(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in its ~~charter)~~Charter)

(Registrant’s ~~telephone number, including area code))~~Telephone Number, Including Area Code)

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 þ☑ No o

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

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. ~~(Check one):~~

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 o☐ No þ

The registrant has ~~41,164,231~~44,609,387 shares of common stock, par value $0.01 per share, issued and outstanding as of October ~~30, 2017.~~25, 2019.

PART 1I – FINANCIAL INFORMATION

~~ITEM 1. FINANCIAL STATEMENTS~~

ITEM 1.
FINANCIAL STATEMENTS

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

	September 29, 2017			December 30, 2016			September 27, 2019			December 28, 2018
ASSETS

Current assets:
Cash and cash equivalents	$	16,133		$	13,999		$	112,327		$	103,877
Accounts receivable trade, net of allowance for doubtful accounts of $2,255 and $2,056, respectively		16,237			16,344
Accounts receivable trade, net of allowance of doubtful accounts of $75 and $550, respectively								30,789			25,946
Inventories, net		13,274			14,825			16,440			16,704
Insurance receivable (Note 12)		7,000			—
Prepayments, deposits and other current assets		4,936			4,349			5,406			5,045
Total current assets		57,580			49,517			164,962			151,572
Property, plant and equipment, net		10,999			11,790			14,846			11,451
Finance lease right-of-use assets, net								2,006			—
Operating lease right-of-use assets, net								6,677			—
Intangible assets, net		326			473			252			243
Goodwill		1,786			1,786			1,786			1,786
Deferred income taxes		1,043			1,105			1,460			1,278
Other assets		969			772			752			1,009
Total assets	$	72,703		$	65,443		$	192,741		$	167,339

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Line of credit	$	4,442		$	4,283		$	2,340		$	3,780
Accounts payable		5,734			8,311			7,535			6,524
Obligations under capital leases		1,269			1,198
Litigation settlement obligation (Note 12)		7,000			—
Obligations under finance leases								752			1,098
Obligations under operating leases								2,789			—
Allowance for sales returns								3,691			2,895
Other current liabilities		7,253			7,275			12,865			13,431
Total current liabilities		25,698			21,067			29,972			27,728
Obligations under capital leases		834			1,339
Obligations under finance leases								471			459
Obligations under operating leases								4,003			—
Deferred income taxes		984			881			1,539			1,022
Asset retirement obligations		203			195			211			206
Deferred rent		184			59			—			188
Pension liability		4,138			3,997			7,205			5,310
Total liabilities		32,041			27,538			43,401			34,913

Commitments and contingencies (Note 12)

Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value; 60,000 shares authorized; 41,156 and 40,732 shares issued and outstanding at September 29, 2017 and December 30, 2016, respectively		412			407
Common stock, $0.01 par value; 60,000 shares authorized: 44,606 and 44,195 shares issued and outstanding at September 27, 2019 and December 28, 2018, respectively								446			442
Additional paid-in capital		202,148			197,657			299,597			289,584
Accumulated other comprehensive loss		(788	)		(1,050	)		(2,520	)		(1,320	)
Accumulated deficit		(161,110	)		(159,109	)		(148,183	)		(156,280	)
Total stockholders’ equity		40,662			37,905			149,340			132,426
Total liabilities and stockholders’ equity	$	72,703		$	65,443		$	192,741		$	167,339

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended Nine Months Ended

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

Net sales $ 23,473 $ 20,052 $ 65,759 $ 60,295
Cost of sales 6,624 5,180 18,859 17,804

Gross profit 16,849 14,872 46,900 42,491

General and administrative 4,946 4,985 15,065 18,378
Marketing and selling 6,431 7,149 20,282 22,006
Research and development 4,429 4,453 13,924 16,018
Total operating expenses 15,806 16,587 49,271 56,402

Operating income (loss) 1,043 (1,715 ) (2,371 ) (13,911 )

Other income (expense):
Interest expense, net (27 ) (29 ) (88 ) (85 )
Gain (loss) on foreign currency transactions 444 (29 ) 738 13
Royalty income 141 134 400 507
Other income (expense), net (19 ) (68 ) 17 (150 )
Other income, net 539 8 1,067 285

Income (loss) before provision (benefit) for income taxes 1,582 (1,707 ) (1,304 ) (13,626 )
Provision (benefit) for income taxes 409 71 697 (1,664 )
Net income (loss) $ 1,173 $ (1,778 ) $ (2,001 ) $ (11,962 )

Net income (loss) per share – basic $ 0.03 $ (0.04 ) $ (0.05 ) $ (0.30 )
Net income (loss) per share – diluted $ 0.03 $ (0.04 ) $ (0.05 ) $ (0.30 )

Weighted average shares outstanding – basic 41,110 40,486 40,939 40,227
Weighted average shares outstanding – diluted 42,104 40,486 40,939 40,227

	Three Months Ended						Nine Months Ended
	September 27, 2019			September 28, 2018			September 27, 2019			September 28, 2018
Net sales	$	39,055		$	31,770		$	111,302		$	92,768
Cost of sales		10,004			7,910			28,172			24,250
Gross profit		29,051			23,860			83,130			68,518
Selling, general and administrative expenses:
General and administrative		7,098			6,087			21,443			18,054
Marketing and selling		12,463			10,620			34,288			28,733
Research and development		6,156			5,570			17,889			16,323
Total selling, general and administrative expenses		25,717			22,277			73,620			63,110
Operating income		3,334			1,583			9,510			5,408
Other income (expense), net:
Interest income (expense), net		266			(29	)		796			(65	)
Gain (loss) on foreign currency transactions		(584	)		52			(821	)		(545	)
Royalty income		106			159			440			465
Other income, net		26			40			124			61
Total other income (expense), net		(186	)		222			539			(84	)
Income before income taxes		3,148			1,805			10,049			5,324
Provision for income taxes		760			346			2,380			1,452
Net income	$	2,388		$	1,459		$	7,669		$	3,872
Net income per share:
Basic	$	0.05		$	0.03		$	0.17		$	0.09
Diluted	$	0.05		$	0.03		$	0.16		$	0.09
Weighted average shares outstanding:
Basic		44,563			43,054			44,426			42,065
Diluted		46,857			46,025			46,848			44,618

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME ~~(LOSS)~~

(In thousands)

(Unaudited)

Three Months Ended Nine Months Ended
September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Net income (loss) $ 1,173 $ (1,778 ) $ (2,001 ) $ (11,962 )
Other comprehensive income (loss):
Defined benefit pension plans:
Net change in plan assets (15 ) (11 ) (43 ) (34 )
Reclassification into earnings 20 27 60 80
Foreign currency translation gain (loss) (51 ) 232 360 2,000
Tax effect 13 (67 ) (110 ) (611 )
Other comprehensive income (loss), net of tax (33 ) 181 267 1,435
Comprehensive income (loss) $ 1,140 $ (1,597 ) $ (1,734 ) $ (10,527 )

	Three Months Ended						Nine Months Ended
	September 27, 2019			September 28, 2018			September 27, 2019			September 28, 2018
Net income	$	2,388		$	1,459		$	7,669		$	3,872
Other comprehensive loss:
Defined benefit plans:
Net change in plan assets		(1,037	)		(21	)		(1,677	)		(51	)
Reclassification into other income, net		26			25			80			76
Foreign currency translation gain (loss)		(22	)		(321	)		317			(114	)
Tax effect		115			105			80			38
Other comprehensive loss, net of tax		(918	)		(212	)		(1,200	)		(51	)
Comprehensive income	$	1,470		$	1,247		$	6,469		$	3,821

See accompanying notes to the condensed consolidated financial statements.

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 28, 2019		44,534	$	445	$	296,063	$	(1,602	)	$	(150,571	)	$	144,335
Net income		—		—		—		—			2,388			2,388
Other comprehensive loss		—		—		—		(918	)		—			(918	)
Common stock issued upon exercise of options		64		1		718		—			—			719
Stock-based compensation		—		—		2,816		—			—			2,816
Vested restricted stock		8		—		—		—			—			—
Balance, at September 27, 2019		44,606	$	446	$	299,597	$	(2,520	)	$	(148,183	)	$	149,340
Balance, at June 29, 2018		41,877	$	419	$	210,488	$	(989	)	$	(158,835	)	$	51,083
Net income		—		—		—		—			1,459			1,459
Other comprehensive loss		—		—		—		(212	)		—			(212	)
Proceeds from public stock offering		2,000		20		72,130		—			—			72,150
Common stock issued upon exercise of options		219		2		2,173		—			—			2,175
Stock-based compensation		—		—		2,209		—			—			2,209
Vested restricted stock		8		—		—		—			—			—
Balance, at September 28, 2018		44,104	$	441	$	287,000	$	(1,201	)	$	(157,376	)	$	128,864

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(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 28, 2018		44,195	$	442	$	289,584		$	(1,320	)	$	(156,280	)	$	132,426
Net income		—		—		—			—			7,669			7,669
Adoption of ASC 842		—		—		—			—			113			113
Adoption of ASU 2018-07		—		—		(315	)		—			315			—
Other comprehensive loss		—		—		—			(1,200	)		—			(1,200	)
Common stock issued upon exercise of options		190		2		1,827			—			—			1,829
Stock-based compensation		—		—		8,501			—			—			8,501
Unvested restricted stock		11		—		—			—			—			—
Vested restricted stock		210		2		—			—			—			2
Balance, at September 27, 2019		44,606	$	446	$	299,597		$	(2,520	)	$	(148,183	)	$	149,340
Balance, at December 29, 2017		41,383	$	414	$	204,920		$	(1,150	)	$	(161,248	)	$	42,936
Net income		—		—		—			—			3,872			3,872
Other comprehensive loss		—		—		—			(51	)		—			(51	)
Proceeds from public offering of stock		2,000		20		72,130			—			—			72,150
Common stock issued upon exercise of options		525		5		4,575			—			—			4,580
Stock-based compensation		—		—		5,375			—			—			5,375
Unvested restricted stock		11		—		—			—			—			—
Vested restricted stock		185		2		—			—			—			2
Balance, at September 28, 2018		44,104	$	441	$	287,000		$	(1,201	)	$	(157,376	)	$	128,864

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended
September 29, 2017 September 30, 2016
Cash flows from operating activities:
Net loss $ (2,001 ) $ (11,962 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of property, plant and equipment 2,344 1,933
Amortization of long-lived intangibles 166 171
Deferred income taxes 164 (1,806 )
Change in net pension liability 95 390
Loss on disposal of property and equipment 22 65
Stock-based compensation expense 2,185 8,143
Provision for sales returns and bad debts 186 99
Inventory provision 1,267 1,379
Changes in working capital:
Accounts receivable trade 41 1,707
Inventories 725 222
Prepayments, deposits and other current assets (764 ) (1,118 )
Accounts payable (2,751 ) 594
Other current liabilities 62 1,104
Net cash provided by operating activities 1,741 921

Cash flows from investing activities:
Acquisition of property and equipment (969 ) (2,709 )
Net cash used in investing activities (969 ) (2,709 )

Cash flows from financing activities:
Repayment of capital lease obligations (984 ) (302 )
Proceeds from sale leaseback transactions — 1,154
Repurchase of employee common stock for taxes withheld (234 ) (611 )
Proceeds from vested restricted stock and exercise of stock options 2,276 1,652
Net cash provided by financing activities 1,058 1,893

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 305 777

Increase in cash, cash equivalents, and restricted cash 2,135 882
Cash, cash equivalents, and restricted cash, at beginning of the period 14,118 13,521
Cash, cash equivalents, and restricted cash, at end of the period $ 16,253 $ 14,403

Supplemental Disclosure of Non-Cash Operating Activities
Insurance Receivable $ 7,000 $ —
Settlement Liability $ 7,000 $ —

	Nine Months Ended
	September 27, 2019			September 28, 2018
Cash flows from operating activities:
Net income	$	7,669		$	3,872
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant, and equipment		2,853			1,792
Amortization of intangibles		26			26
Deferred income taxes		526			363
Change in net pension liability		264			233
Loss on disposal of property and equipment		14			8
Stock-based compensation expense		7,778			4,926
Provision for sales returns and bad debts		309			892
Inventory provision		1,222			1,181
Changes in working capital:
Accounts receivable		(4,260	)		(3,989	)
Inventories		(179	)		(3,625	)
Prepayments, deposits, and other current assets		(230	)		(1,021	)
Accounts payable		546			2,121
Other current liabilities		(536	)		3,643
Net cash provided by operating activities		16,002			10,422
Cash flows from investing activities:
Acquisition of property and equipment		(7,169	)		(1,721	)
Acquisition of patents and licenses		(30	)		—
Net cash used in investing activities		(7,199	)		(1,721	)
Cash flows from financing activities:
Proceeds from public offering of stock		—			72,150
Repayment of finance lease obligations		(998	)		(1,396	)
Repayment on line of credit		(1,512	)		(251	)
Proceeds from the exercise of stock options		1,829			4,580
Proceeds from vested restricted stock		2			2
Net cash provided by (used in) financing activities		(679	)		75,085
Effect of exchange rate changes on cash, cash equivalents and restricted cash		204			(111	)
Increase in cash, cash equivalents and restricted cash		8,328			83,675
Cash, cash equivalents and restricted cash, at beginning of the period		103,999			18,641
Cash, cash equivalents and restricted cash, at end of the period	$	112,327		$	102,316

See accompanying notes to the condensed consolidated financial statements.

