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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended: September 29, 2023

Or

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

Commission file number: 0-11634

STAAR Surgical Company

(Exact Name of Registrant as Specified in its Charter)

Delaware | 95-3797439
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.)
25651 Atlantic Ocean Drive Lake Forest, California | 92630
(Address of Principal Executive Offices) | (Zip Code)

(626) 303-7902

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common | STAA | NASDAQ

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. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

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

Large accelerated filer | ☑ |  | Accelerated filer | ☐
Non-accelerated filer | ☐ |  | Smaller reporting company | ☐
Emerging growth company | ☐ |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The registrant has 48,817,473 shares of common stock, par value $0.01 per share, issued and outstanding as of October 27, 2023.

STAAR SURGICAL COMPANY

INDEX

|  |  | PAGE NUMBER
PART I – FINANCIAL INFORMATION |  | 1
ITEM 1 | FINANCIAL STATEMENTS |  | 1
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 19
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |  | 24
ITEM 4. | CONTROLS AND PROCEDURES |  | 24
PART II – OTHER INFORMATION |  | 25
ITEM 1. | LEGAL PROCEEDINGS |  | 25
ITEM 1A. | RISK FACTORS |  | 25
ITEM 4. | MINE SAFETY DISCLOSURES |  | 25
ITEM 5. | OTHER INFORMATION |  | 25
ITEM 6. | EXHIBITS |  | 26

PART I – FINANCI AL INFORMATION

ITEM 1. FINANCI AL STATEMENTS

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDA TED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

|  | September 29, 2023 |  |  | December 30, 2022 |
ASSETS |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 127,432 |  |  | $ | 86,480 |
Investments available for sale |  |  | 60,681 |  |  |  | 125,159 |
Accounts receivable trade, net of allowance for credit losses of $38 and $20, respectively |  |  | 112,367 |  |  |  | 62,447 |
Inventories, net |  |  | 31,061 |  |  |  | 24,161 |
Prepayments, deposits and other current assets |  |  | 15,527 |  |  |  | 13,476 |
Total current assets |  |  | 347,068 |  |  |  | 311,723 |
Investments available for sale |  |  | 13,627 |  |  |  | 13,902 |
Property, plant and equipment, net |  |  | 62,886 |  |  |  | 50,921 |
Finance lease right-of-use assets, net |  |  | 220 |  |  |  | 342 |
Operating lease right-of-use assets, net |  |  | 34,992 |  |  |  | 30,270 |
Intangible assets, net |  |  | — |  |  |  | 173 |
Goodwill |  |  | 1,786 |  |  |  | 1,786 |
Deferred income taxes |  |  | 8,560 |  |  |  | 8,744 |
Other assets |  |  | 2,382 |  |  |  | 957 |
Total assets |  | $ | 471,521 |  |  | $ | 418,818 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |
Accounts payable |  | $ | 8,786 |  |  | $ | 11,576 |
Obligations under finance leases |  |  | 164 |  |  |  | 169 |
Obligations under operating leases |  |  | 4,003 |  |  |  | 3,524 |
Allowance for sales returns |  |  | 7,557 |  |  |  | 5,706 |
Other current liabilities |  |  | 36,265 |  |  |  | 30,741 |
Total current liabilities |  |  | 56,775 |  |  |  | 51,716 |
Obligations under finance leases |  |  | 84 |  |  |  | 210 |
Obligations under operating leases |  |  | 31,643 |  |  |  | 27,136 |
Deferred income taxes |  |  | 1,295 |  |  |  | 1,489 |
Asset retirement obligations |  |  | 98 |  |  |  | 220 |
Pension liability |  |  | 3,031 |  |  |  | 1,935 |
Total liabilities |  |  | 92,926 |  |  |  | 82,706 |
Commitments and contingencies |  |  |  |  |  |
Stockholders’ equity: |  |  |  |  |  |
Common stock, $0.01 par value; 60,000 shares authorized: 48,817 and 48,212 shares issued and outstanding at September 29, 2023 and December 30, 2022, respectively |  |  | 488 |  |  |  | 482 |
Additional paid-in capital |  |  | 436,117 |  |  |  | 404,189 |
Accumulated other comprehensive gain (loss) |  |  | (2,886 | ) |  |  | 156 |
Accumulated deficit |  |  | (55,124 | ) |  |  | (68,715 | )
Total stockholders’ equity |  |  | 378,595 |  |  |  | 336,112 |
Total liabilities and stockholders’ equity |  | $ | 471,521 |  |  | $ | 418,818 |

See accompanying notes to the condensed consolidated financial statements.

1

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED S TATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Net sales |  | $ | 80,308 |  |  | $ | 76,046 |  |  | $ | 246,142 |  |  | $ | 220,347 |
Cost of sales |  |  | 16,670 |  |  |  | 15,584 |  |  |  | 54,216 |  |  |  | 46,749 |
Gross profit |  |  | 63,638 |  |  |  | 60,462 |  |  |  | 191,926 |  |  |  | 173,598 |
Selling, general and administrative expenses: |  |  |  |  |  |  |  |  |  |  |  |
General and administrative |  |  | 19,266 |  |  |  | 14,011 |  |  |  | 55,461 |  |  |  | 39,934 |
Selling and marketing |  |  | 26,607 |  |  |  | 23,130 |  |  |  | 85,238 |  |  |  | 64,633 |
Research and development |  |  | 11,470 |  |  |  | 9,616 |  |  |  | 33,535 |  |  |  | 26,193 |
Total selling, general and administrative expenses |  |  | 57,343 |  |  |  | 46,757 |  |  |  | 174,234 |  |  |  | 130,760 |
Operating income |  |  | 6,295 |  |  |  | 13,705 |  |  |  | 17,692 |  |  |  | 42,838 |
Other income (expense), net: |  |  |  |  |  |  |  |  |  |  |  |
Interest income, net |  |  | 1,690 |  |  |  | 897 |  |  |  | 5,287 |  |  |  | 934 |
Loss on foreign currency transactions |  |  | (1,384 | ) |  |  | (2,129 | ) |  |  | (3,240 | ) |  |  | (4,904 | )
Royalty income |  |  | 74 |  |  |  | 77 |  |  |  | 74 |  |  |  | 527 |
Other income, net |  |  | 71 |  |  |  | 27 |  |  |  | 144 |  |  |  | 178 |
Total other income (expense), net |  |  | 451 |  |  |  | (1,128 | ) |  |  | 2,265 |  |  |  | (3,265 | )
Income before income taxes |  |  | 6,746 |  |  |  | 12,577 |  |  |  | 19,957 |  |  |  | 39,573 |
Provision for income taxes |  |  | 1,929 |  |  |  | 2,315 |  |  |  | 6,366 |  |  |  | 6,671 |
Net income |  | $ | 4,817 |  |  | $ | 10,262 |  |  | $ | 13,591 |  |  | $ | 32,902 |
Net income per share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.10 |  |  | $ | 0.21 |  |  | $ | 0.28 |  |  | $ | 0.69 |
Diluted |  | $ | 0.10 |  |  | $ | 0.21 |  |  | $ | 0.27 |  |  | $ | 0.67 |
Weighted average shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 48,613 |  |  |  | 48,102 |  |  |  | 48,426 |  |  |  | 47,915 |
Diluted |  |  | 49,370 |  |  |  | 49,549 |  |  |  | 49,494 |  |  |  | 49,371 |

See accompanying notes to the condensed consolidated financial statements.

2

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Net income |  | $ | 4,817 |  |  | $ | 10,262 |  |  | $ | 13,591 |  |  | $ | 32,902 |
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |  |
Defined benefit plans: |  |  |  |  |  |  |  |  |  |  |  |
Net change in plan assets |  |  | (115 | ) |  |  | 465 |  |  |  | (1,839 | ) |  |  | 7,126 |
Reclassification into other income (expense), net |  |  | (51 | ) |  |  | 54 |  |  |  | (154 | ) |  |  | 139 |
Investments available for sale: |  |  |  |  |  |  |  |  |  |  |  |
Change in unrealized gain (loss) |  |  | 149 |  |  |  | (432 | ) |  |  | 123 |  |  |  | (432 | )
Reclassification into other income (expense), net |  |  | — |  |  |  | — |  |  |  | (2 | ) |  |  | — |
Foreign currency translation gain (loss) |  |  | (494 | ) |  |  | (958 | ) |  |  | (1,965 | ) |  |  | (3,474 | )
Tax effect |  |  | 146 |  |  |  | 312 |  |  |  | 795 |  |  |  | 379 |
Other comprehensive income (loss), net of tax |  |  | (365 | ) |  |  | (559 | ) |  |  | (3,042 | ) |  |  | 3,738 |
Comprehensive income |  | $ | 4,452 |  |  | $ | 9,703 |  |  | $ | 10,549 |  |  | $ | 36,640 |

See accompanying notes to the condensed consolidated financial statements.

