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

The registrant has ~~44,131,509~~44,472,846 shares of common stock, par value $0.01 per share, issued and outstanding as of ~~October~~April 26, ~~2018.~~

PART I – ~~FINANCIAL~~FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

	September 28, 2018			December 29, 2017			March 29, 2019			December 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	102,195		$	18,520		$	102,111		$	103,877
Accounts receivable trade, net of allowance for doubtful accounts of $616 and $350, respectively		23,732			20,035
Accounts receivable trade, net of allowance of doubtful accounts of $437 and $550, respectively								26,601			25,946
Inventories, net		16,180			13,674			16,439			16,704
Prepayments, deposits, and other current assets		5,190			4,207
Prepayments, deposits and other current assets								7,534			5,045
Total current assets		147,297			56,436			152,685			151,572
Property, plant and equipment, net		11,462			9,776			11,300			11,451
Finance lease right-of-use assets, net								2,445			—
Operating lease right-of-use assets, net								6,629			—
Intangible assets, net		244			271			263			243
Goodwill		1,786			1,786			1,786			1,786
Deferred income taxes		1,201			1,242			1,275			1,278
Other assets		998			967			836			1,009
Total assets	$	162,988		$	70,478		$	177,219		$	167,339

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	4,162		$	4,438		$	3,272		$	3,780
Accounts payable		8,282			6,033			7,018			6,524
Obligations under capital leases		1,359			1,278
Obligations under finance leases								1,158			1,098
Obligations under operating leases								2,495			—
Allowance for sales returns		2,802			2,546			2,971			2,895
Other current liabilities		10,935			7,339			11,317			13,431
Total current liabilities		27,540			21,634			28,231			27,728
Obligations under capital leases		662			531
Obligations under finance leases								656			459
Obligations under operating leases								4,270			—
Deferred income taxes		679			350			1,100			1,022
Asset retirement obligations		201			202			206			206
Deferred rent		203			172			—			188
Pension liability		4,839			4,653			5,418			5,310
Total liabilities		34,124			27,542			39,881			34,913
Commitments and contingencies (Note 12)
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value; 60,000 shares authorized: 44,104 and 41,383 shares issued and outstanding at September 28, 2018 and December 29, 2017, respectively		441			414
Common stock, $0.01 par value; 60,000 shares authorized: 44,447 and 44,195 shares issued and outstanding at March 29, 2019 and December 28, 2018, respectively								444			442
Additional paid-in capital		287,000			204,920			292,722			289,584
Accumulated other comprehensive loss		(1,201	)		(1,150	)		(1,343	)		(1,320	)
Accumulated deficit		(157,376	)		(161,248	)		(154,485	)		(156,280	)
Total stockholders’ equity		128,864			42,936			137,338			132,426
Total liabilities and stockholders’ equity	$	162,988		$	70,478		$	177,219		$	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 28, 2018			September 29 2017			September 28, 2018			September 29, 2017			Three Months Ended
													March 29, 2019			March 30, 2018
Net sales	$	31,770		$	23,473		$	92,768		$	65,759		$	32,583		$	27,093
Cost of sales		7,910			6,624			24,250			18,859			8,403			7,662
Gross profit		23,860			16,849			68,518			46,900			24,180			19,431

Selling, general and administrative expenses:
General and administrative		6,087			4,716			18,054			14,380			6,837			5,771
Marketing and selling		10,620			6,495			28,733			20,473			10,143			7,454
Research and development		5,570			4,594			16,323			14,418			5,635			5,407
Total selling, general and administrative expenses		22,277			15,805			63,110			49,271			22,615			18,632

Operating income (loss)		1,583			1,044			5,408			(2,371	)

Other income (expense):
Interest expense, net		(29	)		(27	)		(65	)		(88	)
Gain (loss) on foreign currency transactions		52			444			(545	)		738
Operating income														1,565			799
Other income (expense), net:
Interest income (expense), net														271			(12	)
Loss on foreign currency transactions														(248	)		(77	)
Royalty income		159			141			465			400			171			157
Other income (expense), net		40			(19	)		61			17
Other income (expense), net		222			539			(84	)		1,067