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~~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 ~~comprehensive financial statements~~the Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The ~~consolidated balance sheet~~Consolidated Balance Sheet as of December ~~30, 2016~~28, 2018 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, 2016.~~

28, 2018.

The ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements for the three and nine months ended September ~~29, 2017~~27, 2019 and September ~~30, 2016,~~28, 2018, 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, 2017~~27, 2019 and September ~~30, 2016,~~28, 2018, 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.

~~Recently Adopted Accounting Pronouncements~~

During the quarter ended March 31, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2015-11, “Simplifying the Measurement of Inventory”. ASU 2015-11 requires a company to measure inventory at the lower of costCash, Cash Equivalents and net realizable value. Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation”. We adopted this standard as of December 31, 2016 (beginning of FY 2017). The adoption of ASU 2015-11 did not have a material effect on the consolidated financial statements.

During the quarter ended March 31, 2017, the Company adopted ASU 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification of awards on the statement of cash flows. We adopted this standard as of December 31, 2016 (beginning of FY 2017). The adoption of ASU 2016-09 did not have a material effect on the consolidated financial statements and prior periods were not restated.

During the quarter ended March 31, 2017, the Company adopted ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, on a retrospective basis, which changes how deferred taxes are classified on the Company’s balance sheets. Accordingly, the Company adjusted the December 30, 2016 balance sheet for current and noncurrent deferred tax assets to conform to the presentation for the current quarter due to the adoption of ASU 2015-17. The ASU eliminates the requirement to present deferred tax liabilities and assets as current and noncurrent on the balance sheet. Instead, companies are required to classify all deferred tax assets and liabilities as noncurrent. We adopted this standard as of December 31, 2016 (beginning of FY 2017). The adoption of ASU 2015-17 did not have a material effect on the consolidated financial statements.

~~During the quarter ended March 31, 2017, the Company adopted ASU 2016-18, “Statement of~~Restricted Cash Flows (Topic 230): Restricted Cash”, that requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We early adopted this standard as of December 31, 2016 (beginning of FY 2017). The adoption of ASU 2016-18 did not have a material effect on the consolidated financial statements, however, prior period restricted cash was added to beginning and ending cash and cash equivalents in the statement of cash flows to conform to the current presentation.

~~STAAR SURGICAL COMPANY~~

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

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the ~~condensed consolidated balance sheets~~Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~cash flows~~Cash Flows (in 000’s):

September 29, December 30, September 30, January 1,
2017 2016 2016 2016
Cash and cash equivalents $ 16,133 $ 13,999 $ 14,284 $ 13,402
Restricted cash included in other long-term assets 120 119 119 119
Total cash, cash equivalents, and restricted cash
as shown in the statements of cash flows $ 16,253 $ 14,118 $ 14,403 $ 13,521

	September 27, 2019		December 28, 2018		September 28, 2018
Cash and cash equivalents	$	112,327	$	103,877	$	102,195
Restricted cash⁽¹⁾		—		122		121
Total cash, cash equivalents and restricted cash	$	112,327	$	103,999	$	102,316

⁽¹⁾	Included in other assets on the Condensed Consolidated Balance Sheets.

The Company ~~has~~had restricted cash ~~of approximately $120,000~~ set aside as collateral for a standby letter of credit required by the California Department of Public Health for unforeseen future regulatory costs related to the decommissioning of certain manufacturing equipment.

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In May 2017,~~ Since the ~~FASB issued ASU 2017-09 “Scope of Modification Accounting,” which amends~~quarter ended June 28, 2019, the ~~scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be~~Company was no longer required to ~~apply modification accounting under ASC 718. For all entities,~~set aside collateral for this standby letter of credit.

Allowance for Doubtful Accounts

The allowance for doubtful accounts decreased during the ~~ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after~~nine months ended September 27, 2019 due to specific past due receivables that were previously reserved and subsequently collected.

Lease Accounting

On December ~~15, 2017, and thereafter. Early adoption is permitted, including adoption in any interim period. We will adopt this standard as of December 30, 2017~~29, 2018 (beginning of ~~FY 2018) and do not expect~~fiscal year 2019), the ~~adoption of the standard will have a material impact on our consolidated financial statements.~~

In March 2017, the FASB issued ASU 2017-07, “Compensation-Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The standard requires that an employer report the service cost component in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of operating profit. The standard is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Prior periods are required to be recast. We will adopt this standard as of December 30, 2017 (beginning of FY 2018) and are currently evaluating the impact ASU 2017-07 may have on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The ASU is effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. The ASU should be applied on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption. We will adopt this standard as of December 30, 2017 (beginning of FY 2018) and are currently evaluating the impact ASU 2016-16 may have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350)”, which simplifies the test for goodwill impairment. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company ~~does not expect ASU 2017-04 to have a material effect on the consolidated financial statements.~~

~~In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”~~adopted Financial Accounting Standards Board (“~~ASU 2016-15”~~FASB”), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 (beginning of FY 2018) and early adoption is permitted. The Company is currently evaluating the impact ASU 2016-15 may have on its consolidated financial statements.

~~In February 2016, the FASB issued ASU~~ Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”, and its subsequent amendments affecting the Company: (i) ASU 2018-10, “Codification Improvements to Topic 842, Leases,” and (ii) ASU 2018-11, “Leases (Topic 842): Targeted improvements,” using the modified retrospective method. Upon adoption of ASU 2016-02, the Company recognized a cumulative adjustment of $113,000 which ~~requires lessees to recognize~~decreased the accumulated deficit and recognized right-of-use (“ROU”) assets and lease liabilities for operating leases, whereby the Company’s accounting finance leases remained substantially unchanged.

STAAR SURGICAL COMPANY

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

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

Lease Accounting (Continued)

The Company recognizes ROU assets and lease liabilities for leases with ~~lease~~ terms greater than twelve months in the ~~statement of financial position.~~Condensed Consolidated Balance Sheets. Leases ~~will be~~are classified as either finance or operating, with classification affecting the pattern of expense recognition in the ~~income statement.~~Condensed Consolidated Statement of Income.

A contract contains a lease if the contract conveys the right to control an identified asset for a period of time in exchange for consideration. An asset is either explicitly identified or implicitly identified and must be physically distinct. In addition, the Company must have both the right to obtain substantially all of the economic benefits from use of the identified asset and has the right to direct the use of the identified asset.

Certain leases may have non-lease components such as common area maintenance expense for building leases and maintenance expenses for automobile leases. In general, the Company separates common area maintenance expense component from the value of the ROU asset and lease liability when evaluating rental properties under ASU 2016-02, whereas, the Company includes the maintenance and service components in the value of the ROU asset and lease liability while evaluating automobile leases under ASU 2016-02.

When determining whether a lease is a finance lease or an operating lease, ASU 2016-02 does not specifically define criteria to determine “major part of remaining economic life of the underlying asset” and “substantially all of the fair value of the underlying asset.” For lease classification determination, the Company continues to use (i) greater to or equal to 75% to determine whether the lease term is a major part of the remaining economic life of the underlying asset and (ii) greater to or equal to 90% to determine whether the present value of the sum of lease payments is substantially all of the fair value of the underlying asset.

The Company uses either the rate implicit in the lease or its incremental borrowing rate as the discount rate in lease accounting.

When adopting ASU 2016-02, the Company did not reassess any expired or existing contracts, reassess the lease classification for any expired or existing leases and reassess initial direct costs for exiting leases. The Company also ~~requires improved disclosures~~elected not to ~~help users~~capitalize leases that have terms of ~~financial statements better understand~~twelve months or less.

The Company reviews ROU assets, for impairment whenever events or changes in circumstances indicate the carrying amount ~~timing and uncertainty~~ of an asset may not be recoverable. The Company measures recoverability of these assets by comparing the carrying value of such assets to the estimated undiscounted future cash flows ~~arising~~the assets are expected to generate. 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’ fair value and their carrying value.

Vendor Concentration

As of September 27, 2019, there was one vendor which accounted for 13% of the Company’s consolidated accounts payable. As of December 28, 2018, there were no vendors which accounted for over 10% of the Company’s consolidated accounts payable.

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted

On December 29, 2018 (beginning of fiscal year 2019), the Company adopted ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from ~~leases.~~Accumulated Other Comprehensive Income,” provides an option to reclassify stranded tax effects within Accumulated Other Comprehensive Income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded. The ~~update is effective~~adoption of ASU 2018‑02 did not have material impact on the Condensed Consolidated Financial Statements.

On December 29, 2018 (beginning of fiscal year 2019), the Company adopted ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” aligns the accounting for ~~fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted. The Company is gathering data~~share-based payments to ~~evaluate the impact~~nonemployees similar to employees. Upon the adoption of ASU ~~2016-02 may have on its consolidated financial statements and expects to complete~~2018-07, the ~~evaluation by~~Company recognized a cumulative adjustment of $315,000 which decreased the ~~third quarter of 2018.~~accumulated deficit.

STAAR SURGICAL COMPANY

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

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

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted (Continued)

In ~~May 2014,~~August 2018, the FASB issued ASU ~~2014-09, “Revenue from Contracts with Customers~~2018-13, “Fair Value Measurement (Topic ~~606)~~820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,”, which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitledmodifies certain disclosures requirements for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The revised revenue standardreporting fair value measurements. This is effective for ~~public entities for annual periods beginning~~fiscal years ending after December 15, ~~2017,~~2019. Early adoption is permitted. The Company will adopt this standard as of January 4, 2020 (beginning of fiscal year 2020) and ~~interim periods therein, using either of~~is currently evaluating the ~~following transition methods: (i) a full retrospective approach reflecting~~disclosure requirements and its effect on the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).

Condensed Consolidated Financial Statements.

In August ~~2015,~~2018, the FASB issued ASU ~~2014-09 was amended by ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of~~2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20); Disclosure Framework – Changes in the ~~Effective Date”,~~Disclosure Requirement for Defined Benefit Plans,” which ~~defers the~~modifies disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. This is effective ~~date of ASU 2014-09 by one year~~ for ~~all entities and permits early~~fiscal years ending after December 15, 2020. Early adoption on a limited basis. ASU 2014-09 was subsequently amended by four additional pronouncements: (i) ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;” (ii) ASU No. 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”; (iii) ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”; and (iv) ASU No. 2016-20, “Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements to Topic 606”.

is permitted. The Company ~~is nearing completion~~will adopt this standard as of ~~its assessment~~January 2, 2021 (beginning of fiscal year 2021) and is ~~performing a final review of~~currently evaluating the disclosure requirements and its evaluation of the new standard, including a detailed review of its revenue streams and contracts. The majority of the Company’s revenue relates to the sale of implantable lenses (ICLs and IOLs) for which revenue is recognized at a point in time (i.e., typically at shipping point, except for certain customers and for our STAAR Japan subsidiary, which is typically recognized when the customer receives the product). The Company does not believe the adoption of the new standard will materially impact these transactions. The Company has also determined that it will make accounting policy elections to 1) treat shipping and handling activities that occur after the customer obtains control of the goods as fulfillment costs, and 2) exclude sales and other similar taxes from the measurement of the transaction price. Basedeffect on the work performed to date, the Company does not expect adoption of the new standard to have a material impact on its consolidated financial statements. The Company is still evaluating the effect the standard will have on its financial statement disclosures. The Company expects to apply the modified retrospective method to adopt the standard on December 30, 2017.