3

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

|  | Three Months Ended |
|  | Common Stock Shares |  |  | Common Stock Par Value |  |  | Additional Paid-In Capital |  |  | Accumulated Other Compre- hensive Income (Loss) |  |  | Accumulated Deficit |  |  | Total |
Balance, at June 30, 2023 |  |  | 48,499 |  |  | $ | 485 |  |  | $ | 419,594 |  |  | $ | (2,521 | ) |  | $ | (59,941 | ) |  | $ | 357,617 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4,817 |  |  |  | 4,817 |
Other comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (365 | ) |  |  | — |  |  |  | (365 | )
Common stock issued upon exercise of options |  |  | 305 |  |  |  | 3 |  |  |  | 7,255 |  |  |  | — |  |  |  | — |  |  |  | 7,258 |
Stock-based compensation |  |  | — |  |  |  | — |  |  |  | 9,380 |  |  |  | — |  |  |  | — |  |  |  | 9,380 |
Repurchase of employee common stock for taxes withheld |  |  | (1 | ) |  |  | — |  |  |  | (112 | ) |  |  | — |  |  |  | — |  |  |  | (112 | )
Vested restricted and performance stock |  |  | 14 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance, at September 29, 2023 |  |  | 48,817 |  |  | $ | 488 |  |  | $ | 436,117 |  |  | $ | (2,886 | ) |  | $ | (55,124 | ) |  | $ | 378,595 |
Balance, at July 1, 2022 |  |  | 48,024 |  |  | $ | 480 |  |  | $ | 387,328 |  |  | $ | 249 |  |  | $ | (85,740 | ) |  | $ | 302,317 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10,262 |  |  |  | 10,262 |
Other comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (559 | ) |  |  | — |  |  |  | (559 | )
Common stock issued upon exercise of options |  |  | 166 |  |  |  | 2 |  |  |  | 5,032 |  |  |  | — |  |  |  | — |  |  |  | 5,034 |
Stock-based compensation |  |  | — |  |  |  | — |  |  |  | 6,088 |  |  |  | — |  |  |  | — |  |  |  | 6,088 |
Vested restricted and performance stock |  |  | 12 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance, at September 30, 2022 |  |  | 48,202 |  |  | $ | 482 |  |  | $ | 398,448 |  |  | $ | (310 | ) |  | $ | (75,478 | ) |  | $ | 323,142 |

See accompanying notes to the condensed consolidated financial statements.

4

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

|  | Nine Months Ended |
|  | Common Stock Shares |  |  | Common Stock Par Value |  |  | Additional Paid-In Capital |  |  | Accumulated Other Compre- hensive Income (Loss) |  |  | Accumulated Deficit |  |  | Total |
Balance, at December 30, 2022 |  |  | 48,212 |  |  | $ | 482 |  |  | $ | 404,189 |  |  | $ | 156 |  |  | $ | (68,715 | ) |  | $ | 336,112 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 13,591 |  |  |  | 13,591 |
Other comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,042 | ) |  |  | — |  |  |  | (3,042 | )
Common stock issued upon exercise of options |  |  | 500 |  |  |  | 5 |  |  |  | 9,259 |  |  |  | — |  |  |  | — |  |  |  | 9,264 |
Stock-based compensation |  |  | — |  |  |  | — |  |  |  | 24,765 |  |  |  | — |  |  |  | — |  |  |  | 24,765 |
Repurchase of employee common stock for taxes withheld |  |  | (35 | ) |  |  | — |  |  |  | (2,096 | ) |  |  | — |  |  |  | — |  |  |  | (2,096 | )
Unvested restricted stock |  |  | 10 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Vested restricted and performance stock |  |  | 130 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |
Balance, at September 29, 2023 |  |  | 48,817 |  |  | $ | 488 |  |  | $ | 436,117 |  |  | $ | (2,886 | ) |  | $ | (55,124 | ) |  | $ | 378,595 |
Balance, at December 31, 2021 |  |  | 47,716 |  |  | $ | 477 |  |  | $ | 373,519 |  |  | $ | (4,048 | ) |  | $ | (108,380 | ) |  | $ | 261,568 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 32,902 |  |  |  | 32,902 |
Other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,738 |  |  |  | — |  |  |  | 3,738 |
Common stock issued upon exercise of options |  |  | 417 |  |  |  | 4 |  |  |  | 8,175 |  |  |  | — |  |  |  | — |  |  |  | 8,179 |
Stock-based compensation |  |  | — |  |  |  | — |  |  |  | 16,754 |  |  |  | — |  |  |  | — |  |  |  | 16,754 |
Unvested restricted stock |  |  | 7 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Vested restricted and performance stock |  |  | 62 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |
Balance, at September 30, 2022 |  |  | 48,202 |  |  | $ | 482 |  |  | $ | 398,448 |  |  | $ | (310 | ) |  | $ | (75,478 | ) |  | $ | 323,142 |

See accompanying notes to the condensed consolidated financial statements.

5

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

|  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |
Cash flows from operating activities: |  |  |  |  |  |
Net income |  | $ | 13,591 |  |  | $ | 32,902 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |  |  |
Depreciation of property, plant, and equipment |  |  | 3,743 |  |  |  | 3,101 |
Amortization/Impairment of intangibles |  |  | 169 |  |  |  | 22 |
Accretion/Amortization of investments available for sale |  |  | (2,172 | ) |  |  | (307 | )
Deferred income taxes |  |  | 65 |  |  |  | 23 |
Change in net pension liability |  |  | (766 | ) |  |  | 40 |
Loss on disposal of property and equipment |  |  | 41 |  |  |  | — |
Stock-based compensation expense |  |  | 23,334 |  |  |  | 15,375 |
Change in asset retirement obligation |  |  | (104 | ) |  |  | — |
Provision for sales returns and bad debts |  |  | 1,925 |  |  |  | 361 |
Inventory provision |  |  | 4,090 |  |  |  | 2,020 |
Changes in working capital: |  |  |  |  |  |
Accounts receivable |  |  | (50,436 | ) |  |  | (13,108 | )
Inventories |  |  | (9,975 | ) |  |  | (4,123 | )
Prepayments, deposits, and other current assets |  |  | (3,584 | ) |  |  | 526 |
Accounts payable |  |  | (3,266 | ) |  |  | (1,834 | )
Other current liabilities |  |  | 5,970 |  |  |  | (2,253 | )
Net cash provided by (used in) operating activities |  |  | (17,375 | ) |  |  | 32,745 |
Cash flows from investing activities: |  |  |  |  |  |
Acquisition of property and equipment |  |  | (15,100 | ) |  |  | (14,083 | )
Purchase of investments available for sale |  |  | (52,314 | ) |  |  | (95,576 | )
Proceeds from sale or maturity of investments available for sale |  |  | 119,359 |  |  |  | — |
Net cash provided by (used in) investing activities |  |  | 51,945 |  |  |  | (109,659 | )
Cash flows from financing activities: |  |  |  |  |  |
Repayment of finance lease obligations |  |  | (121 | ) |  |  | (85 | )
Repurchase of employee common stock for taxes withheld |  |  | (2,096 | ) |  |  | — |
Proceeds from the exercise of stock options |  |  | 9,264 |  |  |  | 8,179 |
Proceeds from vested restricted stock |  |  | 1 |  |  |  | 1 |
Net cash provided by financing activities |  |  | 7,048 |  |  |  | 8,095 |
Effect of exchange rate changes on cash and cash equivalents |  |  | (666 | ) |  |  | (1,645 | )
Increase (decrease) in cash and cash equivalents |  |  | 40,952 |  |  |  | (70,464 | )
Cash and cash equivalents, at beginning of the period |  |  | 86,480 |  |  |  | 199,706 |
Cash and cash equivalents, at end of the period |  | $ | 127,432 |  |  | $ | 129,242 |

See accompanying notes to the condensed consolidated financial statements.

6

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 1 — Basis of Presentation and Significant Accounting Policies

The Condensed Consolidated Financial Statements of the Company present the financial position, results of operations, and cash flows of STAAR Surgical Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in the Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of December 30, 2022 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2022.

The Condensed Consolidated Financial Statements for the three and nine months ended September 29, 2023 and September 30, 2022, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The results of operations for the three and nine months ended September 29, 2023 and September 30, 2022, are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

Each of the Company’s fiscal reporting periods ends on the Friday nearest to the quarter ending date and generally consists of 13 weeks. Unless the context indicates otherwise “we,” “us,” the “Company,” and “STAAR” refer to STAAR Surgical Company and its consolidated subsidiaries.

