A NAME="tx88907_9"></A>ITEM 2&nbsp;&nbsp;&nbsp;&nbsp;CHANGES IN SECURITIES AND USE OF PROCEEDS </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Not applicable </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>
<A NAME="tx88907_10"></A>ITEM 3&nbsp;&nbsp;&nbsp;&nbsp;DEFAULTS UPON SENIOR SECURITIES </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Not applicable </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>
<A NAME="tx88907_11"></A>ITEM 4&nbsp;&nbsp;&nbsp;&nbsp;SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">a.</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The annual meeting of the stockholders of the Company (the &#147;Annual Meeting&#148;) was convened and voting on Proposal No. 1 was concluded on June 18, 2003. The Annual Meeting
was adjourned until June 25, 2003, and voting on Proposal No. 2 was concluded on that date. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">b.</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">At the Annual Meeting, Proposal No. 1 for the election to the board of two Class II directors to serve until the annual meeting of stockholders in 2006 and until their successors
are duly elected and qualified was submitted to the stockholders. The nominees of the Board of Directors were re-elected as follows: </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="80%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="3" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number of Shares</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>For</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Withheld</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="74%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Mr. Donald Duffy</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="3%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="12%"><FONT FACE="Times New Roman" SIZE="2">14,956,378</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="8%"><FONT FACE="Times New Roman" SIZE="2">248,589</FONT></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="74%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Dr. Volker Anhaeusser</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="3%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="12%"><FONT FACE="Times New Roman" SIZE="2">14,910,593</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="8%"><FONT FACE="Times New Roman" SIZE="2">294,374</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">c.</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">At the Annual Meeting, Proposal No. 2 to approve the STAAR Surgical Company 2003 Omnibus Equity Incentive Plan was submitted to the stockholders. The proposal was approved as
follows: </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="80%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="5" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number of Shares</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>For</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Against</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Abstain</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="10%"><FONT FACE="Times New Roman" SIZE="2">5,531,319</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="10%"><FONT FACE="Times New Roman" SIZE="2">5,137,721</FONT></TD>
<TD VALIGN="bottom" WIDTH="4%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="7%"><FONT FACE="Times New Roman" SIZE="2">31,917</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>
<A NAME="tx88907_12"></A>ITEM 5&nbsp;&nbsp;&nbsp;&nbsp;OTHER INFORMATION </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Not applicable </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>
<A NAME="tx88907_13"></A>ITEM 6&nbsp;&nbsp;&nbsp;&nbsp;EXHIBITS AND REPORTS ON FORM 8-K </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>(a)</B><B><I>&nbsp;&nbsp;Exhibits</I></B><B> </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">24 </FONT></P>


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<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD VALIGN="top" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">3.1</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Certificate of Incorporation, as amended.(1)</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">3.2</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By-laws, as amended.(2)</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">4.5</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stockholders&#146; Rights Plan, dated effective April 20, 1995.(2)</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">4.7</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Amendment No. 1 to Stockholders&#146; Rights Plan, dated April 21, 2003.(3)</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">31</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Certifications Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="2%"><FONT FACE="Times New Roman" SIZE="2">32</FONT></TD>
<TD VALIGN="bottom" WIDTH="6%" ><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Certification Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.</FONT></P></TD></TR>
</TABLE><HR WIDTH="10%" SIZE="1" NOSHADE COLOR="#000000" ALIGN="left">
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(1)</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Incorporated by reference from the Company&#146;s Annual Report on Form 10-K for the year ended December 31, 1999, as filed on March 30, 2000. </FONT></TD></TR></TABLE>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(2)</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Incorporated by reference from the Company&#146;s Annual Report on Form 10-K for the year ended December 29, 2000, as filed on March 29, 2001. </FONT></TD></TR></TABLE>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(3)</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Incorporated by reference to the Company&#146;s Quarterly Report on Form 10-Q for the quarter ended April 4, 2003 as filed on May 19, 2003. </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>(b)</B><B><I>&nbsp;&nbsp;Reports on Form 8-K</I></B><B> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On June 6, 2003, the Company filed a Current report on Form 8-K, furnishing under Item 4 its
decision not to engage BDO Seidman, LLP as its principal independent accountant for the fiscal year ending January 2, 2004. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On June 13, 2003, the Company filed a Current report on Form 8-K, furnishing under Item 4 its decision to engage McGladrey &amp; Pullen, LLP as its principal accountant
for the fiscal year ending January 2, 2004. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">25 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="toc88907_14"></A>SIGNATURES </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">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. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="85%" BORDER="0">

<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" WIDTH="31%"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">S<SMALL>TAAR</SMALL> S<SMALL>URGICAL</SMALL> C<SMALL>OMPANY</SMALL></FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="61%"><FONT FACE="Times New Roman" SIZE="2">Date:&nbsp;&nbsp;August 25, 2003</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" WIDTH="4%"><FONT FACE="Times New Roman" SIZE="2">by:</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center" WIDTH="31%"><FONT FACE="Times New Roman" SIZE="2">/s/&nbsp;&nbsp;&nbsp;&nbsp;J<SMALL>OHN</SMALL> B<SMALL>ILY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</SMALL></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" WIDTH="31%"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>John Bily</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>Chief Financial Officer and</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Duly Authorized Officer on</B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Behalf of the Registrant</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Principal
accounting and financial</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>officer for the quarter)</B></FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">26 </FONT></P>