Condensed Consolidated Financial Statements.

Note 2 — 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, December 30,
2017 2016
Raw materials and purchased parts $ 2,330 $ 2,264
Work-in-process 2,363 1,924
Finished goods 11,059 14,268
15,752 18,456
Less: inventory reserves 2,478 3,631
$ 13,274 $ 14,825

~~STAAR SURGICAL COMPANY~~

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

	September 27, 2019		December 28, 2018
Raw materials and purchased parts	$	1,374	$	2,678
Work in process		724		2,195
Finished goods		15,596		13,214
Total inventories, gross		17,694		18,087
Less inventory reserves		1,254		1,383
Total inventories, net	$	16,440	$	16,704

Note 3 — Prepayments, Deposits, and Other Current Assets

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

	September 27, 2019		December 28, 2018
Prepayments and deposits	$	2,630	$	1,707
Prepaid insurance		585		1,271
Consumption tax receivable		549		912
Value added tax (VAT) receivable		587		565
Income tax receivable		523		285
Other⁽¹⁾		532		305
Total prepayments, deposits and other current assets	$	5,406	$	5,045

September 29, December 30,
2017 2016
Prepayments and deposits $ 1,944 $ 1,003
Prepaid insurance 607 935
Income tax receivable 532 686
Consumption tax receivable 325 573
Value added tax (VAT) receivable 809 668
Pension benefit prepayment 90 —
Other current assets⁽¹⁾ 629 484
$ 4,936 $ 4,349

⁽¹⁾~~No individual item in “Other~~

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

STAAR SURGICAL COMPANY

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

Note 4 — Property, Plant and Equipment

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

	September 27, 2019		December 28, 2018
Machinery and equipment	$	17,027	$	16,905
Computer equipment and software		6,074		5,992
Furniture and fixtures		4,157		3,868
Leasehold improvements		10,118		10,045
Construction in process		5,952		2,095
Total property, plant and equipment, gross		43,328		38,905
Less accumulated depreciation		28,482		27,454
Total property, plant and equipment, net	$	14,846	$	11,451

September 29, December 30,
2017 2016
Machinery and equipment $ 17,680 $ 19,807
Furniture and fixtures 9,410 8,025
Leasehold improvements 9,597 9,179
36,687 37,011
Less: accumulated depreciation 25,688 25,221
$ 10,999 $ 11,790

~~During~~Construction in process includes the ~~third quarter~~cost of ~~2017,~~design plans and build out of facilities and the ~~Company disposed~~cost of ~~approximately $1.6 million~~equipment, as well as the direct costs incurred in the testing and validation of ~~assets which were no longer~~machinery and equipment and facilities before they are ready for productive use. Upon placement in service, costs are reclassified into the appropriate asset category and ~~fully depreciated except for an asset disposal loss of approximately $21,000 which was included in the statement of operations.~~

depreciation commences.

Note 5 ~~— Intangible~~–Intangible Assets

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

September 29, 2017 December 30, 2016

Gross
Carrying
Amount

Accumulated
Amortization
Net
Gross
Carrying
Amount

Accumulated
Amortization
Net
Long-lived intangible assets:
Patents and licenses $ 9,245 $ (8,965 ) $ 280 $ 9,224 $ (8,930 ) $ 294
Customer relationships 1,393 (1,359 ) 34 1,343 (1,209 ) 134
Developed technology 886 (874 ) 12 854 (809 ) 45
Total $ 11,524 $ (11,198 ) $ 326 $ 11,421 $ (10,948 ) $ 473

September 27, 2019

December 28, 2018

Long-lived amortized intangible assets

Gross

Carrying

Amount

Accumulated

Amortization

Net

Gross

Carrying

Amount

Accumulated

Amortization

Net

Patents and licenses

9,301

(9,049

)

252

9,257

(9,014

)

243

Note 6 —– Other Current Liabilities

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

September 29,
2017

December 30,
2016

Accrued salaries and wages $ 3,080 $ 2,334
Accrued bonuses 1,680 1,414
Accrued consumption tax 304 424
Accrued insurance 197 501
Accrued income taxes 371 1,095
Other⁽¹⁾ 1,621 1,507
$ 7,253 $ 7,275

⁽¹⁾~~No individual item in “Other” above exceeds 5% of the total other current liabilities~~

	September 27, 2019		December 28, 2018
Accrued salaries and wages	$	4,209	$	3,172
Accrued insurance		43		1,061
Accrued consumption tax		771		995
Accrued bonuses		2,354		5,113
Income taxes payable		2,464		1,105
Marketing obligations		747		361
Other⁽¹⁾		2,277		1,624
Total other current liabilities	$	12,865	$	13,431

⁽¹⁾

No individual item in “Other” exceeds 5% of the other current liabilities.

STAAR SURGICAL COMPANY

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

Note 7 – Lines of Credit

Since 1998, the Company’s wholly owned Japanese subsidiary, STAAR Japan, has had an agreement with Mizuho Bank which provides for borrowings of up to 500,000,000 Yen, at an interest rate equal to the uncollateralized overnight call rate (approximately 0.06% as of September 27, 2019) plus a 0.50% spread, and may be renewed quarterly (the current line expires on November 21, 2019). The credit facility is not collateralized. The Company had 252,500,000 Yen and 417,500,000 Yen outstanding on the line of credit as of September 27, 2019 and December 28, 2018, respectively (approximately $2,340,000 and $3,780,000 based on the foreign exchange rates on September 27, 2019 and December 28, 2018, respectively), which approximates fair value due to the short-term maturity and market interest rates of the line of credit. In case of default, the interest rate will be increased to 14% per annum. There was 247,500,000 Yen and 82,500,000 Yen available for borrowing as of September 27, 2019 and December 28, 2018, respectively (approximately $2,293,000 and $747,000 based on the foreign exchange rate on September 27, 2019 and December 28, 2018, respectively). At maturity on November 21, 2019, the Company expects to renew this line of credit for an additional three months, with similar terms.

In September 2013, the Company’s wholly owned Swiss subsidiary, STAAR Surgical AG, entered into a framework agreement for loans (“framework agreement”) with Credit Suisse (the “Bank”). The framework agreement provides for borrowings of up to 1,000,000 CHF (Swiss Francs) (approximately $1,000,000 at the rate of exchange on September 27, 2019 and December 28, 2018), to be used for working capital purposes. Accrued interest and 0.25% commissions on average outstanding borrowings is payable quarterly and the interest rate will be determined by the Bank based on the then prevailing market conditions at the time of borrowing. The framework agreement is automatically renewed on an annual basis based on the same terms assuming there is no default. The framework agreement may be terminated by either party at any time in accordance with its general terms and conditions. The framework agreement is not collateralized and contains certain conditions such as providing the Bank with audited financial statements annually and notice of significant events or conditions, as defined in the framework agreement. The Bank may also declare all amounts outstanding to be immediately due and payable upon a change of control or a “material qualification” in STAAR Surgical independent auditors’ report, as defined. There were 0 borrowings outstanding as of September 27, 2019 and December 28, 2018.

The Company is in compliance with covenants of its credit facilities and lines of credit as of September 27, 2019.

During the nine months ended September 27, 2019, the Company converted the lease line of credit schedule 011 with Farnam Street Financial, Inc. into a finance lease liability of approximately $500,000.

Note 8 – Leases

Finance Leases

The Company entered into finance leases primarily related to purchases of equipment used for manufacturing or computer-related equipment. 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):

	September 27, 2019
Machinery and equipment	$	1,885
Computer equipment and software		923
Furniture and fixtures		102
Leasehold improvements		27
Finance lease right-of-use assets, gross		2,937
Less accumulated depreciation		931
Finance lease right-of-use assets, net	$	2,006

Total finance lease liability	$	1,223
Weighted-average remaining lease term (in years)		1.4
Weighted-average discount rate		6.27	%

STAAR SURGICAL COMPANY

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

Note 8 – Leases (Continued)

Finance Leases (Continued)

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

	Three Months Ended		Nine Months Ended
	September 27, 2019		September 27, 2019
Amortization of finance lease right-of-use asset	$	141	$	447
Interest on finance lease liabilities		17		58
Cash paid for amounts included in the measurement of finance lease liabilities:
Operating cash flows		17		58
Financing cash flows		317		998
Right-of-use assets obtained in exchange for new finance lease liabilities		—		679

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 five years in length with options to extend. The Company did 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 27, 2019
Machinery and equipment	$	813
Computer equipment and software		462
Real property		10,634
Operating lease right-of-use assets, gross		11,909
Less accumulated depreciation		5,232
Operating lease right-of-use assets, net	$	6,677

Total operating lease liability	$	6,792
Weighted-average remaining lease term (in years)		2.4
Weighted-average discount rate		1.79	%

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

	Three Months Ended		Nine Months Ended
	September 27, 2019		September 27, 2019
Operating lease cost	$	726	$	2,020
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows		739		2,031
Right-of-use assets obtained in exchange for new operating lease liabilities		140		2,797

STAAR SURGICAL COMPANY

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

Note 8 – Leases (Continued)

Future Minimum Lease Commitments

Estimated future minimum lease payments under operating and finance leases having initial or remaining non-cancelable lease terms more than one year as of September 27, 2019 and December 28, 2018 are as follows (in thousands):

As of September 27, 2019 12 Months Ended	Operating Leases		Finance Leases
September 2020	$	2,920	$	790
September 2021		1,833		426
September 2022		1,082		45
September 2023		867		8
September 2024		319		4
Thereafter		—		—
Total minimum lease payments, including interest	$	7,021	$	1,273
Less amounts representing interest		229		50
Total minimum lease payments	$	6,792	$	1,223

As of December 28, 2018 12 Months Ended	Operating Leases		Finance Leases
December 2019	$	2,606	$	1,153
December 2020		2,202		332
December 2021		980		143
December 2022		507		4
December 2023		202		—
Thereafter		12		—
Total minimum lease payments, including interest		6,509		1,632
Less amounts representing interest		—		75
Total minimum lease payments	$	6,509	$	1,557

STAAR SURGICAL COMPANY

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

Note 9 —Income Taxes

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

Three Months Ended

Nine Months Ended

September 27,

2019

September 28,

2018

September 27,

2019

September 28,

2018

Provision for income taxes

760

346

2,380

1,452

The income tax provision is primarily due to pre-tax income generated in certain foreign jurisdictions. The Company’s quarterly provision for income taxes is determined by estimating an annual effective tax rate. This estimate may fluctuate throughout the year as new information becomes available affecting its underlying assumptions. There are no unrecognized tax benefits related to uncertain tax positions taken by the Company.

All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. Accordingly, the Company provides withholding and U.S. taxes on all unremitted foreign earnings.

The 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50 percent of GILTI, however this deduction is limited to the Company’s U.S. taxable income. The Company has elected to account for GILTI as a current period expense when incurred.

For the nine months ended September 27, 2019, the Company included GILTI of $12,084,000 in U.S. gross income, which was fully offset with net operating loss carryforwards. The Company was not able to utilize the deduction of 50 percent of GILTI, as this deduction is limited to the Company’s U.S. taxable income.

As of September 27, 2019, the Company established a full valuation allowance in the U.S. for all periods presented due to the significant uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets, with the exception of the refundable alternative minimum tax credit of $273,000. Management will continue to monitor and evaluate all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, impact of GILTI in the U.S., tax-planning strategies, and results of recent operations.

In projecting future taxable income, the Company begins with historical results and incorporates assumptions including overall current and projected business and industry conditions, the amount of future federal, state, and foreign pretax operating income, the reversal of temporary differences and the feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company uses to manage the underlying businesses. In evaluating the objective evidence, the Company considers, among other financial information, three years of cumulative operating results. Valuation allowances, or reductions to deferred tax assets, are recognized if, based on the weight of all the available evidence, it is more likely than not that some portion or all the deferred tax asset may not be realized. As the Company experiences continued growth and profits the need for a valuation allowance will be evaluated each reporting period by Management to determine whether it is more likely than not that the Company’s deferred tax assets will be realizable in a later period. Any such changes in the assessment of a full or partial valuation allowance could have a material impact on earnings.