Revision of Financial Statements for Correction of Immaterial Misstatements

Subsequent to the issuance of the Company’s consolidated financial statements for the year ended December 30, 2022, the Company determined that it had not correctly deducted compensation expense in calculating its income tax provision, deferred tax asset and valuation allowance under the Incremental Cash Tax Method. This resulted in an understatement of the net deferred tax asset, an overstatement in the valuation allowance, an overstatement of the provision for income taxes and understatement of net income. In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the error and determined that the related impact was not material to results of operations or financial position for any prior annual or interim period, but that correcting the cumulative impact of the error would be material to our results of operations for the year ended December 29, 2023. Accordingly, the Company has corrected the consolidated balance sheet as of December 30, 2022 and the consolidated statements of income and comprehensive income for the years ended December 30, 2022 and December 31, 2021. The effects of the revision on the previously issued consolidated financial statements were as follows:

Condensed Consolidated Balance Sheet

(in thousands)

(Unaudited)

|  | December 30, 2022 |
|  | As Previously Reported |  |  | Adjustment |  |  | As revised |
Deferred income taxes |  | $ | 4,824 |  |  | $ | 3,920 |  |  | $ | 8,744 |
Total assets |  |  | 414,898 |  |  |  | 3,920 |  |  |  | 418,818 |
Accumulated deficit |  |  | (72,635 | ) |  |  | 3,920 |  |  |  | (68,715 | )
Total stockholders’ equity |  |  | 332,192 |  |  |  | 3,920 |  |  |  | 336,112 |
Total liabilities and stockholders’ equity |  |  | 414,898 |  |  |  | 3,920 |  |  |  | 418,818 |

7

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)

Revision of Financial Statements for Correction of Immaterial Misstatements (Continued)

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(Unaudited)

|  | As Previously Reported |  |  | Adjustment |  |  | As revised |
At December 31, 2021 |  |  |  |  |  |  |  |  |
Accumulated deficit |  | $ | (111,390 | ) |  | $ | 3,010 |  |  | $ | (108,380 | )
Total stockholders’ equity |  |  | 258,558 |  |  |  | 3,010 |  |  |  | 261,568 |
At December 30, 2022 |  |  |  |  |  |  |  |  |
Accumulated deficit |  |  | (72,635 | ) |  |  | 3,920 |  |  |  | (68,715 | )
Total stockholders’ equity |  |  | 332,192 |  |  |  | 3,920 |  |  |  | 336,112 |

Condensed Consolidated Statements of Income and Comprehensive Income

(in thousands, except per share amounts)

(Unaudited)

|  | December 30, 2022 |  |  | December 31, 2021 |
|  | As Previously Reported |  |  | Adjustment |  |  | As revised |  |  | As Previously Reported |  |  | Adjustment |  |  | As revised |
Provision (benefit) for income taxes |  | $ | 6,797 |  |  | $ | (910 | ) |  | $ | 5,887 |  |  | $ | 6,803 |  |  | $ | (3,010 | ) |  | $ | 3,793 |
Net income |  |  | 38,755 |  |  |  | 910 |  |  |  | 39,665 |  |  |  | 24,501 |  |  |  | 3,010 |  |  |  | 27,511 |
Comprehensive income |  |  | 42,959 |  |  |  | 910 |  |  |  | 43,869 |  |  |  | 25,998 |  |  |  | 3,010 |  |  |  | 29,008 |
Net income per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.81 |  |  | $ | 0.02 |  |  | $ | 0.83 |  |  | $ | 0.52 |  |  | $ | 0.06 |  |  | $ | 0.58 |
Diluted |  | $ | 0.78 |  |  | $ | 0.02 |  |  | $ | 0.80 |  |  | $ | 0.50 |  |  | $ | 0.06 |  |  | $ | 0.56 |

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

|  | December 30, 2022 |  |  | December 31, 2021 |
|  | As Previously Reported |  |  | Adjustment |  |  | As revised |  |  | As Previously Reported |  |  | Adjustment |  |  | As revised |
Cash flows from operating activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 38,755 |  |  | $ | 910 |  |  | $ | 39,665 |  |  | $ | 24,501 |  |  | $ | 3,010 |  |  | $ | 27,511 |
Deferred income taxes |  |  | (1,344 | ) |  |  | (910 | ) |  |  | (2,254 | ) |  |  | 1,495 |  |  |  | (3,010 | ) |  |  | (1,515 | )

8

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)

Cloud-Based Software Implementation Costs

The Company has entered into cloud-based software hosting arrangements for which it incurs implementation costs. Certain costs incurred during the application development stage are capitalized and included within Prepayments, deposits and other current assets or Other assets on the condensed consolidated balance sheet, depending on the short or long-term nature of such costs, in line with the Company's policy on the accounting for prepaid software hosting arrangements. Costs incurred during the preliminary project stage and post-implementation stage are expensed as incurred. Capitalized cloud-based software implementation costs are amortized, beginning on the date the related software or module is ready for its intended use, on a straight-line basis over the remaining term of the hosting arrangement. Amortization is recognized as a component of selling, general, and administrative expenses, in the same line item as the expense for the associated hosting arrangement.

As of September 29, 2023, the Company recognized $1,318,000 of net capitalized cloud-based software implementation costs recorded within Other assets on the condensed consolidated balance sheets. There were no capitalized cloud-based software implementation costs recognized at December 30, 2022. As of September 29, 2023, these assets are not currently placed into service. No amortization of capitalized cloud-based software implementation costs were recognized during the three and nine months ended September 29, 2023.

Note 2 — Investments Available for Sale

During the second half of 2022, the Company started to invest its cash in slightly higher yielding securities. Investments available for sale (“AFS”) and the related fair value measurement consisted of the following (dollars in thousands):

|  | September 29, 2023 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Fair Value Measurements |
|  | Amortized Cost |  |  | Unrealized Gains |  |  | Unrealized Losses |  |  | Estimated Fair Value |  |  | Level 1 |  |  | Level 2 |
Commercial paper |  | $ | 17,102 |  |  | $ | 1 |  |  | $ | (5 | ) |  | $ | 17,098 |  |  | $ | — |  |  | $ | 17,098 |
Certificates of deposit |  |  | 4,080 |  |  |  | 1 |  |  |  | (2 | ) |  |  | 4,079 |  |  |  | — |  |  |  | 4,079 |
U.S. Treasury securities |  |  | 24,828 |  |  |  | — |  |  |  | (188 | ) |  |  | 24,640 |  |  |  | 24,640 |  |  |  | — |
U.S. agency securities |  |  | 9,771 |  |  |  | — |  |  |  | (21 | ) |  |  | 9,750 |  |  |  | — |  |  |  | 9,750 |
Corporate debt securities |  |  | 18,812 |  |  |  | 2 |  |  |  | (73 | ) |  |  | 18,741 |  |  |  | — |  |  |  | 18,741 |
Total investments AFS |  | $ | 74,593 |  |  | $ | 4 |  |  | $ | (289 | ) |  | $ | 74,308 |  |  | $ | 24,640 |  |  | $ | 49,668 |
|  | December 30, 2022 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Fair Value Measurements |
|  | Amortized Cost |  |  | Unrealized Gains |  |  | Unrealized Losses |  |  | Estimated Fair Value |  |  | Level 1 |  |  | Level 2 |
Commercial paper |  | $ | 44,054 |  |  | $ | 11 |  |  | $ | (62 | ) |  | $ | 44,003 |  |  | $ | — |  |  | $ | 44,003 |
Certificates of deposit |  |  | 17,355 |  |  |  | 4 |  |  |  | (75 | ) |  |  | 17,284 |  |  |  | — |  |  |  | 17,284 |
U.S. Treasury securities |  |  | 21,847 |  |  |  | 3 |  |  |  | (15 | ) |  |  | 21,835 |  |  |  | 21,835 |  |  |  | — |
U.S. agency securities |  |  | 10,688 |  |  |  | 16 |  |  |  | (3 | ) |  |  | 10,701 |  |  |  | — |  |  |  | 10,701 |
Corporate debt securities |  |  | 45,522 |  |  |  | 4 |  |  |  | (288 | ) |  |  | 45,238 |  |  |  | — |  |  |  | 45,238 |
Total investments AFS |  | $ | 139,466 |  |  | $ | 38 |  |  | $ | (443 | ) |  | $ | 139,061 |  |  | $ | 21,835 |  |  | $ | 117,226 |

The Company obtains the fair value from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers and other industry and economic events.

9

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 2 — Investments Available for Sale (Continued)

The Company assessed each debt security with gross unrealized losses for impairment. As part of that assessment, the Company concluded that it does not intend to sell and it is more-likely-than-not that the Company will not be required to sell, prior to the recovery of the amortized cost basis. The Company did no t recognize impairment for the three and nine months ended September 29, 2023.

The following table shows the fair value of investments AFS by contractual maturity (dollars in thousands):

|  | As of September 29, 2023 |
|  | Within one year |  |  | After one year through five years |  |  |  | Total |
Commercial paper |  | $ | 17,098 |  |  | $ | — |  |  |  | $ | 17,098 |
Certificates of deposit |  |  | 4,079 |  |  |  | — |  |  |  |  | 4,079 |
U.S. Treasury securities |  |  | 14,855 |  |  |  | 9,785 |  |  |  |  | 24,640 |
U.S. agency securities |  |  | 9,354 |  |  |  | 396 |  |  |  |  | 9,750 |
Corporate debt securities |  |  | 15,295 |  |  |  | 3,446 |  |  |  |  | 18,741 |
Total investments AFS |  | $ | 60,681 |  |  | $ | 13,627 |  |  |  | $ | 74,308 |

During the nine months ended September 29, 2023, the Company sold $600,000 in securities during the first quarter of 2023 due to a downgraded credit rating. The Company recognized a realized gain upon sale of $2,000 during the nine months ended September 29, 2023.