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<TYPE>EX-31.1
<SEQUENCE>3
<FILENAME>dex311.htm
<DESCRIPTION>SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
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<TITLE>Section 302 Certification of Chief Executive Officer</TITLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 31.1 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>CERTIFICATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">I, David Bailey, certify that: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1. I have reviewed this quarterly report on Form 10-Q of STAAR Surgical Company; </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4. The registrant&#146;s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(b) Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(c) Disclosed in this report any change in the registrant&#146;s internal control over financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant&#146;s internal control over financial reporting; and </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5. The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit committee of registrant&#146;s board of directors (or persons performing the equivalent functions): </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant&#146;s ability to record, process, summarize and report financial information; and </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant&#146;s internal control over financial reporting. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="85%" BORDER="0">

<TR>
<TD VALIGN="top" WIDTH="61%"> <P STYLE="margin-left:2.00em"><FONT FACE="Times New Roman" SIZE="2">Date: August 25, 2003</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" ALIGN="center" WIDTH="31%"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">/s/&nbsp;&nbsp;&nbsp;&nbsp;D<SMALL>AVID</SMALL> B<SMALL>AILEY</SMALL></FONT></P><HR SIZE="1"
NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" ALIGN="center" WIDTH="31%"><FONT FACE="Times New Roman" SIZE="1"><B>David Bailey</B></FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" ALIGN="center" WIDTH="31%"><FONT FACE="Times New Roman" SIZE="1"><B>Chief Executive Officer</B></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">A signed original of
this written statement required by Rule 13a-14(a) has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. </FONT></P>
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<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>4
<FILENAME>dex312.htm
<DESCRIPTION>SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
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<TITLE>Section 302 Certification of Chief Financial Officer</TITLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 31.2 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>CERTIFICATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">I, John Bily, certify that: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1. I have reviewed this quarterly report on Form 10-Q of STAAR Surgical Company; </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4. The registrant&#146;s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(b) Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(c) Disclosed in this report any change in the registrant&#146;s internal control over financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant&#146;s internal control over financial reporting; and </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5. The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit committee of registrant&#146;s board of directors (or persons performing the equivalent functions): </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant&#146;s ability to record, process, summarize and report financial information; and </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant&#146;s internal control over financial reporting. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TR>
<TD VALIGN="top" WIDTH="61%"> <P STYLE="margin-left:2.00em"><FONT FACE="Times New Roman" SIZE="2">Date: August 25, 2003</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" ALIGN="center" WIDTH="31%"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">/s/&nbsp;&nbsp;&nbsp;&nbsp;J<SMALL>OHN</SMALL> B<SMALL>ILY</SMALL></FONT></P><HR SIZE="1"
NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" ALIGN="center" WIDTH="31%"><FONT FACE="Times New Roman" SIZE="1"><B>John Bily</B></FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" ALIGN="center" WIDTH="31%"><FONT FACE="Times New Roman" SIZE="1"><B>Chief Financial Officer</B></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">A signed original of
this written statement required by Rule 13a-14(a) has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>5
<FILENAME>dex32.htm
<DESCRIPTION>SECTION 906 CERTIFICATION OF CEO AND CFO
<TEXT>
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<TITLE>Section 906 Certification of CEO and CFO</TITLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 32 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Certification pursuant to 18 U.S.C. Section 1350, </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B>As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">In connection with the filing of the Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2003 (the &#147;Report&#148;) by STAAR Surgical Company (&#147;Registrant&#148;), each of the undersigned
hereby certifies that: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">1.</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">2.</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant as of and for the periods
presented in the Report. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="61%"> <P STYLE="margin-left:2.00em"><FONT FACE="Times New Roman" SIZE="2">Dated: August 25, 2003</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" WIDTH="4%"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center" WIDTH="31%"><FONT FACE="Times New Roman" SIZE="2">/s/&nbsp;&nbsp;&nbsp;&nbsp;D<SMALL>AVID</SMALL> B<SMALL>AILEY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</SMALL></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" WIDTH="31%"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>David Bailey</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>President, Chief Executive Officer,</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Chairman and Director</B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(principal executive officer)</B></FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" WIDTH="61%"> <P STYLE="margin-left:2.00em"><FONT FACE="Times New Roman" SIZE="2">Dated: August 25, 2003</FONT></P></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" WIDTH="4%"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center" WIDTH="31%"><FONT FACE="Times New Roman" SIZE="2">/s/&nbsp;&nbsp;&nbsp;&nbsp;J<SMALL>OHN</SMALL> B<SMALL>ILY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</SMALL></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="2%" ><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" WIDTH="31%"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>John Bily</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>Chief Financial Officer</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(principal accounting and financial officer)</B></FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">A signed original of this written
statement required by Section 906 has been provided to STAAR Surgical Company and will be furnished to the Securities and Exchange Commission or its staff upon request. </FONT></P>
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