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 27, 2019			September 28, 2018			September 27, 2019			September 28, 2018
Service cost⁽¹⁾	$	240		$	137		$	720		$	414
Interest cost⁽²⁾		20			15			60			44
Expected return on plan assets⁽²⁾		(36	)		(28	)		(103	)		(82	)
Net amortization of transitional obligation^(2),(3)		—			3			—			8
Prior service credit^(2),(3)		(6	)		(6	)		(17	)		(17	)
Actuarial loss recognized in current period^(2),(3)		32			28			97			85
Net periodic pension cost	$	250		$	149		$	757		$	452

Three Months Ended Nine Months Ended

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

Service cost $ 126 $ 155 $ 380 $ 466
Interest cost 15 19 43 54
Expected return on plan assets (25 ) (24 ) (71 ) (69 )
Net amortization of transitional obligation (a) 3 3 9 10
Actuarial loss recognized in current period (a) 17 24 51 70
Total $ 136 $ 177 $ 412 $ 531

⁽¹⁾	Recognized in selling general and administrative expenses on the Condensed Consolidated Statements of Income.

⁽²⁾	Recognized in other income (expense), net on the Condensed Consolidated Statements of Income.

⁽³⁾	Amounts reclassified from accumulated other comprehensive income (loss).

~~(a) Amounts reclassified from accumulated other comprehensive loss.~~

During the nine months ended September 29, 2017 and September 30, 2016, the Company made cash contributions of approximately $518,000 and $419,000, respectively, to its Swiss pension plan and the Company is not required to make additional cash contributions during the remainder of 2017. The Company currently is not required to and does not make contributions to its Japan pension plan.

~~Note 8 — Basic and Diluted Net Income (Loss) Per Share~~

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

Three Months Ended Nine Months Ended

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

Numerator:
Net income (loss) $ 1,173 $ (1,778 ) $ (2,001 ) $ (11,962 )
Denominator:
Weighted average common shares outstanding 41,131 40,501 40,960 40,242
Less: Unvested restricted stock 21 15 21 15
Denominator for basic and diluted calculation 41,110 40,486 40,939 40,227
Effect of dilutive shares:
Options 837 — — —
Restricted stock and units 157 — — —
Denominator for diluted calculation 42,104 40,486 40,939 40,227
Net income (loss) per share – basic $ 0.03 $ (0.04 ) $ (0.05 ) $ (0.30 )
Net income (loss) per share – diluted $ 0.03 $ (0.04 ) $ (0.05 ) $ (0.30 )

The following table sets forth the weighted average number of options to purchase shares of common stock and restricted stock and units, which were not included in the calculation of diluted per share amounts because the effects would be anti-dilutive (in thousands).

Three Months Ended Nine Months Ended

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

Options 1,545 2,134 2,497 2,937
Restricted stock and units — 60 159 48
Total 1,545 2,194 2,656 2,985

~~STAAR SURGICAL COMPANY~~

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

~~Note 9 — Geographic and Product Data~~

The Company markets and sells its products in over 60 countries and conducts its manufacturing in the United States. Other than China, Japan, and the United States, the Company does not conduct business in any country in which its sales exceed 10% of worldwide consolidated sales. Sales are generally attributed to countries based on location of customers. The composition of the Company’s net sales to unaffiliated customers is set forth below (in thousands):

Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
2017 2016 2017 2016
China $ 7,164 $ 4,254 $ 17,489 $ 11,749
Japan 4,633 4,029 12,849 12,258
United States 1,896 2,419 5,946 7,355
Other 9,780 9,350 29,475 28,933
Total $ 23,473 $ 20,052 $ 65,759 $ 60,295

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~~contributions to its Swiss pension plan 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 is~~ as follows (in thousands):

Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
2017 2016 2017 2016
ICLs $ 18,110 $ 14,801 $ 49,698 $ 43,389
IOLs 3,892 4,649 12,875 14,783
Other surgical products 1,471 602 3,186 2,123
Total $ 23,473 $ 20,052 $ 65,759 $ 60,295

One customer, our distributor in China, accounted for 31% and 27% of net sales for the three and nine months ended September 29, 2017, respectively, and the same customer accounted for 21% and 19% of net sales for the three and nine months ended September 30, 2016, respectively. As of September 29, 2017 and December 30, 2016, respectively, one customer, our distributor in China, accounted for 26% and 22% of consolidated trade receivables.

Three Months Ended

Nine Months Ended

September 27,

2019

September 28,

2018

September 27,

2019

September 28,

2018

Employer contribution

141

404

225

Note 10 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				Three Months Ended				Nine Months Ended
	September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016		September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018
Employee stock options	$	443	$	208	$	1,204	$	5,257	$	2,178	$	1,197	$	5,770	$	2,713
Restricted stock		50		32		136		259		77		82		236		192
Restricted stock units		314		146		845		2,569		246		501		1,661		1,593
Nonemployee stock options		—		—		—		58		57		247		111		428
Total	$	807	$	386	$	2,185	$	8,143
Total stock-based compensation expense									$	2,558	$	2,027	$	7,778	$	4,926

The Company recorded stock-based compensation costs in the following categories ~~on the accompanying condensed consolidated statements of operations~~ (in thousands):

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016		September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018
Cost of sales	$	2	$	—	$	6	$	560	$	7	$	4	$	43	$	11
General and administrative		377		248		1,035		3,936		1,082		701		2,878		1,875
Marketing and selling		214		72		558		1,544		692		471		2,553		1,297
Research and development		214		66		586		2,103		777		851		2,304		1,743
Total stock compensation expense		807		386		2,185		8,143
Total stock-based compensation expense, net										2,558		2,027		7,778		4,926
Amounts capitalized as part of inventory		107		39		269		227		258		182		723		449
Total	$	914	$	425	$	2,454	$	8,370
Total stock-based compensation expense, gross									$	2,816	$	2,209	$	8,501	$	5,375

STAAR SURGICAL COMPANY

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

Note 11 — Stockholders’ Equity (Continued)

~~Stock Option~~Incentive Plan

~~Our~~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, and restricted stock units (“RSUs”)~~, and performance contingent stock units.~~. Options under the ~~plan~~Plan are granted at fair market value on the date of grant, become exercisable generally over a three-year period, or as determined by ~~our~~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 ~~under certain circumstances in the event of~~if there is a change in control and pre-established financial metrics are met (as defined in the Plan). ~~Pursuant to the Plan, options for 3,826,956 shares were~~Grants of restricted stock outstanding ~~at September 29, 2017 with exercise prices ranging between $0.95 and $17.62 per share. Restricted stock grants~~ under the Plan generally vest over ~~a period between~~periods of one to ~~four~~three years. ~~There were 20,833 shares~~Grants of ~~restricted stock and 438,039~~ RSUs outstanding ~~at September 29, 2017.~~under the Plan generally vest based on service, performance, or a combination of both. As of September ~~29, 2017,~~27, 2019, there were ~~1,273,420~~1,629,976 shares ~~authorized and~~ available for ~~grants~~grant under the ~~Plan.~~

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 an ~~11.3%~~8% 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						Three Months Ended						Nine Months Ended
	September 29, 2017			September 30, 2016			September 29, 2017			September 30, 2016			September 27, 2019			September 28, 2018			September 27, 2019			September 28, 2018
Expected dividend yield		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Expected volatility		57	%		57	%		57	%		57	%		53	%		53	%		53	%		53	%
Risk-free interest rate		1.83	%		1.19	%		1.95	%		1.34	%		1.55	%		2.84	%		2.40	%		2.71	%
Expected term (in years)		5.67			5.57			5.67			5.57			5.67			5.72			5.67			5.72

Stock Options

A summary of stock option activity under the Plan for the ~~nine-month period~~nine months ended September ~~29, 2017~~27, 2019 is presented below:

	~~Options~~ ~~Shares~~ ~~(000’s)~~
~~Outstanding at December 30, 2016~~		~~3,502~~
~~Granted~~		~~829~~
~~Exercised~~		~~(334~~	)
~~Forfeited or expired~~		~~(170~~	)
~~Outstanding at September 29, 2017~~		~~3,827~~
~~Exercisable at September 29, 2017~~		~~2,752~~

	Stock Options (in 000’s)			Minimum Exercise Price		Maximum Exercise Price
Outstanding at December 28, 2018		3,920
Granted		818
Exercised		(190	)
Forfeited or expired		(23	)
Outstanding at September 27, 2019		4,525		$	3.50	$	43.84
Exercisable at September 27, 2019		3,104

STAAR SURGICAL COMPANY

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

Note 11 — Stockholders’ Equity (Continued)

Restricted Stock and Restricted Stock Units

A summary of restricted stock and RSU activity under the Plan for the ~~nine-month period~~nine months ended September ~~29, 2017~~27, 2019 is presented below:

Restricted
Shares
(000’s)

RSUs
(000’s)

Outstanding at December 30, 2016 23 274
Granted 21 291
Vested (23 ) (93 )
Forfeited — (34 )
Outstanding at September 29, 2017 21 438

	Restricted Stock (in 000’s)			Restricted Stock Units (in 000’s)
Unvested at December 28, 2018		11			322
Granted		11			19
Vested		(11	)		(210	)
Forfeited or expired		—			(6	)
Unvested at September 27, 2019		11			125

~~STAAR SURGICAL COMPANY~~

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

~~Note 11 — Income Taxes~~

As discussed in Note 1 of the notes to the condensed consolidated financial statements, the Company adopted an accounting standards update regarding the recognition of excess tax benefits through the income statement upon settlement of share-based compensation awards. As the Company has a full valuation allowance, any realized benefits would be offset by the valuation allowance with no impact to the tax provision. Accordingly, there is no benefit reflected in the current tax provision and no restatement of the prior period.

The Company’s quarterly provision for income taxes is determined by estimating an annual effective tax rate. This estimate may fluctuate throughout the year as new information becomes available affecting its underlying assumptions.

The Company recorded an income tax provision of $0.4 million and $0.7 million for the three and nine months ended September 29, 2017 primarily due to pre-tax income generated in certain foreign jurisdictions. There are no unrecognized tax benefits related to uncertain tax positions taken by the Company.

The income tax benefit of $1.7 million for the nine months ended September 30, 2016 was primarily due to net operating losses from our foreign operations, primarily due to the acceleration of stock compensation and tax benefits related to the dissolution of one of our foreign subsidiaries.

All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. Accordingly, the Company provides withholding and U.S. taxes on all unremitted foreign earnings. The Company reduced its deferred tax liability in 2016 related to withholding taxes from unremitted foreign earnings by the accumulated deficit of one of its foreign subsidiaries dissolved as of April 1, 2016.

Note 12 —- Commitments and Contingencies

~~Lines of Credit~~

Since 1988, the Company’s wholly owned Japanese subsidiary, STAAR Japan, has had an agreement, as amended on or about November 21, 2016, with Mizuho Bank which provides for borrowings of up to 500,000,000 Yen, at an interest rate equal to the uncollateralized overnight call rate (approximately 0.12% as of September 29, 2017) plus a 0.50% spread, and may be renewed annually (the current line expires on November 21, 2017). The credit facility is not collateralized. The Company had 500,000,000 Yen outstanding on the line of credit as of September 29, 2017 and December 30, 2016 (approximately $4.4 million and $4.3 million based on the foreign exchange rates on September 29, 2017 and December 30, 2016, respectively), which approximates fair value due to the short-term maturity and market interest rates of the line of credit. In case of default, the interest rate will be increased to 14% per annum. As of September 29, 2017, there were no available borrowings under the line.

In August 2010, the Company’s wholly owned Swiss subsidiary, STAAR Surgical AG, entered into a credit agreement with Credit Suisse (the Bank). The credit agreement provides for borrowings of up to 1,000,000 CHF (Swiss Francs) ($1.0 million at the rate of exchange on September 29, 2017), to be used for working capital purposes. Accrued interest and 0.25% commissions on average outstanding borrowings is payable quarterly and the interest rate will be determined by the Bank based on the then prevailing market conditions at the time of borrowing. The credit agreement is automatically renewed on an annual basis based on the same terms assuming there is no default. The credit agreement may be terminated by either party at any time in accordance with its general terms and conditions. The credit facility is not collateralized and contains certain conditions such as providing the Bank with audited financial statements annually and notice of significant events or conditions as defined in the credit agreement. The Bank may also declare all amounts outstanding to be immediately due and payable upon a change of control or a “material qualification” in STAAR Surgical independent auditors’ report, as defined. There were no borrowings outstanding as of September 29, 2017 and December 30, 2016.