Note 3 — Inventories

Inventories, net are stated at the lower of cost and net realizable value, determined on a first-in, first-out basis and consisted of the following (in thousands):

|  | September 29, 2023 |  |  | December 30, 2022 |
Raw materials and purchased parts |  | $ | 9,591 |  |  | $ | 6,703 |
Work in process |  |  | 6,451 |  |  |  | 5,499 |
Finished goods |  |  | 18,944 |  |  |  | 13,633 |
Total inventories, gross |  |  | 34,986 |  |  |  | 25,835 |
Less inventory reserves |  |  | (3,925 | ) |  |  | (1,674 | )
Total inventories, net |  | $ | 31,061 |  |  | $ | 24,161 |

Note 4 — Prepayments, Deposits, and Other Current Assets

Prepayments, deposits, and other current assets consisted of the following (in thousands):

|  | September 29, 2023 |  |  | December 30, 2022 |
Prepayments and deposits |  | $ | 5,830 |  |  | $ | 3,986 |
Prepaid insurance |  |  | 455 |  |  |  | 2,620 |
Prepaid marketing costs |  |  | 4,543 |  |  |  | 2,534 |
Consumption tax receivable |  |  | 777 |  |  |  | 864 |
Value added tax (VAT) receivable |  |  | 2,189 |  |  |  | 2,661 |
BVG (Swiss Pension) prepayment |  |  | 801 |  |  |  | 111 |
Other(1) |  |  | 932 |  |  |  | 700 |
Total prepayments, deposits and other current assets |  | $ | 15,527 |  |  | $ | 13,476 |

(1)
No individual category in “other current assets” exceeds 5% of the total prepayments, deposits and other current assets.

10

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 5 — Property, Plant and Equipment

Property, plant and equipment, net consisted of the following (in thousands):

|  | September 29, 2023 |  |  | December 30, 2022 |
Machinery and equipment |  | $ | 29,461 |  |  | $ | 28,026 |
Computer equipment and software |  |  | 8,329 |  |  |  | 9,266 |
Furniture and fixtures |  |  | 4,110 |  |  |  | 4,276 |
Leasehold improvements |  |  | 10,047 |  |  |  | 14,965 |
Construction in process |  |  | 40,174 |  |  |  | 32,269 |
Total property, plant and equipment, gross |  |  | 92,121 |  |  |  | 88,802 |
Less accumulated depreciation |  |  | (29,235 | ) |  |  | (37,881 | )
Total property, plant and equipment, net |  | $ | 62,886 |  |  | $ | 50,921 |

Note 6 – Intangible Assets

Intangible assets, net consisted of the following (in thousands):

|  | September 29, 2023 |  |  | December 30, 2022 |
Long-lived amortized intangible assets |  | Gross Carrying Amount |  |  | Accumulated Amortization |  |  | Net |  |  | Gross Carrying Amount |  |  | Accumulated Amortization |  |  | Net |
Patents and licenses |  | $ | 9,180 |  |  | $ | (9,180 | ) |  | $ | — |  |  | $ | 9,240 |  |  | $ | (9,067 | ) |  | $ | 173 |

During the nine months ended September 29, 2023, the Company recognized full impairment of $154,000 for its Japan patents and licenses related to cataract IOLs.

Note 7 – Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

|  | September 29, 2023 |  |  | December 30, 2022 |
Accrued salaries and wages |  | $ | 11,813 |  |  | $ | 10,862 |
Accrued bonuses |  |  | 2,517 |  |  |  | 6,925 |
Income taxes payable |  |  | 8,540 |  |  |  | 3,845 |
Marketing obligations |  |  | 1,571 |  |  |  | 1,374 |
Other(1) |  |  | 11,824 |  |  |  | 7,735 |
Total other current liabilities |  | $ | 36,265 |  |  | $ | 30,741 |

(1)
No individual category in “Other” exceeds 5% of the other current liabilities.

Note 8 – Leases

Finance Leases

The Company entered into finance leases primarily related to purchases of equipment used for manufacturing, computer-related equipment or furniture and fixtures. These finance leases are two to five years in length and have fixed payment amounts for the term of the contract and have options to purchase the assets at the end of the lease term. Supplemental balance sheet information related to finance leases consisted of the following (dollars in thousands):

11

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 8 – Leases (Continued)

Finance Leases (Continued)

|  | September 29, 2023 |  |  | December 30, 2022 |
Machinery and equipment |  | $ | — |  |  | $ | 30 |
Computer equipment and software |  |  | 6 |  |  |  | 18 |
Furniture and fixtures |  |  | 475 |  |  |  | 475 |
Finance lease right-of-use assets, gross |  |  | 481 |  |  |  | 523 |
Less accumulated depreciation |  |  | (261 | ) |  |  | (181 | )
Finance lease right-of-use assets, net |  | $ | 220 |  |  | $ | 342 |
Current finance lease obligations |  | $ | 164 |  |  | $ | 169 |
Long-term finance lease obligations |  |  | 84 |  |  |  | 210 |
Total finance lease liability |  | $ | 248 |  |  | $ | 379 |
Weighted-average remaining lease term (in years) |  |  | 1.5 |  |  |  | 2.2 |
Weighted-average discount rate |  |  | 4.23 | % |  |  | 4.10 | %

Supplemental cash flow information related to finance leases consisted of the following (dollars in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Amortization of finance lease right-of-use asset |  | $ | 37 |  |  | $ | 39 |  |  | $ | 114 |  |  | $ | 121 |
Interest on finance lease liabilities |  |  | 3 |  |  |  | 5 |  |  |  | 10 |  |  |  | 13 |
Cash paid for amounts included in the measurement of finance lease liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Operating cash flows |  |  | 3 |  |  |  | 5 |  |  |  | 10 |  |  |  | 13 |
Financing cash flows |  |  | 39 |  |  |  | 40 |  |  |  | 121 |  |  |  | 85 |

Operating Leases

The Company entered into operating leases primarily related to real property (office, manufacturing and warehouse facilities), automobiles and copiers. These operating leases are two to ten years in length with options to extend. The Company does not include any lease extensions in the initial valuation unless the Company was reasonably certain to extend the lease. Depending on the lease, there are those with fixed payment amounts for the entire length of the contract or payments which increase periodically as noted in the contract or increased at an inflation rate indicator. For operating leases that increase using an inflation rate indicator, the Company used the inflation rate at the time the lease was entered into for the length of the lease term. Supplemental balance sheet information related to operating leases consisted of the following (dollars in thousands):

|  | September 29, 2023 |  |  | December 30, 2022 |
Machinery and equipment |  | $ | 726 |  |  | $ | 789 |
Computer equipment and software |  |  | 446 |  |  |  | 446 |
Real property |  |  | 41,313 |  |  |  | 34,465 |
Operating lease right-of-use assets, gross |  |  | 42,485 |  |  |  | 35,700 |
Less accumulated depreciation |  |  | (7,493 | ) |  |  | (5,430 | )
Operating lease right-of-use assets, net |  | $ | 34,992 |  |  | $ | 30,270 |
Current operating lease obligations |  | $ | 4,003 |  |  | $ | 3,524 |
Long-term operating lease obligations |  |  | 31,643 |  |  |  | 27,136 |
Total operating lease liability |  | $ | 35,646 |  |  | $ | 30,660 |
Weighted-average remaining lease term (in years) |  |  | 7.5 |  |  |  | 7.5 |
Weighted-average discount rate |  |  | 5.15 | % |  |  | 3.87 | %

12

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 8 – Leases (Continued)

Operating Leases (Continued)

Supplemental cash flow information related to operating leases was as follows (dollars in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Operating lease cost |  | $ | 1,419 |  |  | $ | 1,167 |  |  | $ | 3,883 |  |  | $ | 3,471 |
Cash paid for amounts included in the measurement of operating lease liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Operating cash flows |  |  | 1,259 |  |  |  | 1,103 |  |  |  | 3,584 |  |  |  | 3,069 |
Right-of-use assets obtained in exchange for new operating lease liabilities |  |  | 4,580 |  |  |  | 126 |  |  |  | 8,000 |  |  |  | 1,166 |

Future Maturities of Lease Liabilities

Estimated future maturities of lease liabilities under operating and finance leases having initial or remaining non-cancelable lease terms more than one year as of September 29, 2023 is as follows (in thousands):

.

As of September 29, 2023 12 Months Ended |  | Operating Leases |  |  | Finance Leases |
September 2024 |  | $ | 5,957 |  |  | $ | 171 |
September 2025 |  |  | 5,630 |  |  |  | 85 |
September 2026 |  |  | 4,987 |  |  |  | — |
September 2027 |  |  | 5,319 |  |  |  | — |
September 2028 |  |  | 5,381 |  |  |  | — |
Thereafter |  |  | 18,105 |  |  |  | — |
Total future minimum lease payments |  | $ | 45,379 |  |  | $ | 256 |
Less amounts representing interest |  |  | (9,733 | ) |  |  | (8 | )
Total lease liability |  | $ | 35,646 |  |  | $ | 248 |

Note 9 — Income Taxes

The Company recorded an income tax provision as follows (in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Provision for income taxes |  | $ | 1,929 |  |  | $ | 2,315 |  |  | $ | 6,366 |  |  | $ | 6,671 |

The effective tax rates for the three months ended September 29, 2023 and September 30, 2022 were 28.6% and 18.4%, respectively, and were 31.9% and 16.9% for the nine months ended September 29, 2023 and September 30, 2022, respectively. The Company’s effective tax rates differ from the U.S. federal statutory rate of 21% for the three and nine months ended September 29, 2023 and September 30, 2022, respectively, primarily due to the income tax expense generated in foreign jurisdictions.