Income (loss) before income taxes		1,805			1,583			5,324			(1,304	)
Income tax provision		346			410			1,452			697
Net income (loss)	$	1,459		$	1,173		$	3,872		$	(2,001	)

Net income (loss) per share:
Other income, net														97			17
Total other income, net														291			85
Income before income taxes														1,856			884
Provision for income taxes														489			301
Net income													$	1,367		$	583
Net income per share:
Basic	$	0.03		$	0.03		$	0.09		$	(0.05	)	$	0.03		$	0.01
Diluted	$	0.03		$	0.03		$	0.09		$	(0.05	)	$	0.03		$	0.01

Weighted average shares outstanding:
Basic		43,054			41,110			42,065			40,939			44,235			41,410
Diluted		46,025			42,104			44,618			40,939			46,913			43,087

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 28,
2018 September 29,
2017 September 28,
2018 September 29,
2017

Net income (loss) $ 1,459 $ 1,173 $ 3,872 $ (2,001 )
Other comprehensive income (loss)
Defined benefit plans:
Net change in plan assets (21 ) (17 ) (51 ) (54 )
Reclassification into other income (expense), net 25 18 76 55
Foreign currency translation gains (losses) (321 ) (46 ) (114 ) 360
Tax effect 105 13 38 (99 )
Other comprehensive income (loss), net of tax (212 ) (32 ) (51 ) 262
Comprehensive income (loss) $ 1,247 $ 1,141 $ 3,821 $ (1,739 )

	Three Months Ended
	March 29, 2019			March 30, 2018
Net income	$	1,367		$	583
Other comprehensive income (loss):
Defined benefit plans:
Net change in plan assets		(26	)		(9	)
Reclassification into other income, net		26			25
Foreign currency translation gain (loss)		(43	)		728
Tax effect		20			(223	)
Other comprehensive income (loss), net of tax		(23	)		521
Comprehensive income	$	1,344		$	1,104

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 December 28, 2018		44,195	$	442	$	289,584		$	(1,320	)	$	(156,280	)	$	132,426
Net income		—		—		—			—			1,367			1,367
Adoption of ASC 842		—		—		—			—			113			113
Adoption of ASU 2018-07		—		—		(315	)		—			315			—
Other comprehensive loss		—		—		—			(23	)		—			(23	)
Common stock issued upon exercise of options		74		—		623			—			—			623
Stock-based compensation		—		—		2,830			—			—			2,830
Vested restricted stock		178		2		—			—			—			2
Balance, at March 29, 2019		44,447	$	444	$	292,722		$	(1,343	)	$	(154,485	)	$	137,338

Balance, at December 29, 2017		41,383	$	414	$	204,920		$	(1,150	)	$	(161,248	)	$	42,936
Net income		—		—		—			—			583			583
Other comprehensive income		—		—		—			521			—			521
Common stock issued upon exercise of options		57		1		452			—			—			453
Stock-based compensation		—		—		1,423			—			—			1,423
Vested restricted stock		152		1		—			—			—			1
Balance, at March 30, 2018		41,592	$	416	$	206,795		$	(629	)	$	(160,665	)	$	45,917

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended						Three Months Ended
	September 28, 2018			September 29, 2017			March 29, 2019			March 30, 2018
Cash flows from operating activities:
Net income (loss)	$	3,872		$	(2,001	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income							$	1,367		$	583
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant, and equipment		1,792			2,344			1,222			549
Amortization of intangibles		26			166			8			9
Deferred income taxes		363			164			79			92
Change in net pension liability		233			95			119			87
Loss on disposal of property and equipment		8			22			—			6
Stock-based compensation expense		4,926			2,185			2,641			1,301
Provision for sales returns and bad debts		892			186			(34	)		514
Inventory provision		1,181			1,267			455			506
Changes in working capital:
Accounts receivable		(3,989	)		41			(554	)		(2,755	)
Inventories		(3,625	)		725			(7	)		(396	)
Prepayments, deposits, and other current assets		(1,021	)		(764	)		(2,317	)		(730	)
Accounts payable		2,121			(2,751	)		(185	)		2,038
Other current liabilities		3,643			62			(2,063	)		726
Net cash provided by operating activities		10,422			1,741			731			2,530