~~Covenant Compliance~~

~~The Company is in compliance with the covenants of its credit facilities as of the date of this filing.~~

~~STAAR SURGICAL COMPANY~~

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

~~Lease Line of Credit (Capital Leases)~~

On January 30, 2017, the Company entered into lease schedule 010 with Farnam Street Financial, Inc (“Farnam”). The line of credit provides for borrowings of up to $2.0 million at a lease rate factor of 3.94% per $1 for hardware equipment and 4.75% per $1 for non-hardware equipment. Interim rent is paid until the full amount of the line is used at which time the lease commences. As of September 29, 2017, approximately $737,456 of the line was available for borrowing.

On January 31, 2017, the Company entered into lease schedule 009R with Farnam. Under 009R, equipment with a cost of $1,957,000 was financed over a period of 24 months at a lease rate factor of 3.94% per $1 for hardware equipment and 4.75% per $1 for non-hardware equipment. At the end of the lease the Company can opt to continue to rent the equipment, return the equipment, or exercise a fair market value purchase option. As of September 29, 2017, approximately $1,310,609 was outstanding.

On June 12, 2014, the Company entered into lease schedule 008R with Farnam. Under the agreement, hardware and non-hardware with a cost of $964,612 was financed over a period of 36 months at a lease rate factor of 2.81% per $1 for hardware equipment and 3.12% per $1 for non-hardware equipment. At the end of the lease the Company could opt to continue to rent the equipment, return the equipment, or exercise a fair market value purchase option. The lease schedule was paid off in May 2017 and the Company is renting the equipment on a month to month basis temporarily until it decides to either return the equipment or exercise the fair market value purchase option.

Litigation and Claims

From time to time, the Company ~~may be subject to~~is involved in various ~~claims and~~ legal proceedings and other matters arising ~~out of~~in the normal course of ~~our~~ business. These ~~claims~~legal proceedings and ~~legal proceedings~~other matters may relate to, among other things, contractual rights and obligations, employment matters, ~~and~~or claims of product liability. ~~The most significant of these actions, proceedings and investigations are described below.~~ STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. ~~Legal proceedings can extend for several years, and most~~While the Company does not believe that any of the matters concerning the Company are at early stages of the legal and administrative process. As a result, these matters have not yet progressed sufficiently through discovery and/or development of important factual information and legal issuesclaims known is likely to enable the Company to determine whether the proceedings are material to the Company or to estimate a range of possible loss, if any. Unless otherwise disclosed, the Company is unable to estimate the possible loss or range of loss for the legal proceedings described below. While it is not possible to accurately predict or determine outcomes of these items, an adverse determination in one or more of these items currently pending could have a material adverse effect on the Company’s ~~consolidated~~financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial ~~position, or cash flows.~~harm.

~~Stockholder Securities Litigation: Todd Action~~

~~On July 8, 2014,~~ ~~a putative securities class action lawsuit was filed by Edward Todd against STAAR and three officers in the U.S. District Court for the Central District of California.~~ The plaintiff claims that STAAR made misleading statements to and omitted material information from our investors between February 27, 2013 and September 29, 2014 about alleged regulatory violations at STAAR’s Monrovia manufacturing facility. On October 20, 2014, plaintiff amended its complaint, dismissed two Company officers, added one other officer, reduced the alleged Class Period to November 1, 2013 through September 29, 2014, and demanded compensatory damages and attorneys’ fees. On January 5, 2017, the court granted plaintiff’s Motion for Class Certification. On June 20, 2017, plaintiff sought preliminary approval of a proposed class action settlement in the amount of $7,000,000. The settlement documents filed by the plaintiff included a “Stipulation and Agreement of Settlement” that provided, among other things, that the $7,000,000 settlement amount “shall be wired on behalf of all Defendants and Released Persons out of insurance proceeds from STAAR’s Insurance Policies into the Settlement Escrow Account.” The Company determined it was probable the insurance carriers would satisfy their obligation. On July 10, 2017, the court granted the plaintiff’s application for preliminary approval of the class action settlement. On or about July 28, 2017, the Company’s insurance carriers directly funded the entire settlement amount to the court-authorized escrow account. On October 23, 2017, the court granted plaintiff’s application for final approval of the class action settlement in the amount of $7,000,000. A third-party claims administrator will administer and oversee distribution of the settlement funds to qualified class members, pursuant to the process approved by the court. The Company recorded the liability associated with the settlement and the corresponding insurance receivable of $7,000,000 as of September 29, 2017. These entries did not have any impact on the statement of operations or cash flows for the nine months ended September 29, 2017. As of October 23, 2017, the Company, upon the Court’s final approval, relieved both the payable and the receivable off of its consolidated balance sheet.

~~Stockholder Derivative Litigation: Forestal Action~~

On June 21, 2016, Kevin Forestal filed a stockholder derivative complaint against our then-current Board of Directors, which included Caren Mason, Mark B. Logan, Stephen C. Farrell, Richard A. Meier, John C. Moore, J. Steven Roush, Louis E. Silverman, and William P. Wall, and STAAR as well as Barry G. Caldwell and John S. Santos in the U.S. District Court for the Central District of California. The plaintiff alleges breaches of fiduciary duties by, among other things, allowing STAAR to disseminate misleading statements to investors regarding the condition of the Company’s Quality System, failing to properly oversee the Company, and unjust enrichment. The complaint seeks damages, restitution and governance reforms, attorneys’ fees, and costs. On January 31, 2017, the court granted the Company’s Motion to Dismiss. On February 6, 2017, plaintiff filed a Notice of Appeal, and on July 17, 2017 plaintiff filed his appellate brief. On September 14, 2017, the Company filed its appellate answering brief. Although the ultimate outcome of this action cannot be determined with certainty, the Company believes that the allegations in the Complaint are without merit. The Company has not recorded any loss or accrual in the accompanying condensed consolidated financial statements at September 29, 2017 and December 30, 2016 for this matter as the likelihood and amount of loss, if any, has not been determined and is not currently estimable.

~~STAAR SURGICAL COMPANY~~

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

Employment Agreements

The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective March 1, 2015. She 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.

STAAR SURGICAL COMPANY

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

Note 13 — ~~Reclassifications~~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 27, 2019			September 28, 2018			September 27, 2019			September 28, 2018
Numerator:
Net income	$	2,388		$	1,459		$	7,669		$	3,872
Denominator:
Weighted average common shares:
Common shares outstanding		44,573			43,065			44,436			42,076
Less: Unvested restricted stock		(10	)		(11	)		(10	)		(11	)
Denominator for basic calculation		44,563			43,054			44,426			42,065
Weighted average effects of potentially diluted common stock:
Stock options		2,194			2,686			2,260			2,245
Unvested restricted stock		2			4			6			12
Restricted stock units		98			281			156			296
Denominator for diluted calculation		46,857			46,025			46,848			44,618
Net income per share:
Basic	$	0.05		$	0.03		$	0.17		$	0.09
Diluted	$	0.05		$	0.03		$	0.16		$	0.09

The ~~Company reclassified inventory reserves from Changes in Working Capital - Inventory~~following table sets forth (in thousands) the weighted average number of options to purchase shares of common stock, restricted stock, and restricted stock units 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 ~~Statement~~calculation of ~~Cash Flows~~diluted per share amounts because the effects would be anti-dilutive.

	Three Months Ended				Nine Months Ended
	September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018
Stock options		1,836		389		1,446		278
Restricted stock and restricted stock units		—		—		—		1
Total		1,836		389		1,446		279

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 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018
Non-consignment sales	$	34,696	$	27,503	$	98,518	$	79,345
Consignment sales		4,359		4,267		12,784		13,423
Total net sales	$	39,055	$	31,770	$	111,302	$	92,768

STAAR SURGICAL COMPANY

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

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

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 ~~the non-cash section~~countries based on location of customers. The composition of the ~~Statement~~Company’s net sales to unaffiliated customers is set forth below (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018
China	$	18,361	$	13,349	$	49,526	$	35,224
Japan		7,345		6,006		19,139		17,781
Other⁽¹⁾		13,349		12,415		42,637		39,763
Total net sales	$	39,055	$	31,770	$	111,302	$	92,768

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

In addition, domestic and foreign sales are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018
Domestic	$	1,783	$	1,676	$	5,849	$	5,327
Foreign		37,272		30,094		105,453		87,441
Total net sales	$	39,055	$	31,770	$	111,302	$	92,768

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 1 operating segment for ~~both~~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 is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018
ICLs	$	33,815	$	26,418	$	96,033	$	74,868
Other product sales
IOLs		4,093		3,824		11,984		12,068
Other surgical products		1,147		1,528		3,285		5,832
Total other product sales		5,240		5,352		15,269		17,900
Total net sales	$	39,055	$	31,770	$	111,302	$	92,768

One customer, the Company’s distributor in China, accounted for 47% and 44% of net sales for the three and nine months ended September 27, 2019, respectively, and the same customer accounted for 42% and 38% of net sales for the three and nine months ended September ~~29, 2017~~28, 2018, respectively. As of September 27, 2019 and ~~September 30, 2016. The Company also~~December 28, 2018, respectively, one customer, the Company’s distributor in China, accounted for 40% and 37% of consolidated trade receivables.

Note 15 — Reclassifications

Computer equipment and software was reclassified ~~$65,000~~into a separate line item from ~~Cash Proceeds from Sale of Property~~furniture and ~~Equipment to Loss on Disposal of Property and Equipment~~fixtures in Note 4 for the ~~nine months~~fiscal year ended ~~September 30, 2016.~~2018 to conform with the 2019 presentation.

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, capital expense or any other financial items; 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 (including the ~~Toric ICL~~EVO family of lenses in the U.S. and the EDOF ICL for presbyopia internationally); commercialization of new or improved products; ~~the nature, timing and likelihood of resolving issues cited in the FDA’s 2014 Warning Letter or 2015 FDA-483;~~ future economic conditions or size of market opportunities; expected costs of ~~quality system and completion of FDA remediation efforts;~~operations; statements of belief, including as to achieving ~~2017~~2019 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 in our Annual Report on Form 10-K in “Item 1A. Risk Factors” filed on ~~March 2, 2017.~~February 21, 2019. 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 ~~unaudited~~audited consolidated financial statements of STAAR, including the related notes, provided in this report.

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 ~~believe we~~ are the world’s leading manufacturer of intraocular lenses for patients seeking refractive vision correction, and we also make lenses for use in surgery to treat cataracts. 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,~~“ICLs.” ~~which includes the EVO Visian ICL™ product line.~~ 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. Cataract surgery is a common outpatient procedure where the eye’s natural lens that has become cloudy with age is removed and replaced with an artificial lens called an intraocular lens (IOL) to restore the patient’s vision. 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 ~~glasses~~eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction. We position our IOL lenses used in ~~cataract~~ surgery ~~in standard~~that treats cataracts based on quality and ~~premium value segments.~~value.

~~STAAR has significant operations globally. Activities outside the United States (“U.S.”) accounted~~Recent Developments

We achieved record sales for ~~92% of~~ our ~~total sales~~third quarter and all-time record cash generation in the third ~~quarter~~quarter. We believe the results through the first three quarters of ~~2017, primarily due~~2019 put us on track to achieve the growth targets of 20% annual top line revenue growth, 30% ICL unit growth, positive cash flow, and higher GAAP net income than 2018, as we disclosed earlier this year for fiscal 2019. Subsequent to the ~~pacing~~end of ~~product approvals and commercialization that tend to occur first outside~~the quarter we received a letter from FDA dated October 25, 2019 approving our supplement seeking approval for the clinical trial for our EVO family of lenses in the U.S. ~~STAAR sells its products in more than 60 countries, with direct distribution in Japan, North America, Spain, Germany, Singapore, the U.K., and independent distribution~~The letter included a few additional study design recommendations which we are working to include in the ~~remainder of the world. STAAR maintains operational and administrative facilities in the U.S., Switzerland and Japan.~~

~~Recent Developments and Strategic Priorities for 2017~~

~~In the third quarter of 2017, quarterly net sales increased 17% from prior year quarter~~study protocol. We are responding to $23.5 million. Worldwide ICL sales increased 22% and units increased 18% from prior year quarter. In the quarter, ICL sales grew 256% in Canada, 32% in Japan and 69% in China. In regional markets, compared to the prior year quarter, ICL sales increased 10% in North America, 6% in Europe, Middle East and Africa, and 35% in Asia Pacific, in spite of planned challenges in Korea. Global Toric ICL shipments continue to account forFDA within a ~~growing percentage of the ICL product mix. For the third quarter of 2017, injector part sales were significantly higher than prior year third quarter.~~week or so. We continue to ~~recover from challenges with one of~~qualify study sites and expect our timelines will not be impacted as we work to close out the materials used in our silicone IOL preloaded injectors. During the third quarter of 2017, we continued to enter into new strategic business agreements with customers, and renew or extend existing agreements.