13

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 10 – Defined Benefit Pension Plans

The Company has defined benefit plans covering employees of its Switzerland and Japan operations. The following table summarizes the components of net periodic pension cost recorded for the Company’s defined benefit pension plans (in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Service cost(1) |  | $ | 256 |  |  | $ | 306 |  |  | $ | 759 |  |  | $ | 941 |
Interest cost(2) |  |  | 91 |  |  |  | 22 |  |  |  | 268 |  |  |  | 63 |
Expected return on plan assets(2) |  |  | (92 | ) |  |  | (125 | ) |  |  | (270 | ) |  |  | (366 | )
Prior service credit(2),(3) |  |  | (45 | ) |  |  | (44 | ) |  |  | (135 | ) |  |  | (135 | )
Actuarial loss recognized in current period(2),(3) |  |  | (6 | ) |  |  | 98 |  |  |  | (19 | ) |  |  | 274 |
Net periodic pension cost |  | $ | 204 |  |  | $ | 257 |  |  | $ | 603 |  |  | $ | 777 |

(1)
Recognized in selling general and administrative expenses on the Condensed Consolidated Statements of Income.
(2)
Recognized in other expense, net on the Condensed Consolidated Statements of Income.
(3)
Amounts reclassified from accumulated other comprehensive income (loss).

The Company currently is not required to and does not make contributions to its Japan pension plan. The Company’s contributions to its Swiss pension plan are as follows (in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Employer contribution |  | $ | 269 |  |  | $ | 230 |  |  | $ | 731 |  |  | $ | 666 |

Note 11 — Stockholders’ Equity

Stock-Based Compensation

The cost that has been charged against income for stock-based compensation is set forth below (in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Employee stock options |  | $ | 3,517 |  |  | $ | 2,865 |  |  | $ | 9,973 |  |  | $ | 7,649 |
Restricted stock |  |  | 201 |  |  |  | 67 |  |  |  | 347 |  |  |  | 618 |
Restricted stock units |  |  | 2,214 |  |  |  | 1,249 |  |  |  | 5,963 |  |  |  | 3,242 |
Performance stock units |  |  | 2,449 |  |  |  | 1,240 |  |  |  | 5,958 |  |  |  | 2,932 |
Nonemployee stock options |  |  | 465 |  |  |  | 306 |  |  |  | 1,093 |  |  |  | 934 |
Total stock-based compensation expense |  | $ | 8,846 |  |  | $ | 5,727 |  |  | $ | 23,334 |  |  | $ | 15,375 |

The Company recorded stock-based compensation costs in the following categories (in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Cost of sales |  | $ | 223 |  |  | $ | 233 |  |  | $ | 595 |  |  | $ | 409 |
General and administrative |  |  | 4,049 |  |  |  | 2,584 |  |  |  | 11,107 |  |  |  | 7,171 |
Selling and marketing |  |  | 2,561 |  |  |  | 1,335 |  |  |  | 5,910 |  |  |  | 3,548 |
Research and development |  |  | 2,013 |  |  |  | 1,575 |  |  |  | 5,722 |  |  |  | 4,247 |
Total stock-based compensation expense, net |  |  | 8,846 |  |  |  | 5,727 |  |  |  | 23,334 |  |  |  | 15,375 |
Amounts capitalized as part of inventory |  |  | 534 |  |  |  | 361 |  |  |  | 1,431 |  |  |  | 1,379 |
Total stock-based compensation expense, gross |  | $ | 9,380 |  |  | $ | 6,088 |  |  | $ | 24,765 |  |  | $ | 16,754 |

14

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 11 — Stockholders’ Equity (Continued)

Stock-Based Compensation (Continued)

As of September 29, 2023, total unrecognized compensation cost related to non-vested stock-based compensation arrangements were as follows (in thousands):

|  | September 29, 2023 |
Stock options |  | $ | 23,888 |
Restricted stock, RSUs and PSUs |  |  | 24,690 |
Total unrecognized stock-based compensation cost |  | $ | 48,578 |

The cost is expected to be recognized over a weighted-average period of approximately two years.

Incentive Plan

The Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, restricted stock units (“RSUs”) and performance stock units (“PSUs”). Options under the Plan are granted at fair market value on the date of grant, become exercisable generally over a three-year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control and pre-established financial metrics are met (as defined in the Plan). Grants of restricted stock outstanding under the Plan generally vest over periods of one to three years. Grants of RSUs and PSUs outstanding under the Plan generally vest based on service, performance, or a combination of both. On June 15, 2023, stockholders approved a proposal to increase the number of shares under the plan by 2,170,000 shares, for a total of 20,205,000 shares. As of September 29, 2023, there were 2,784,909 shares available for grant under the Plan.

Assumptions

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-vesting cancellations and represents the period of time that options granted are expected to be outstanding. The Company has calculated a 7% estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S. Treasury yield curve corresponding to the expected term at the time of the grant.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Expected dividend yield |  |  | 0 | % |  |  | 0 | % |  |  | 0 | % |  |  | 0 | %
Expected volatility |  |  | 60 | % |  |  | 54 | % |  |  | 60 | % |  |  | 54 | %
Risk-free interest rate |  |  | 4.18 | % |  |  | 2.91 | % |  |  | 3.91 | % |  |  | 1.88 | %
Expected term (in years) |  |  | 5.05 |  |  |  | 5.10 |  |  |  | 5.05 |  |  |  | 5.10 |

15

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 11 — Stockholders’ Equity (Continued)

Stock Options

A summary of stock option activity under the Plan for nine months ended September 29, 2023 is presented below:

|  | Stock Options (in 000’s) |  |  | Weighted- Average Exercise Price |  |  | Weighted- Average Remaining Contractual Term (years) |  |  | Aggregate Intrinsic Value (in 000’s) |
Outstanding at December 30, 2022 |  |  | 2,469 |  |  | $ | 39.63 |  |  |  |  |  |  |
Granted |  |  | 622 |  |  |  | 55.84 |  |  |  |  |  |  |
Exercised |  |  | (500 | ) |  |  | 18.54 |  |  |  |  |  |  |
Forfeited or expired |  |  | (38 | ) |  |  | 72.49 |  |  |  |  |  |  |
Outstanding at September 29, 2023 |  |  | 2,553 |  |  | $ | 47.22 |  |  |  | 6.77 |  |  | $ | 19,641 |
Exercisable at September 29, 2023 |  |  | 1,663 |  |  | $ | 39.11 |  |  |  | 5.52 |  |  | $ | 19,641 |

Restricted Stock, Restricted Stock Units and Performance Stock Units

A summary of restricted stock, RSUs and PSUs activity under the Plan for the nine months ended September 29, 2023 is presented below (shares in thousands):

|  | Restricted Stock |  |  | RSUs |  |  | PSUs |
Unvested at December 30, 2022 |  |  | 4 |  |  |  | 192 |  |  |  | 118 |
Granted |  |  | 12 |  |  |  | 269 |  |  |  | 182 |
Vested |  |  | (4 | ) |  |  | (94 | ) |  |  | (36 | )
Forfeited or expired |  |  | — |  |  |  | (6 | ) |  |  | (13 | )
Unvested at September 29, 2023 |  |  | 12 |  |  |  | 361 |  |  |  | 251 |

Note 12 - Commitments and Contingencies

Severance Payable

As of September 29, 2023 and December 30, 2022 there was severance payable of $422,000 and $410,000, respectively. recognized in other current liabilities on the Consolidated Balance Sheets, which included approximately $258,000 and $300,000, respectively, in one-time employee benefits to be paid to certain employees in STAAR Japan who work primarily in IOL sales. During the three and nine months ended September 29, 2023, the Company recognized $80,000 and $1,441,000, respectively, related to this. The Company is expected to incur through the end of 2023, one-time employee benefits of approximately $1,457,000 related to this. These one-time employee benefits are recognized in general and administrative expense on the Consolidated Statements of Income.

Litigation and Claims

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While the Company does not believe that any of the claims known is likely to have a material adverse effect on the Company’s financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.

Employment Agreements

The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective January 1, 2023. He and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all its assets, or termination “without cause or for good reason” as defined in the employment agreements.