Cash flows from investing activities:
Acquisition of property and equipment		(1,721	)		(969	)		(2,203	)		(965	)
Acquisition of patents and licenses								(30	)		—
Net cash used in investing activities		(1,721	)		(969	)		(2,233	)		(965	)

Cash flows from financing activities:
Proceeds from public offering of stock		72,150			—
Repayment of capital lease obligations		(1,396	)		(984	)
Repayment of finance lease obligations								(365	)		(380	)
Repayment on line of credit		(251	)		—			(499	)		—
Repurchase of employee common stock for taxes withheld		—			(234	)
Proceeds from vested restricted stock and exercise of stock options		4,582			2,276
Net cash provided by financing activities		75,085			1,058

Proceeds from the exercise of stock options								622			453
Proceeds from vested restricted stock								2			1
Net cash provided by (used in) financing activities								(240	)		74
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(111	)		305			(24	)		612
Increase in cash, cash equivalents and restricted cash		83,675			2,135
Cash, cash equivalents and restricted cash, at beginning of the period		18,641			14,118
Cash, cash equivalents and restricted cash, at end of the period	$	102,316		$	16,253

Supplemental disclosure of non-cash operating activities
Insurance receivable		—		$	7,000
Settlement liability		—		$	7,000
Increase (decrease) in cash, cash equivalents and restricted cash								(1,766	)		2,251
Cash, cash equivalents and restricted cash, at beginning of year								103,999			18,641
Cash, cash equivalents and restricted cash, at end of year							$	102,233		$	20,892

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 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 have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of December ~~29, 2017~~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 ~~29, 2017.~~

28, 2018.

The Condensed Consolidated Financial Statements for the three ~~and nine~~ months ended ~~September 28,~~March 29, 2019 and March 30, 2018, ~~and September 29, 2017,~~ 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 28,~~March 29, 2019 and March 30, 2018, ~~and September 29, 2017,~~ 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.

Cash, Cash Equivalents and Restricted Cash

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

September 28,
2018 December 29,
2017 September 29,
2017
Cash and cash equivalents $ 102,195 $ 18,520 $ 16,133
Restricted cash included in other long-term assets 121 121 120
Total cash, cash equivalents and restricted cash as shown in the Consolidated Statements of Cash Flows $ 102,316 $ 18,641 $ 16,253

	March 29, 2019		December 28, 2018		March 30, 2018
Cash and cash equivalents	$	102,111	$	103,877	$	20,771
Restricted cash⁽¹⁾		122		122		121
Total cash, cash equivalents and restricted cash	$	102,233	$	103,999	$	20,892

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

The Company has restricted cash ~~of approximately $121,000~~ 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.

~~Revenue~~

Lease Accounting

On December ~~30, 2017~~29, 2018 (beginning of ~~FY 2018)~~fiscal year 2019), the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) ~~2014-09, “Revenue from Contracts with Customers~~2016-02, “Leases (Topic ~~606)~~842)” and its subsequent ~~amendments:~~amendments affecting the Company: (i) ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”; (ii) ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;” (iii) 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”; (iv) ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”; and (v) ASU No. 2016-20, “Revenue from Contracts with Customers (Topic 606): Technical Corrections and2018-10, “Codification Improvements to Topic ~~606”,~~842, Leases,” and (ii) ASU 2018-11, “Leases (Topic 842): Targeted improvements,” using the modified retrospective ~~method, and determined that there was no cumulative effect adjustment on the Consolidated Financial Statements. The Company determined that the~~method. Upon adoption of ASU 2016-02, the ~~new standard did not materially impact~~Company recognized a cumulative adjustment of $113,000 which decreased the ~~revenue recognition on its Consolidated Financial Statements.~~

~~STAAR SURGICAL COMPANY~~

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

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

~~Revenue (Continued)~~

recognized right-of-use (“ROU”) assets and lease liabilities for operating leases, whereby the Company’s accounting finance leases remained substantially unchanged.