With the discontinuation of our U.S. silicone IOL business and sales impacted by the materials challenge in our silicone IOL preloaded injectors, we expect that IOL sales will decrease in the fourth quarter of 2017 compared to the fourth quarter of 2016. We expect sales of injector parts to continue to increase compared to prior year in the fourth quarter of 2017. In September, our Notified Body in the European Union, DEKRA, approved an expanded age range for our EVO Visian ICL for myopia from adults aged 21 to 45 years old to adults aged 21 to 60 years old. Our first-in-man clinical trial for the next generation ICL with EDOF continued in the third quarter and the results continue to be positive.

~~For 2017, our strategic priorities remain as follows:~~

1. Complete Remediation Plan and Quality Systems Overhaul: We expect to complete our internal remediation and quality system rebuild commitments while also maintaining our global quality certifications;

~~2. Continue to Build the~~~~Visual Freedom~~ Market for Implantable Lenses: We will continue our activities to position the ICL as a primary and premium refractive procedure with clinical validation, new digital and social media marketing, product branding launched in 2016, and enhanced surgeon training and practice development programs;

3. Build Go-to-Market Strategy to Expand Market Share Globally: We are planning for double digit ICL growth through a refreshed sales strategy and by entering into additional strategic business relationships with growth-oriented refractive surgical providers operating eye hospitals and clinics;

4. Deliver Global Clinical Validation & Clinical Utility Excellence: The expanded Global Clinical and Medical Affairs teams will continue to assist in supporting submissions to and responding to queries from regulatory agencies and will monitor clinical data, conduct and monitor clinical studies and patient registries established in 2016 and enhance our medical communications protocol; and

5. Innovate, Develop and Release to Market Premium Collamer Lenses and Delivery Systems: We plan to complete research and development efforts relating to EVO (spherical) with EDOF lensstudy design ~~and meet internal commitments regarding other research and development priorities.~~

We continue to expect double-digit ICL unit growth in 2017 driven primarily by increasing market acceptance of the EVO Visian ICL in established markets with the exception of the U.S. and Korea. We continue to anticipate gross profit as a percentage of sales for full year 2017 to be higher than 2016. We continue to expect operating expenses for 2017 will be below operating expenses in 2016. Finally, we will continue to evaluate opportunities to acquire new product lines, technologies, and companies.

including FDA’s recommendations.

Critical Accounting Policies

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

An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. ~~Management~~On December 29, 2018 (beginning of fiscal year 2019), the Company adopted Accounting Standards Update 2016-02, “Leases (Topic 842)” and its subsequent amendments, the impact of this new accounting standard are discussed in Notes 1 and 8 of the Condensed Consolidated Financial Statements. Other than the adoption of Topic 842, management believes that there have been no significant changes during the nine months ended September ~~29, 2017~~27, 2019 to the items that we disclosed as our critical accounting policies and 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, 2016.~~

28, 2018.

Results of Operations

The following table shows the percentage of our total sales represented by ~~the specific~~certain items ~~listed~~ reflected in our ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations~~Income for the periods ~~indicated, and the percentage by which these items increased or decreased over the prior period.~~indicated.

	Percentage of Net Sales for Three Months						Percentage of Net Sales for Nine Months						Percentage of Net Sales for Three Months						Percentage of Net Sales for Six Months
	September 29, 2017			September 30, 2016			September 29, 2017			September 30, 2016			September 27, 2019			September 28, 2018			September 27, 2019			September 28, 2018
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		28.2			25.8			28.7			29.5			25.6	%		24.9	%		25.3	%		26.1	%
Gross profit		71.8			74.2			71.3			70.5			74.4	%		75.1	%		74.7	%		73.9	%

General and administrative		21.1			24.9			22.9			30.5			18.2	%		19.2	%		19.3	%		19.5	%
Marketing and selling		27.4			35.7			30.8			36.5			31.9	%		33.4	%		30.8	%		31.0	%
Research and development		18.9			22.2			21.2			26.6			15.8	%		17.5	%		16.1	%		17.6	%
		67.4			82.8			74.9			93.6
Operating income (loss)		4.4			(8.6	)		(3.6	)		(23.1	)
Other income (expense), net		2.3			0.2			1.6			0.5
Income (loss) before provision for income taxes		6.7			(8.4	)		(2.0	)		(22.6	)
Provision (benefit) for income taxes		1.7			0.4			1.1			(2.8	)
Net income (loss)		5.0	%		(8.8	)%		(3.1	)%		(19.8	)%
Total selling, general and administrative														65.9	%		70.1	%		66.2	%		68.1	%
Operating income														8.5	%		5.0	%		8.5	%		5.8	%
Total other income (expense), net														(0.5	)%		0.7	%		0.5	%		(0.1	)%
Income before income taxes														8.0	%		5.7	%		9.0	%		5.7	%
Provision for income taxes														1.9	%		1.1	%		2.1	%		1.6	%
Net income														6.1	%		4.6	%		6.9	%		4.1	%

Net Sales

Three Months Ended Percentage Change Nine Months Ended Percentage Change

September 29,
2017

September 30,
2016

2017
vs. 2016
September 29, 2017 September 30, 2016
2017
vs. 2016

Net sales $ 23,473 $ 20,052 17.1 % $ 65,759 $ 60,295 9.1 %

ICL 18,110 14,801 22.4 49,698 43,389 14.5
IOL 3,892 4,649 (16.3 ) 12,875 14,783 (12.9 )
Other 1,471 602 144.4 3,186 2,123 50.1

	Three Months Ended				Percentage Change			Nine Months Ended				Percentage Change
	September 27, 2019		September 28, 2018		2019 vs. 2018			September 27, 2019		September 28, 2018		2019 vs. 2018
ICLs	$	33,815	$	26,418		28.0	%	$	96,033	$	74,868		28.3	%
Other product sales
IOLs		4,093		3,824		7.0	%		11,984		12,068		(0.7	)%
Other surgical products		1,147		1,528		(24.9	)%		3,285		5,832		(43.7	)%
Total other product sales		5,240		5,352		(2.1	)%		15,269		17,900		(14.7	)%
Net sales	$	39,055	$	31,770		22.9	%	$	111,302	$	92,768		20.0	%

Net sales for the three months ended September ~~29, 2017~~27, 2019 were ~~$23.5~~$39.1 million, an increase of ~~17% compared with $20.1~~23% from $31.8 million reported during the same period of ~~2016. Total~~2018. The increase in net sales was due to an increase in ICL sales of $7.4 million.

Net sales for the nine months ended September ~~29, 2017~~27, 2019 were ~~$65.8~~$111.3 million, an increase of ~~9.1% compared with $60.3~~20% from $92.8 million reported during the same period of ~~2016.~~2018. The ~~effect of exchange rate changes had an unfavorable impact on~~increase in net sales was due to an increase in ICL sales of ~~$0.3~~$21.2 million, ~~and $0.4~~partially offset by a decrease in other product sales of $2.6 million. Foreign currency, primarily the euro, negatively impacted net sales by approximately $1.3 million ~~respectively, during~~for the ~~three and~~ nine months ended September ~~29, 2017.~~27, 2019.

Total ICL sales for the three months ended September ~~29, 2017~~27, 2019 were ~~$18.1~~$33.8 million, ana 28% increase ~~of 22% compared with $14.8~~from $26.4 million reported ~~during~~for the same period of ~~2016. North America ICL~~2018, with unit growth up 35%. The sales ~~were $1.6 million during the third quarter, an~~ increase ~~of 10% in both sales and units compared to the prior year period. The increase in North America ICL sales~~ was driven by ~~a 256% increase~~the APAC region, which grew 37% with unit growth of 43%, primarily due to sales growth in ~~Canada~~China up 38%, Japan up 63%, Korea up 33% and other APAC distributors up 19%, partially offset by decreased sales in India of 14%. The Europe, Middle East, Africa and Latin America region grew 5% with unit growth up 8%, due to sales growth in Spain up 12%, Distributor Operations up 7% and Germany up 5%, partially offset by decreased sales in Latin America of 9%. The North America region grew 19%, with unit growth of 2%, primarily due to sales growth of 24% in the U.S., as a result of ~~the successful commercialization~~sales of ~~the EVO~~ Toric ICL ~~which was introduced late~~ in ~~the third quarter of 2016. APAC~~2019 (none in 2018), partially offset by decreased sales in Canada. ICL sales ~~were $11.0 million during~~represented 86.6% and 83.2% of our total sales for the ~~third quarter of 2017, an increase of 35% compared to the prior year period, which was comprised of a 34% increase in units~~three months ended September 27, 2019 and a 1% increase in average selling prices, driven by strong double-digit growth in China, Japan, and APAC distributor markets. EMEA ICL sales were $5.4 million during the third quarter, an increase of 6% compared to the prior year period, which was comprised of an 8% decrease in units and a 15% increase in average selling prices.

September 28, 2018, respectively.

Total ICL sales for the nine months ended September ~~29, 2017~~27, 2019 were ~~$49.7~~$96.0 million, a ~~15%~~28% increase ~~compared with $43.4~~from $74.9 million reported ~~during~~for the same period of ~~2016. Total~~2018, with unit growth up 36%. The sales increase was driven by the APAC region, which grew 41% with unit growth of 47%, primarily due to sales growth in Japan up 58%, China up 41%, Korea up 41%, other APAC distributors up 23% and India up 9%. The Europe, Middle East, Africa and Latin America region increased 1% with unit growth up 6%, due primarily to sales growth in UK up 30%, Germany up 6% and Spain up 3%, partially offset by decreased sales in the Middle East and Latin America of 8%. The North America region grew 17%, with unit growth of 2%, primarily due to sales growth of 25% in the U.S., as a result of sales of Toric ICL ~~units increased 16% and average selling prices~~in 2019 (none in 2018), partially offset by decreased ~~1%. EMEA~~sales in Canada. ICL sales represented 86.3% and 80.7% of our total sales for the nine months ended September 27, 2019 and September 28, 2018, respectively.

Other product sales, including IOLs were ~~$16.3~~$5.2 million for the three months ended September 27, 2019, a decrease of 2% from $5.4 million reported for the same period of 2018. Other product sales, including IOLs were $15.3 million for the nine months ended September ~~29, 2017,~~27, 2019, a ~~5% increase compared to $15.5~~decrease of 15% from $17.9 million reported ~~in the same period in 2016 which was comprised of a 2% increase in units and a 3% increase in average selling prices. APAC ICL sales were $28.2 million~~ for ~~the nine months ended September 29, 2017, a 21% increase compared to $23.2 million reported during~~ the same period of ~~2016.~~2018. The ~~increase was comprised of 25% increase in units and a 3%~~decrease for both periods is primarily due to the decrease in ~~average selling prices. The increase was driven by~~preloaded injector part sales to a ~~49% increase in China sales,~~third-party manufacturer for product they sell to their customers, and for the three months ended September 27, 2019, partially offset by ~~lower sales in India and Korea. North America ICL sales were $5.1 million during the nine months ended September 29, 2017,~~ an ~~11%~~ increase in IOL sales. Other product sales represented 13.4% and ~~units compared to the same period in 2016.~~

~~Total IOL~~16.8% of our total sales for the three months ended September ~~29, 2017 were $3.9 million, a decrease~~27, 2019 and September 28, 2018, respectively and represented 13.7% and 19.3% of ~~16% compared with $4.6 million reported during the same period of 2016. Total IOL~~our total sales for the nine months ended September ~~29, 2017 were $12.9 million, a 13% decrease compared with $14.8 million reported during the same period in 2016. The decline for both the three~~27, 2019 and nine-month periods was due to the discontinuance of the silicone IOL product line in the U.S. during 2016 and due to production issues with one of the materials used in our silicone IOL preloaded injectors which has resulted in lower than planned IOL sales in Japan.September 28, 2018, respectively.