16

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 13 — Basic and Diluted Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands except per share amounts):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Numerator: |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 4,817 |  |  | $ | 10,262 |  |  | $ | 13,591 |  |  | $ | 32,902 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares: |  |  |  |  |  |  |  |  |  |  |  |
Common shares outstanding |  |  | 48,625 |  |  |  | 48,106 |  |  |  | 48,438 |  |  |  | 47,919 |
Less: Unvested restricted stock |  |  | (12 | ) |  |  | (4 | ) |  |  | (12 | ) |  |  | (4 | )
Denominator for basic calculation |  |  | 48,613 |  |  |  | 48,102 |  |  |  | 48,426 |  |  |  | 47,915 |
Weighted average effects of potentially diluted common stock: |  |  |  |  |  |  |  |  |  |  |  |
Stock options |  |  | 679 |  |  |  | 1,336 |  |  |  | 933 |  |  |  | 1,378 |
Unvested restricted stock |  |  | — |  |  |  | 2 |  |  |  | 3 |  |  |  | 2 |
RSUs |  |  | 17 |  |  |  | 64 |  |  |  | 67 |  |  |  | 55 |
PSUs |  |  | 61 |  |  |  | 45 |  |  |  | 65 |  |  |  | 21 |
Denominator for diluted calculation |  |  | 49,370 |  |  |  | 49,549 |  |  |  | 49,494 |  |  |  | 49,371 |
Net income per share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.10 |  |  | $ | 0.21 |  |  | $ | 0.28 |  |  | $ | 0.69 |
Diluted |  | $ | 0.10 |  |  | $ | 0.21 |  |  | $ | 0.27 |  |  | $ | 0.67 |

The following table sets forth (in thousands) the weighted average number of options to purchase shares of common stock, restricted stock, RSUs and PSUs with either exercise prices or unrecognized compensation cost per share greater than the average market price per share of the Company’s common stock, which were not included in the calculation of diluted per share amounts because the effects would be anti-dilutive.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Stock options |  |  | 2,453 |  |  |  | 864 |  |  |  | 1,853 |  |  |  | 865 |
Restricted stock, RSUs and PSUs |  |  | 341 |  |  |  | 2 |  |  |  | 26 |  |  |  | 20 |
Total |  |  | 2,794 |  |  |  | 866 |  |  |  | 1,879 |  |  |  | 885 |

Note 14 — Disaggregation of Sales, Geographic Sales and Product Sales

In the following tables, sales are disaggregated by category, sales by geographic market and sales by product data. The following breaks down sales into the following categories (in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Non-consignment sales |  | $ | 75,296 |  |  | $ | 71,223 |  |  | $ | 230,527 |  |  | $ | 205,236 |
Consignment sales |  |  | 5,012 |  |  |  | 4,823 |  |  |  | 15,615 |  |  |  | 15,111 |
Total net sales |  | $ | 80,308 |  |  | $ | 76,046 |  |  | $ | 246,142 |  |  | $ | 220,347 |

The Company markets and sells its products in over 75 countries and conducts its manufacturing in the United States. Other than China and Japan, the Company does not conduct business in any country in which its sales exceed 10% of worldwide consolidated net sales. Sales are attributed to countries based on location of customers. The composition of the Company’s net sales to unaffiliated customers was as follows (in thousands):

17

STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 14 — Disaggregation of Sales, Geographic Sales and Product Sales (Continued)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Domestic |  | $ | 4,164 |  |  | $ | 3,873 |  |  | $ | 13,061 |  |  | $ | 10,375 |
Foreign: |  |  |  |  |  |  |  |  |  |  |  |
China |  |  | 48,287 |  |  |  | 42,246 |  |  |  | 144,716 |  |  |  | 116,635 |
Japan |  |  | 9,175 |  |  |  | 10,546 |  |  |  | 28,526 |  |  |  | 32,481 |
Other(1) |  |  | 18,682 |  |  |  | 19,381 |  |  |  | 59,839 |  |  |  | 60,856 |
Total foreign sales |  |  | 76,144 |  |  |  | 72,173 |  |  |  | 233,081 |  |  |  | 209,972 |
Total net sales |  | $ | 80,308 |  |  | $ | 76,046 |  |  | $ | 246,142 |  |  | $ | 220,347 |

(1)
No other location individually exceeds 10% of the total sales.

100% of the Company’s sales are generated from the ophthalmic surgical product segment and the chief operating decision maker makes operating decisions and allocates resources based upon the consolidated operating results, and therefore the Company operates as one operating segment for financial reporting purposes. The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery and intraocular lenses (“IOLs”) used in cataract surgery. The composition of the Company’s net sales by product line was as follows (in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
ICLs |  | $ | 81,069 |  |  | $ | 71,953 |  |  | $ | 244,806 |  |  | $ | 208,550 |
Other product sales: |  |  |  |  |  |  |  |  |  |  |  |
Cataract IOLs |  |  | (221 | ) |  |  | 2,191 |  |  |  | 1,295 |  |  |  | 7,640 |
Other surgical products(1) |  |  | (540 | ) |  |  | 1,902 |  |  |  | 41 |  |  |  | 4,157 |
Total other product sales |  |  | (761 | ) |  |  | 4,093 |  |  |  | 1,336 |  |  |  | 11,797 |
Total net sales |  | $ | 80,308 |  |  | $ | 76,046 |  |  | $ | 246,142 |  |  | $ | 220,347 |

(1) Other surgical products include delivery systems and normal recurring sales adjustments such as sales return allowances.

One customer, the Company’s distributor in China, accounted for 60% and 56% of net sales for the three months ended September 29, 2023 and September 30, 2022, respectively, and the same customer accounted for 59% and 53% for the nine months ended September 29, 2023 and September 30, 2022, respectively. As of September 29, 2023 and December 30, 2022, respectively, one customer, the Company’s distributor in China, accounted for 78% and 59% of consolidated trade receivables.

Note 15 — COVID-19 Developments

In December 2019, COVID-19 surfaced and in March 2020, the World Health Organization declared a pandemic related to the rapid spread of COVID-19 around the world. The impact of the COVID-19 outbreak on the businesses and the economy in the U.S. and the rest of the world is, and is expected to continue to be, uncertain and may continue to be significant as COVID-19 variant strains emerge. The Company’s revenues have been adversely impacted, and the Company experienced a substantial slowdown in sales beginning March 20, 2020 in global geographies characterized as “hot spots” for the COVID-19 virus, including parts of Europe, North America, Asia, the Middle East and India. In certain of these markets, sales have paused as elective surgeries are discouraged to support COVID-19 related needs. While COVID-19 restrictions have since eased globally, a resurgence of the COVID-19 pandemic in global geographies, depending upon its duration and severity, could material adversely impact the global economy and the Company's industry, operations and financial condition and performance. The Company continues to monitor the commercial and operational impact of new variants of COVID-19 in its markets.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” 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. Readers can recognize forward-looking statements by the use of words like “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “should,” “forecast” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements about any of the following: any projections of or guidance as to earnings, revenue, sales, profit margins, expense rate, cash, effective tax rate, product mix, capital expense or any other financial items; the expected impact of the COVID-19 pandemic and related public health measures (including but not limited to their impact on sales, operations or clinical trials globally), the plans, strategies, and objectives of management for future operations or prospects for achieving such plans; statements regarding new, existing, or improved products, including but not limited to, expectations for success of new, existing, and improved products in the U.S. or international markets or government approval of a new or improved products; commercialization of new or improved products; future economic conditions or size of market opportunities; expected costs of operations; statements of belief, including as to achieving 2023 business plans; expected regulatory activities and approvals, product launches, and any statements of assumptions underlying any of the foregoing.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and we can give no assurance that our 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 our control. These factors include, without limitation, those described in our Annual Report on Form 10-K in “Item 1A. Risk Factors” filed on February 23, 2023. We undertake no obligation to update these forward-looking statements after the date of this report to reflect future events or circumstances or to reflect actual outcomes.

The following discussion should be read in conjunction with the audited consolidated financial statements of STAAR, including the related notes, provided in this report.

We intend to use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website in the ‘Investor Relations’ sections. Accordingly, investors should monitor such portions of our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.

Overview

STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and companion delivery systems used to deliver the lenses into the eye. We are the world’s leading manufacturer of intraocular lenses for patients seeking refractive vision correction. All the lenses we make are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally invasive surgery. Refractive surgery is performed to treat the type of visual disorders that have traditionally been corrected using eyeglasses or contact lenses. We refer to our lenses used in refractive surgery as “implantable Collamer® lenses” or “ICLs.” The field of refractive surgery includes both lens-based procedures, using products like our ICL family of products, and laser-based procedures like LASIK. Successful refractive surgery can correct common vision disorders such as myopia, hyperopia, and astigmatism. STAAR employs a commercialization strategy that strives for sustainable profitable growth. Our goal is to position our refractive lenses throughout the world as primary and premium solutions for patients seeking visual freedom from wearing eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction.

Recent Developments

STAAR achieved 13% growth in ICL sales in the third quarter of 2023, compared to the third quarter of 2022, with ICL sales growth in the Asia Pacific markets up 13%, EMEA markets up 14%, and the Americas up 5%. In China, ICL sales were up 14% compared to the second quarter of 2022. The uncertain economic environment globally and world events may have an impact on our surgeon customers and patients. As a result, while we are reaffirming our previously provided outlook for fiscal 2023 ICL sales of $320 million to $325 million, revenue may come in at the lower end of the range should macroeconomic weakness and/or other disruptions materialize.

On October 25, we began a voluntary recall of approximately 300 EVO/EVO+ lenses with a measurement deviating +/- 0.5 diopters from the as labeled power. We have identified and fixed the problem. We do not expect material operational costs related to this matter.

19

Critical Accounting Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Income discusses and analyzes data in our unaudited Condensed Consolidated Financial Statements provided in this report, which we have prepared in accordance with U.S. generally accepted accounting principles. Preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.

Management believes that there have been no significant changes during the nine months ended September 29, 2023 to the items that we disclosed as our critical accounting estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 30, 2022.

Results of Operations

The following table shows the percentage of our total sales represented by certain items reflected in our Condensed Consolidated Statements of Income for the periods indicated.

|  | Percentage of Net Sales for Three Months |  |  | Percentage of Net Sales for Nine Months |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |
Net sales |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | %
Cost of sales |  |  | 20.8 | % |  |  | 20.5 | % |  |  | 22.0 | % |  |  | 21.2 | %
Gross profit |  |  | 79.2 | % |  |  | 79.5 | % |  |  | 78.0 | % |  |  | 78.8 | %
General and administrative |  |  | 24.0 | % |  |  | 18.4 | % |  |  | 22.6 | % |  |  | 18.1 | %
Selling and marketing |  |  | 33.1 | % |  |  | 30.4 | % |  |  | 34.6 | % |  |  | 29.3 | %
Research and development |  |  | 14.3 | % |  |  | 12.7 | % |  |  | 13.6 | % |  |  | 12.0 | %
Total selling, general and administrative |  |  | 71.4 | % |  |  | 61.5 | % |  |  | 70.8 | % |  |  | 59.4 | %
Operating income |  |  | 7.8 | % |  |  | 18.0 | % |  |  | 7.2 | % |  |  | 19.4 | %
Total other income (expense), net |  |  | 0.6 | % |  |  | (1.5 | )% |  |  | 0.9 | % |  |  | (1.5 | )%
Income before income taxes |  |  | 8.4 | % |  |  | 16.5 | % |  |  | 8.1 | % |  |  | 17.9 | %
Provision for income taxes |  |  | 2.4 | % |  |  | 3.0 | % |  |  | 2.6 | % |  |  | 3.0 | %
Net income |  |  | 6.0 | % |  |  | 13.5 | % |  |  | 5.5 | % |  |  | 14.9 | %

Net Sales

The following table presents our net sales, by product (dollars in thousands):

|  | Three Months Ended |  |  | Percentage Change |  |  | Nine Months Ended |  |  | Percentage Change |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |
ICLs |  | $ | 81,069 |  |  | $ | 71,953 |  |  |  | 12.7 | % |  | $ | 244,806 |  |  | $ | 208,550 |  |  |  | 17.4 | %
Other product sales: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cataract IOLs |  |  | (221 | ) |  |  | 2,191 |  |  |  | — | * |  |  | 1,295 |  |  |  | 7,640 |  |  |  | (83.0 | )%
Other surgical products |  |  | (540 | ) |  |  | 1,902 |  |  |  | — | * |  |  | 41 |  |  |  | 4,157 |  |  |  | (99.0 | )%
Total other product sales |  |  | (761 | ) |  |  | 4,093 |  |  |  | — | * |  |  | 1,336 |  |  |  | 11,797 |  |  |  | (88.7 | )%
Net sales |  | $ | 80,308 |  |  | $ | 76,046 |  |  |  | 5.6 | % |  | $ | 246,142 |  |  | $ | 220,347 |  |  |  | 11.7 | %

* Denotes change is greater than +100%.

Net sales for the three months ended September 29, 2023 increased 6% from the same period of 2022. The increase in net sales was primarily due to increased ICL sales of $9.1 million, slightly offset by decreased other product sales of $4.9 million. Changes in foreign currency favorably impacted net sales by $0.1 million.

20

Net sales for the nine months ended September 29, 2023 increased 12% from the same period of 2022. The increase in net sales was primarily due to increased ICL sales of $36.3 million, slightly offset by decreased other product sales of $10.5 million. Changes in foreign currency unfavorably impacted net sales by $2.3 million.

Total ICL sales for the three months ended September 29, 2023 increased 13% from the same period of 2022, with unit increase of 14%. The APAC region sales increased by 13%, with unit growth up 15%, due to sales growth in India up 40%, China up 14%, Japan up 12% and other APAC regions up 6%. The EMEA region sales increased 14% with unit growth up 13%, due to sales increases in our distributor markets up 20% and direct markets up 9%. The Americas region sales increased 5%, with unit growth up 3%, primarily due to sales growth in Canada up 26% and the U.S. up 6%, partially offset by sales decrease in Latin America of 12%. Changes in foreign currency favorably impacted ICL sales by $0.1 million for the three months ended September 29, 2023. ICL sales represented 100.9% and 94.6% of our total sales for the three months ended September 29, 2023 and September 30, 2022, respectively.

Total ICL sales for the nine months ended September 29, 2023 increased 17% from the same period of 2022, with unit increase of 19%. The APAC region sales increased by 20%, with unit growth up 21%, due to sales growth in China up 24%, India up 20%, other APAC regions up 10%, Japan up 10% and Korea up 4%. The EMEA region sales increased 4%, with unit decrease of 2%, due to sales increases in our distributor markets up 5% and our direct markets up 3%. The Americas region sales increased 18%, with unit growth up 16%, primarily due to sales growth in the U.S. up 23%. In late March 2022, the U.S. started to sell EVO ICLs. Changes in foreign currency unfavorably impacted ICL sales by $2.0 million for the nine months ended September 29, 2023, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented 99.5% and 94.6% of our total sales for the nine months ended September 29, 2023 and September 30, 2022, respectively.

Other product sales, includes cataract IOLs, delivery systems and normal recurring sales adjustments such as sales return allowances. As a result of third-party materials and supply chain challenges that affect our cataract IOLs and associated delivery devices, we will no longer manufacture cataract IOLs, though we will continue to support these products through the end of 2023, as supplies permit. We do not expect this decision to have a significant impact to revenue growth in future years. Other product sales for the three and nine months ended September 29, 2023, decreased 119% and 89%, respectively, from the same period of 2022, due primarily to a reduction in cataract IOL sales, decreased sales of cataract IOL injector parts and increased sales return reserves. Changes in foreign currency unfavorably impacted other product sales by $0.3 million for the nine months ended September 29, 2023. Other product sales represented (0.9%) and 5.4% of our total sales for the three months ended September 29, 2023 and September 30, 2022, respectively, and represented 0.5% and 5.4% of our total sales for the nine months ended September 29, 2023 and September 30, 2022, respectively.

Gross Profit

The following table presents our gross profit and gross profit margin (dollars in thousands):

|  | Three Months Ended |  |  | Percentage Change |  |  | Nine Months Ended |  |  | Percentage Change |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |
Gross profit |  | $ | 63,638 |  |  | $ | 60,462 |  |  |  | 5.3 | % |  | $ | 191,926 |  |  | $ | 173,598 |  |  |  | 10.6 | %
Gross margin |  |  | 79.2 | % |  |  | 79.5 | % |  |  |  |  |  | 78.0 | % |  |  | 78.8 | % |  |  |

Gross profit for the three months ended September 29, 2023 increased 5.3%, from the same period of 2022. Gross profit margin decreased to 79.2% of revenue for the three months ended September 29, 2023 compared to 79.5% of revenue for the three months ended September 30, 2022, due mainly to increased sales return reserves and period costs associated with manufacturing projects, partially offset by product and geographic sales mix.

Gross profit for the nine months ended September 29, 2023 increased 10.6%, from the same period of 2022. Gross profit margin decreased to 78.0% of revenue for the nine months ended September 29, 2023 compared to 78.8% of revenue for the nine months ended September 30, 2022, due mainly to reserves related to cataract IOLs.

21

General and Administrative Expense

The following table presents our general and administrative expenses (dollars in thousands):

|  | Three Months Ended |  |  | Percentage Change |  |  | Nine Months Ended |  |  | Percentage Change |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |
General and administrative expense |  | $ | 19,266 |  |  | $ | 14,011 |  |  |  | 37.5 | % |  | $ | 55,461 |  |  | $ | 39,934 |  |  |  | 38.9 | %
Percentage of sales |  |  | 24.0 | % |  |  | 18.4 | % |  |  |  |  |  | 22.6 | % |  |  | 18.1 | % |  |  |

General and administrative expenses for the three months ended September 29, 2023 increased 37.5% from the same period of 2022 due to increased salary-related and payroll tax expenses, outside services, facility costs and bonus and stock-based compensation expenses.

General and administrative expenses for the nine months ended September 29, 2023 increased 38.9% from the same period of 2022 due to increased salary-related and payroll tax expenses, outside services, bonus and stock-based compensation expenses, facility costs and Japan one-time employee benefits.

Selling and Marketing Expense

The following table presents our selling and marketing expenses (dollars in thousands):

|  | Three Months Ended |  |  | Percentage Change |  |  | Nine Months Ended |  |  | Percentage Change |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |
Selling and marketing expense |  | $ | 26,607 |  |  | $ | 23,130 |  |  |  | 15.0 | % |  | $ | 85,238 |  |  | $ | 64,633 |  |  |  | 31.9 | %
Percentage of sales |  |  | 33.1 | % |  |  | 30.4 | % |  |  |  |  |  | 34.6 | % |  |  | 29.3 | % |  |  |

Selling and marketing expenses for the three months ended September 29, 2023 increased 15.0% from the same period of 2022 due to increased advertising and promotional activities, salary-related and payroll tax expenses, and bonus and stock-based compensation expenses, partially offset by decreased trade shows and sales meetings expenses.