Gross Profit

Other product sales for the three months ended September 29, 2017, were $1.5 million, an increase of 144% compared with the $0.6 million reported during the same period of 2016. Total other product sales for the nine months ended September 29, 2017 were $3.2 million, a 50% increase compared with $2.1 million reported during the same period in 2016. The increase in other product sales is due to an increase in injector part sales as expected.

~~Gross Profit~~

Three Months Ended Percentage
Change Nine Months Ended Percentage Change
September 29,
2017 September 30,
2016
2017
vs. 2016
September 29,
2017 September 30,
2016
2017
vs. 2016

Gross Profit $ 16,849 $ 14,872 13.3 % $ 46,900 $ 42,491 10.4 %
Gross Profit Margin 71.8 % 74.2 % 71.3 % 70.5 %

	Three Months Ended						Percentage Change			Nine Months Ended						Percentage Change
	September 27, 2019			September 28, 2018			2019 vs. 2018			September 27, 2019			September 28, 2018			2019 vs. 2018
Gross profit	$	29,051		$	23,860			21.8	%	$	83,130		$	68,518			21.3	%
Gross margin		74.4	%		75.1	%					74.7	%		73.9	%

Gross profit for the three months ended September ~~29, 2017~~27, 2019 was ~~$16.8~~$29.1 million, ~~or 71.8%~~a 21.8% increase compared to the $23.9 million reported for the same period of 2018. Gross profit margin decreased to 74.4% of revenue for the three months ended September 27, 2019 compared ~~with $14.9 million, or 74.2%~~to 75.1% of revenue for the three months ended September 28, 2018, due to period expenses incurred in the ~~prior year period.~~construction of new manufacturing facilities intended to satisfy growing demand for existing products and products currently under review by regulatory agencies. The ~~decrease in~~ gross margin ~~for the quarter is due to unfavorable product mix due to increased sales~~impact of ~~low margin injector parts, increased inventory provisions due to timing, and an increase in ICL unit costs, partially~~lower average selling prices was more than offset by ~~an increased sales mix~~the favorable impact of ~~Toric ICLs.~~

improved product mix.

Gross profit for the nine months ended September ~~29, 2017~~ 27, 2019 was ~~$46.9~~$83.1 million, ~~or 71.3%~~a 21.3% increase compared to the $68.5 million reported for the same period of 2018. Gross profit margin increased to 74.7% of revenue for the nine months ended September 27, 2019 compared ~~with $42.5 million, or 70.5%~~to 73.9% of revenue ~~in the prior year period. The increase in gross margin~~ for the ~~first~~ nine months of 2017 is due to an increased sales mix of Toric ICLs, the cost of sales related to the $0.6 million non-cash charge related to the immediate vesting of all unvested equity awards as a result of the triggering of the “Change of Control” provision of the Company’s equity incentive plan recorded in the first nine months of 2016 which was not repeated in 2017, and lower inventory provisions, partially offset by unfavorable product mixended September 28, 2018, due to increased sales of ~~low margin~~ICLs and decreased sales of injector parts ~~and~~resulting in favorable product mix, partially offset by the effect of lower average selling ~~prices.~~prices and period expenses incurred in the construction of new manufacturing facilities, as discussed above.

General and Administrative Expense

Three Months Ended Percentage Change Nine Months Ended Percentage Change
September 29,
2017 September 30,
2016
2017
vs. 2016
September 29,
2017 September 30,
2016
2017
vs. 2016

General and Administrative $ 4,946 $ 4,985 (0.8 )% $ 15,065 $ 18,378 (18.0 )%
Percentage of Net Sales 21.1 % 24.9 % 22.9 % 30.5 %

	Three Months Ended						Percentage Change			Nine Months Ended						Percentage Change
	September 27, 2019			September 28, 2018			2019 vs. 2018			September 27, 2019			September 28, 2018			2019 vs. 2018
General and administrative expense	$	7,098		$	6,087			16.6	%	$	21,443		$	18,054			18.8	%
Percentage of sales		18.2	%		19.2	%					19.3	%		19.5	%

General and administrative expenses for the three months ended September 27, 2019 were $7.1 million, an increase of 16.6% when compared with $6.1 million reported for same period of 2018. General and administrative expenses for the nine months ended September ~~29, 2017~~27, 2019 were ~~$15.1~~$21.4 million, ~~a decrease~~an increase of ~~18%~~18.8% when compared with ~~$18.4~~$18.1 million reported for ~~the~~ same period ~~last year.~~of 2018. The decrease was primarily due to lower stock based compensation expenses due to the $2.9 million non-cash charge related to the immediate vesting of all unvested equity awards as a result of the triggering of the “Change of Control” provision of the Company’s equity incentive plan recorded during the first nine months of 2016 which were not repeatedincrease in ~~the first nine months of 2017. General~~general and administrative expenses for ~~the first nine months of 2017 were also lower~~both periods was due to ~~decreased~~an increase in headcount and salary-related expenses including stock-based compensation, ~~expenses.~~and increased facility costs and professional fees.

Marketing and Selling Expense

Three Months Ended Percentage Change Nine Months Ended Percentage Change
September 29,
2017 September 30,
2016
2017
vs. 2016
September 29,
2017 September 30,
2016
2017
vs. 2016

Marketing and Selling $ 6,431 $ 7,149 (10.0 )% $ 20,282 $ 22,006 (7.8 )%
Percentage of Net Sales 27.4 % 35.7 % 30.8 % 36.5 %

	Three Months Ended						Percentage Change			Nine Months Ended						Percentage Change
	September 27, 2019			September 28, 2018			2019 vs. 2018			September 27, 2019			September 28, 2018			2019 vs. 2018
Marketing and selling expense	$	12,463		$	10,620			17.4	%	$	34,288		$	28,733			19.3	%
Percentage of sales		31.9	%		33.4	%					30.8	%		31.0	%

Marketing and selling expenses for the three months ended September ~~29, 2017~~27, 2019 were ~~$6.4~~$12.5 million, ~~a decrease~~an increase of ~~10%~~17.4% when compared with ~~$7.1~~$10.6 million reported for ~~the~~ same period ~~last year. The decrease was due to the timing~~ of the ESCRS which was held in the third quarter of 2016 and will be held in the fourth quarter of 2017, partially offset by increased sales rep expenses in China. The Company expects fourth quarter 2017 expenses will be higher for this reason.

2018. Marketing and selling expenses for the nine months ended September ~~29, 2017~~27, 2019 were ~~$20.3~~$34.3 million, ~~a decrease~~an increase of 8%19.3% when compared with ~~$22.0~~$28.7 million reported for ~~the~~ same period ~~last year.~~of 2018. The ~~decrease is primarily~~increase in marketing and selling expenses for both periods was due ~~to lower stock based compensation expenses due to~~our continued investments in digital, strategic and consumer marketing, and for the $1.5 million non-cash charge related to the immediate vesting of all unvested equity awards as a result of the triggering of the “Change of Control” provision of the Company’s equity incentive plan recorded during the first nine months ~~of 2016 which was not repeated~~ended September 27, 2019, also includes increases in ~~the first nine months of 2017 and due to lower overall~~ headcount and ~~promotional costs in Japan.~~salary-related expenses including stock-based compensation, and travel expenses.

Research and Development Expense

	Three Months Ended						Percentage Change			Nine Months Ended						Percentage Change
	September 27, 2019			September 28, 2018			2019 vs. 2018			September 27, 2019			September 28, 2018			2019 vs. 2018
Research and development expense	$	6,156		$	5,570			10.5	%	$	17,889		$	16,323			9.6	%
Percentage of sales		15.8	%		17.5	%					16.1	%		17.6	%

Research and ~~Development~~

Three Months Ended Percentage Change Nine Months Ended Percentage Change
September 29,
2017 September 30,
2016
2017
vs. 2016
September 29,
2017 September 30,
2016
2017
vs. 2016

Research and Development $ 4,429 $ 4,453 (0.5 )% $ 13,924 $ 16,018 (13.1 )%
Percentage of Net Sales 18.9 % 22.2 % 21.2 % 26.6 %

development expenses for the three months ended September 27, 2019 were $6.2 million, an increase of 10.5% compared to $5.6 million for the for same period of 2018. Research and development expenses for the nine months ended September ~~29, 2017~~27, 2019 were ~~$13.9~~$17.9 million, ~~a 13.1% decrease~~an increase of 9.6% compared to ~~$16.0~~$16.3 million for the for same ~~prior year period.~~period of 2018. The ~~decrease is~~increase for the three months ended September 27, 2019 was primarily due to ~~lower stock based~~an increase in expenses related to clinical trial activities. The increase for the nine months ended September 27, 2019 was mainly due to increases in headcount and salary-related expenses including stock-based compensation, and expenses related to clinical trial activities.

Other Income (Expense), Net

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	September 27, 2019			September 28, 2018			2019 vs. 2018		September 27, 2019			September 28, 2018			2019 vs. 2018
Other income (expense), net	$	(186	)	$	222			—*	$	539		$	(84	)		—*
Percentage of sales		-0.5	%		0.7	%				0.5	%		-0.1	%

*	Denotes change is greater than +100%.

Other expense, net for the three months ended September 27, 2019 was $0.2 million compared to other income of $0.2 million reported for the same period of 2018. The decrease in other expense, net was mainly due to the ~~$1.9 million non-cash charge related to~~increase in foreign exchange losses (primarily the ~~immediate vesting of all unvested equity awards as a result of~~euro), offset by an increase in interest income earned on cash and cash equivalents. Other income, net for the ~~triggering of the “Change of Control” provision of the Company’s equity incentive plan recorded during the first~~ nine months ended September 27, 2019 was $0.5 million, an increase from other expense, net of ~~2016 which was not repeated in the first nine months of 2017.~~

~~Research and development expense consists primarily of compensation and related costs for personnel responsible~~$0.1 million reported for the ~~research and development~~same period of ~~new and existing products and the regulatory and clinical activities required to acquire and maintain product approvals globally. These costs are expensed as incurred.~~

~~Other Income, Net~~

Three Months Ended Percentage Change Nine Months Ended Percentage Change
September 29,
2017 September 30,
2016
2017
vs. 2016
September 29,
2017 September 30,
2016
2017
vs. 2016

Other income, net $ 539 $ 8 — * $ 1,067 $ 285 — *

* Denotes change is greater than+~~100%~~

2018. The ~~change~~increase in other income, net ~~for the three and nine months ended September 29, 2017 is primarily~~was due to an increase in interest income earned on cash and cash equivalents, offset by an increase in foreign ~~currency transaction gains.~~exchange losses (primarily the euro).

Income Taxes

~~Income Taxes~~

Three Months Ended Percentage Change Nine Months Ended Percentage Change
September 29,
2017 September 30,
2016
2017
vs. 2016
September 29,
2017 September 30,
2016
2017
vs. 2016

Provision (benefit) for income taxes $ 409 $ 71 — * $ 697 $ (1,664 ) — *

Three Months Ended

Percentage

Change

Nine Months Ended

Percentage

Change

September 27,

2019

September 28,

2018

2019 vs. 2018

September 27,

2019

September 28,

2018

2019 vs. 2018

Income tax provision

760

346

—*

2,380

1,452

63.9

* Denotes change is greater than+~~100%~~

*	Denotes change is greater than +100%.

The provision for income taxes is determined using an estimated annual effective tax rate. We recorded an income ~~tax provision~~taxes of ~~$0.4~~$0.8 million and ~~$0.7~~$2.4 million ~~respectively,~~ for the three and nine months ended September ~~29, 2017. The income tax provision~~27, 2019, respectively and $0.3 million and $1.5 million for the three and nine months ended September ~~29, 2017 is~~28, 2018, respectively. The income tax provision was due primarily to pre-tax income generated in certain ~~higher rate~~ foreign jurisdictions. The income tax benefit for the nine months ended September 30, 2016 was primarily due to net operating losses from our foreign operations, primarily due to the acceleration of stock compensation, and tax benefits related to the dissolution of one of our foreign subsidiaries. We have no unrecognized tax benefits pertaining to any uncertain tax positions as of any period presented.

For the three and nine months ended September 27, 2019, we included Global Intangible Low Tax Income (“GILTI”) of $4.4 million and $12.1 million, respectively, in U.S. gross income, which was fully offset with net operating loss carryforwards. We were not able to utilize the deduction of 50 percent of GILTI, as this deduction is limited to the Company’s U.S. taxable income.