Selling and marketing expenses for the nine months ended September 29, 2023 increased 31.9% from the same period of 2022 due to increased advertising and promotional activities, especially in the U.S., salary-related and payroll tax expenses, bonus and stock-based compensation expenses and sales commission expenses.

Research and Development Expense

The following table presents our research and development expenses (dollars in thousands):

|  | Three Months Ended |  |  | Percentage Change |  |  | Nine Months Ended |  |  | Percentage Change |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |
Research and development expense |  | $ | 11,470 |  |  | $ | 9,616 |  |  |  | 19.3 | % |  | $ | 33,535 |  |  | $ | 26,193 |  |  |  | 28.0 | %
Percentage of sales |  |  | 14.3 | % |  |  | 12.7 | % |  |  |  |  |  | 13.6 | % |  |  | 12.0 | % |  |  |

Research and development expenses for the three and nine months ended September 29, 2023 increased 19.3% and 28.0% from the same period of 2022, respectively, due mainly to increased salary-related and payroll tax expenses and clinical expenses associated with our U.S. post-approval clinical trials, and for the nine months ended September 29, 2023, increased bonus and stock-based compensation expenses as compared to the nine months ended September 30, 2022.

22

Other Expense, Net

The following table presents our other expenses, net (dollars in thousands):

|  | Three Months Ended |  |  | Percentage Change |  |  | Nine Months Ended |  |  | Percentage Change |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |
Other income (expense), net |  | $ | 451 |  |  | $ | (1,128 | ) |  |  | — | * |  | $ | 2,265 |  |  | $ | (3,265 | ) |  |  | — | *
Percentage of sales |  |  | 0.6 | % |  |  | (1.5 | )% |  |  |  |  |  | 0.9 | % |  |  | (1.5 | )% |  |  |

* Denotes change is greater than +100%.

The change in other income (expense), net for the three and nine months ended September 29, 2023 and September 30, 2022, respectively, was due to increased interest income mainly due to our investments held available for sale and lower foreign exchange losses.

Income Taxes

The following table presents our income tax provision (dollars in thousands):

|  | Three Months Ended |  |  | Percentage Change |  |  | Nine Months Ended |  |  | Percentage Change |
|  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |  |  | September 29, 2023 |  |  | September 30, 2022 |  |  | 2023 vs. 2022 |
Income tax provision |  | $ | 1,929 |  |  | $ | 2,315 |  |  |  | (16.7 | )% |  | $ | 6,366 |  |  | $ | 6,671 |  |  |  | (4.6 | )%

The effective tax rates for the three months ended September 29, 2023 and September 30, 2022 were 28.6% and 18.4%, respectively, and were 31.9% and 16.9% for the nine months ended September 29, 2023 and September 30, 2022, respectively. Our effective tax rates differ from the U.S. federal statutory rate of 21%, primarily due to the income tax expense generated in foreign jurisdictions.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.

Liquidity and Capital Resources

We believe that current cash and cash equivalents, investments available for sale (“AFS”) and future cash flow from operating activities will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the financial statements included in this quarterly report. Our financial condition at September 29, 2023 and December 30, 2022 included the following (in thousands):

|  | September 29, 2023 |  |  | December 30, 2022 |  |  | 2023 vs. 2022 |
Cash and cash equivalents |  | $ | 127,432 |  |  | $ | 86,480 |  |  | $ | 40,952 |
Investments available for sale |  |  | 74,308 |  |  |  | 139,061 |  |  |  | (64,753 | )
Total |  | $ | 201,740 |  |  | $ | 225,541 |  |  | $ | (23,801 | )
Current assets |  | $ | 347,068 |  |  | $ | 311,723 |  |  | $ | 35,345 |
Current liabilities |  |  | 56,775 |  |  |  | 51,716 |  |  |  | 5,059 |
Working capital |  | $ | 290,293 |  |  | $ | 260,007 |  |  | $ | 30,286 |

Cash and cash equivalents include cash and balances in deposits and money market accounts held at banks and financial institutions. Our investment policy primary objective is capital preservation while maximizing our return on investment. Investments available for sale may include U.S. government and corporate debt securities, commercial paper, certain certificates deposit and related security types, that are rated by two nationally recognized statistical rating organizations with minimum investment grade ratings of AAA to A-/A-1+ to A-2, or the equivalent. The maturity of individual investments may not extend 24 months from the date of purchase. There are also limits to the amount of credit exposure in any given security type. We do not have any off-balance sheet arrangements.

23

A summary of cash flows for the nine months ended September 29, 2023 and September 30, 2022 was as follows (in thousands):

|  | Nine Months Ended |
|  | September 29, 2023 |  |  | September 30, 2022 |
Cash flows from: |  |  |  |  |  |
Operating activities |  | $ | (17,375 | ) |  | $ | 32,745 |
Investing activities |  |  | 51,945 |  |  |  | (109,659 | )
Financing activities |  |  | 7,048 |  |  |  | 8,095 |
Effect of exchange rate changes |  |  | (666 | ) |  |  | (1,645 | )
Net increase (decrease) in cash and cash equivalents |  |  | 40,952 |  |  |  | (70,464 | )
Cash and cash equivalents, at beginning of year |  |  | 86,480 |  |  |  | 199,706 |
Cash and cash equivalents, at end of year |  | $ | 127,432 |  |  | $ | 129,242 |

For the nine months ended September 29, 2023 net cash used by operating activities consisted of $61.3 million in working-capital changes partially offset by $30.3 million in non-cash items and net income of $13.6 million.

Starting in the second half of 2022, we decided to invest our cash in slightly higher yielding securities. For the nine months ended September 29, 2023, net cash provided by investment activities was $52.0 million which consisted of $119.4 million of proceeds from the sale or maturity of investments AFS, partially offset by $52.3 million in purchases of investments AFS and $15.1 million in purchases of property, plant and equipment. For the nine months ended September 30, 2022, net cash used in investment activity was $109.7 million which consisted of $95.6 million in purchases of investments AFS and $14.1 million in purchases of property, plant and equipment.

Net cash provided by financing activities for the nine months ended September 29, 2023 was $7.0 million which consisted of $9.3 million of proceeds from the exercise of stock options, partially offset by $2.1 million to repurchase of employee common stock for taxes withheld. For the nine months ended September 30, 2022, net cash provided by financing activities consisted of $8.2 million of proceeds from the exercise of stock options.

Commitments

Employment Agreements

The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective January 1, 2023. He and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all of its assets, or termination “without cause or for good reason” as defined in the employment agreements.

ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

During the nine months ended September 29, 2023, there have been no material changes in the Company’s qualitative and quantitative market risk since the disclosure in the Company’s Annual Report on Form 10-K for the year ended December 30, 2022.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company. Based on that evaluation, our CEO and CFO concluded, as of the end of the period covered by this quarterly report on Form 10-Q, that our disclosure controls and procedures were effective. For purposes of this statement, the term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

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Our management, including the CEO and the CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud or material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, our internal control system can provide only reasonable assurance of achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and can provide only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 29, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHE R INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While the Company does not believe that any of the claims known is likely to have a material adverse effect on the Company’s financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.

ITEM 1A. RIS K FACTORS

Our short and long-term success is subject to many factors that are beyond our control. Investors and prospective investors should consider carefully information contained in this report and the risks and uncertainties described in “Part I—Item 1A—Risk Factors” of the Company’s Form 10-K for the fiscal year ended December 30, 2022. Such risks and uncertainties could materially adversely affect our business, financial condition or operating results.

ITEM 4. MINE SAF ETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

(c)
Trading Plans

During the quarter ended September 29, 2023, no director or officer adopted or terminated:

(i)
Any contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b51-1(c); and
(ii)
Any “non-Rule 10b5-1 trading arrangement” as defined in paragraph (c) of item 408(a) of Regulation S-K.

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ITEM 6. EXHIBITS

3.1 | Amended and Restated Certificate of Incorporation.(1)
3.2 | Amended and Restated Bylaws.(2)
4.1 | Form of Certificate for Common Stock, par value $0.01 per share.(3)
†4.2 | Amended and Restated Omnibus Equity Incentive Plan.(4)
31.1 | 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.*
31.2 | 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.*
32.1 | Certification Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
101 | Financial statements from the quarterly report on Form 10-Q of STAAR Surgical Company for the quarter ended September 29, 2023 formatted in Inline Extensible Business Reporting Language (iXBRL), are filed herewith and include: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.*
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2023, has been formatted in Inline XBRL with applicable taxonomy extension information contained in Exhibit 101.

(1)
Incorporated by reference to Appendix 2 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, 2018.
(2)
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on February 1, 2023.
(3)
Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form 8‑A/A as filed with the Commission on April 18, 2003.
(4)
Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q, for the period ended July 3, 2020, as filed with the Commission on August 5, 2020.

* Filed herewith.

** Furnished herewith.

† Management contract or compensatory plan.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  |  | STAAR SURGICAL COMPANY
Dated: |  | November 6, 2023 | By: |  | /s/ PATRICK F. WILLIAMS
|  |  |  |  | Patrick F. Williams
|  |  |  |  | Chief Financial Officer
|  |  |  |  | (on behalf of the Registrant and as its principal financial officer)

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