Due to our history of losses in the U.S., we have maintained a full valuation allowance to offset the value of our U.S. net deferred tax assets on our balance sheet as of September 27, 2019, with the exception of the remaining refundable alternative minimum tax credit of $0.3 million. However, global profit is now includable in U.S. income under GILTI and as a result we have reported income in the U.S. in fiscal year 2018. As our global profitability improves, including our ability to meet or exceed forecasts, we will continue to reassess at each reporting period the need for a full or partial valuation allowance on our U.S. net deferred tax assets. We determine the need for a valuation allowance based upon all available positive and negative evidence, including reversals of deferred tax liabilities, projected future taxable income, impact of GILTI in the U.S., tax planning strategies, and results of recent operations. If it is more likely than not that the deferred tax asset is realizable, we would record an income tax benefit for all or a portion of the valuation allowance in the period in which such determination is made. Any such changes in the assessment of a full or partial valuation allowance could have a material impact on earnings. The valuation allowance was approximately $39.8 million as of September 27, 2019.

Liquidity and Capital Resources

We have historically financed our operations primarily through operating cash flows, the issuance of common stock and proceeds from stock option exercises, borrowings under lines of credit and by relying on equipment and other commercial financing. During 2017, and for the foreseeable future, we will be highly dependent on our operating cash flows to supplement our current liquidity and funding of our operations. We may in the future supplement our working capital.

With continued expanding ICL sales and gross margins, the Company has been able to invest in its operations while maintaining its cash balances. Since 2014, we have maintained an average cash balance of approximately $13.5 million through the second quarter of 2017, increasing to $16.3 million at the end of the third quarter of 2017 and went from using approximately $8.0 million in cash for operating activities in 2014 to generating $1.8 million from operating activities during the first nine months of 2017. As we shift from remediation to commercialization, we expect to invest more in sales and marketing while maintaining quality. We believe these investments will accelerate high margin sales which should result in a significantly improved cash position and profitability.

We believe our current cash balances coupled with cash ~~flow~~flows from operating activities ~~will~~is expected to be ~~sufficient~~adequate to ~~meet~~cover our ~~working capital requirements for~~operational and business needs through at least the ~~foreseeable future.~~next 12 months. Our ~~need for working capital,~~financial condition at September 27, 2019 and December 28, 2018 included the ~~terms on which financing may be available, will depend in part on our degree of success in maintaining positive cash flow through the strategies described above under the caption “~~~~Recent Developments and Strategic Priorities for 2017~~.”following (in millions):

~~Overview of Changes in Cash and Cash Equivalents and Other Working Capital Accounts.~~

	September 27, 2019		December 28, 2018		2019 vs. 2018
Cash and cash equivalents	$	112.3	$	103.9	$	8.4
Current assets	$	165.0	$	151.6	$	13.4
Current liabilities		30.0		27.7		2.3
Working capital	$	135.0	$	123.9	$	11.1

AsWe invest the net proceeds in short-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. Additionally, at September ~~29, 2017 and December 30, 2016, respectively, STAAR had $16.3~~27, 2019, we have a line of credit with a Japanese lender, in the amount of $4.6 million, ~~and $14.1~~with $2.3 million of ~~cash, cash equivalents~~availability and ~~restricted cash.~~

a line of credit with a Swiss lender, in the amount of $1.0 million, which is fully available for borrowing.

Net cash provided by operating activities was ~~$1.8~~$16.0 million and ~~$0.9~~$10.4 million for the nine months ended September ~~29, 2017~~27, 2019 and September ~~30, 2016,~~28, 2018, respectively. ~~The net~~Net cash provided by operating activities for the nine months ended September ~~29, 2017, resulted from a net loss~~27, 2019, consisted of ~~$2.0 million, offset by $6.4~~$13.0 million in non-cash items and ~~decreased~~$7.7 million in net income, offset by ~~a $2.7~~$4.7 million in working-capital changes. The increase in net cash provided by operating activities during the nine months ended September 27, 2019 was due to an increase in net income of $3.8 million and an increase of $3.6 million in non-cash items offset by a decrease in net working ~~capital.~~

capital of $1.8 million.

Net cash used in investing activities was ~~$1.0~~$7.2 million and $1.7 million for the nine months ended September ~~29, 2017, compared~~27, 2019 and September 28, 2018, respectively, and relate primarily to ~~$2.7 million~~ the acquisition of property, plant, and equipment. The increase

in ~~net~~investment in property, plant and equipment during 2019, relative to 2018, is primarily due to investments in manufacturing facilities intended to satisfy growing demand for our products.

Net cash used in ~~investing~~financing activities was $0.7 million for the nine months ended September 27, 2019 and net cash provided by financing activities was $75.1 million for the nine months ended September 28, 2018. Net cash used in financing activities for the nine months ended September ~~30, 2016. Net cash used in investing activities for both periods was due to~~27, 2019 consisted of $1.5 million repayment on the ~~acquisition~~Japan line of ~~property, plant~~credit and ~~equipment.~~

~~Net cash provided~~$1.0 million repayment of finance lease obligations, offset by ~~financing activities was $1.1~~$1.8 million ~~and $1.9 million for~~of proceeds from the exercise of stock options. During the nine months ended September ~~29, 2017 and September 30, 2016, respectively. Net cash provided by financing activities during the first nine months~~28, 2018, we closed an offering of ~~2017 resulted primarily from the proceeds from vested restricted~~our common stock and ~~exercises of stock options and proceeds from sale-leaseback transactions, partially offset by purchase of employee common stock for taxes withheld and the repayment of capital lease obligations.~~received $72.2 million.

Credit Facilities and Commitments

Lines of Credit and ~~Lease Line of Credit (Capital Leases)~~

Leases

See ~~Note 12~~Notes 7 and 8 of the accompanying Condensed Consolidated Financial Statements.

Covenant Compliance

The Company is in compliance with the covenants of its credit facilities as of September ~~29, 2017.~~27, 2019.

Employment Agreements

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as that term is defined in the rules of the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the nine months ended September ~~29, 2017,~~27, 2019, 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, 2016.~~

28, 2018.

ITEM 4.

~~ITEM 4 .~~

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.

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.

There were no changes in our internal control over financial reporting during the quarter ended September ~~29, 2017~~27, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. ~~Certain~~These legal proceedings ~~in which~~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 we ~~are currently involved are discussed under “Litigation and Claims” in Note 12, “Commitments and Contingencies,”~~do not believe that any of the claims known is likely to have a material adverse effect on our ~~Condensed Consolidated Financial Statements provided in this report, and such discussions are hereby incorporated by reference.~~financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.

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, 2016.~~28, 2018. Such risks and uncertainties could materially adversely affect our business, financial condition or operating results.

☐	~~For the quarterly period ended: September 29, 2017~~
	Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	~~For the transition period from to~~

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


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

o Large accelerated filer	þ ☑		Accelerated filer	o☐
Non-accelerated filer	~~(Do not check if a smaller reporting company)~~☐	o	Smaller reporting company	☐

			PAGE NUMBER
			~~NUMBER~~
PART I – FINANCIAL INFORMATION			1

ITEM 1	~~Item 1.~~FINANCIAL STATEMENTS	~~Financial Statements.~~	1

ITEM 2.	~~Item 2.~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	15 20

ITEM 3.	~~Item 3.~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	~~Quantitative and Qualitative Disclosures About Market Risk.~~	20 26

ITEM 4.	~~Item 4.~~CONTROLS AND PROCEDURES	~~Controls and Procedures.~~	21 26

PART II – OTHER INFORMATION			26

ITEM 1.	~~Item 1.~~LEGAL PROCEEDINGS	~~Legal Proceedings.~~	21 26

ITEM 1A.	~~Item 1A.~~RISK FACTORS	~~Risk Factors.~~	21 26

ITEM 4.	~~Item 4.~~MINE SAFETY DISCLOSURES	~~Mine Safety Disclosures.~~	21 27

ITEM 5.	~~Item 5.~~OTHER INFORMATION	~~Other Information.~~	21 27

ITEM 6.	~~Item 6.~~EXHIBITS	~~Exhibits.~~	22 27

	Three Months Ended						Nine Months Ended
	September 29, 2017			September 30, 2016			September 29, 2017			September 30, 2016
Net income (loss)	$	1,173		$	(1,778	)	$	(2,001	)	$	(11,962	)
Other comprehensive income (loss):
Defined benefit pension plans:
Net change in plan assets		(15	)		(11	)		(43	)		(34	)
Reclassification into earnings		20			27			60			80
Foreign currency translation gain (loss)		(51	)		232			360			2,000
Tax effect		13			(67	)		(110	)		(611	)
Other comprehensive income (loss), net of tax		(33	)		181			267			1,435
Comprehensive income (loss)	$	1,140		$	(1,597	)	$	(1,734	)	$	(10,527	)

	September 29,		December 30,		September 30,		January 1,
	2017		2016		2016		2016
Cash and cash equivalents	$	16,133	$	13,999	$	14,284	$	13,402
Restricted cash included in other long-term assets		120		119		119		119
Total cash, cash equivalents, and restricted cash
as shown in the statements of cash flows	$	16,253	$	14,118	$	14,403	$	13,521

	September 29, 2017							December 30, 2016
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Long-lived intangible assets:
Patents and licenses	$	9,245	$	(8,965	)	$	280	$	9,224	$	(8,930	)	$	294
Customer relationships		1,393		(1,359	)		34		1,343		(1,209	)		134
Developed technology		886		(874	)		12		854		(809	)		45
Total	$	11,524	$	(11,198	)	$	326	$	11,421	$	(10,948	)	$	473

	September 29, 2017		December 30, 2016
Accrued salaries and wages	$	3,080	$	2,334
Accrued bonuses		1,680		1,414
Accrued consumption tax		304		424
Accrued insurance		197		501
Accrued income taxes		371		1,095
Other⁽¹⁾		1,621		1,507
	$	7,253	$	7,275

	Restricted Shares (000’s)			RSUs (000’s)
Outstanding at December 30, 2016		23			274
Granted		21			291
Vested		(23	)		(93	)
Forfeited		—			(34	)
Outstanding at September 29, 2017		21			438

	Three Months Ended				Percentage Change			Nine Months Ended				Percentage Change
	September 29, 2017		September 30, 2016		2017 vs. 2016			September 29, 2017		September 30, 2016		2017 vs. 2016
Net sales	$	23,473	$	20,052		17.1	%	$	65,759	$	60,295		9.1	%

ICL		18,110		14,801		22.4			49,698		43,389		14.5
IOL		3,892		4,649		(16.3	)		12,875		14,783		(12.9	)
Other		1,471		602		144.4			3,186		2,123		50.1

~~3.1~~	Amended and Restated Certificate of Incorporation.(1)

3.2	Amended and Restated Bylaws.~~(4)~~(2)

~~4.4~~
4.1	Form of Certificate for Common Stock, par value $0.01 per share.(3)

~~†4.5~~ †4.2	Amended and Restated Omnibus Equity Incentive ~~Plan, effective February 25, 2016.(2)~~Plan.(4)

~~10.45~~ 31.1	~~Letter of the Company dated September 27, 2017 to Deborah Andrews, Vice President of Finance, Chief Financial Officer, regarding compensation.(5)~~

~~10.46~~	Lease dated August 10, 2017 by and between the Company and 2000 Gold L.P.*

~~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, 2017,~~27, 2019, formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL), are filed herewith and include: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of ~~Operations,~~Income, (iii) the Condensed Consolidated Statements of Comprehensive ~~Loss,~~Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and ~~(v)~~(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 27, 2019, has been formatted in Inline XBRL with applicable taxonomy extension information contained in Exhibit 101.

~~(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 the Company’s Quarterly Report on Form 10-Q for period ended June 30, 2017, as filed with the Commission on August 2, 2017.~~
~~(5)~~	~~Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on September 28, 2017.~~

*	Filed herewith.

			STAAR SURGICAL COMPANY

~~Date: November 8, 2017~~ Dated:		October 30, 2019	By: ~~/s/~~		/s/ DEBORAH J. ANDREWS
					Deborah J. Andrews

				Chief Financial Officer
					(on behalf of the Registrant and as ~~it’s~~
	its principal financial officer)