The Company recognizes revenue when its contractual performance obligations with customers are satisfied. The Company’s performance obligations are generally limited to single sales orders with product shipping to the customer within a month of receipt of the sales order. Substantially all of the Company’s revenues are recognized at a point-in-time when control of its products transfers to the customer, which is typically upon shipment (as discussed below). The Company presents sales taxROU assets and ~~similar taxes it collects from its customers on a net basis (excluded from revenues).~~

The Company sells certain injector parts to an unrelated customer and supplier (collectively referred to as “supplier”) whereby these injector part sales are either made as a final sale to the supplier or, are sold to be combined with an acrylic IOL by the supplier into finished goods inventory (a preloaded acrylic IOL). These finished goods are then sold back to the Company at an agreed upon, contractual price. The Company makes a profit margin on either type of sale with the supplier and each type of sale is made under separate purchase and sales orders between the two parties resulting in cash settlement for the orders sold or repurchased. For parts that are sold as a final sale, the Company recognizes a sale and those sales are classified as other product sales in total net sales. For the injector parts that are sold to be combined with an acrylic IOL into finished goods, the Company records the transaction at its carrying value deferring any profit margin as contra-inventory, until the finished goods inventory is sold to an end-customer (not the supplier) at which point the Company recognizes revenues.

For all sales, the Company is considered the principal in the transaction as the Company is the party providing specified goods it has control over prior to when control is transferred to the customer. Cost of sales includes cost of production, freight and distribution, and inventory provisions, net of any purchase discounts. Shipping and handling activities that occur after the customer obtains control of the goods are recognized as fulfillment costs.

The Company generally permits returns of product if the product is returned within the time allowed by its return policies and records an allowance for estimated returns at the time revenue is recognized. The Company’s allowance for estimated returns considers historical trends and experience, the impact of new product launches, the entry of a competitor, availability of timely and pertinent information and the various terms and arrangements offered, including sales with extended credit terms. For estimated returns, sales are reported net of estimated returns and cost of sales are reported net of estimated returns that can be resold. On the Condensed Consolidated Balance Sheets, the balances associated for estimated sales returns are as follows:

September 28,
2018 December 29,
2017
Estimated returns - inventory⁽¹⁾ $ 678 $ 534
Allowance for sales returns 2,802 2,546

⁽¹⁾	~~Recognized in inventories, net on the Condensed Consolidated Balance Sheets~~

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment history and credit worthiness, as determined by the Company’s review of its customers’ current credit information. The Company continuously monitors collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts.

~~The Company disaggregates its revenue into the following categories: non-consignment sales, consignment sales and royalty income.~~

~~Non-consignment Sales~~

The Company recognizes revenue from non-consignment product sales at a point-in-time when control has been transferred, which is typically at shipping point, except for certain customers and for the STAAR Japan subsidiary, which is typically recognized when the customer receives the product. The Company does not have significant deferred revenues as of September 28, 2018 or September 29, 2017, as delivery to the customer is generally made within the same or the next day of shipment.

~~STAAR SURGICAL COMPANY~~

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

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

~~Revenue (Continued)~~

The Company also enters into certain strategic cooperation agreements with customers in which, as consideration for certain commitments made by the customer, including minimum purchase commitments, the Company agrees, among other things, to pay for marketing, educational training and general support of the Company’s products. The provisions in these arrangements allow for these payments to be made directly to the customer or payments can be made directly to a third party for distinct marketing, educational training and general support services provided to or on behalf of the customer by the third party. For payments the Company makes to another party, or reimburses the customer for distinct marketing and support services, the Company recognizes these payments as sales and marketing expense as incurred. These strategic cooperation agreements are generally for periods of 12 months or more with quarterly minimum purchase commitments. The Company recognizes sales and marketing expenses in the period in which it expects the customer will achieve its minimum purchase commitment, generally quarterly, and any unpaid amounts are recorded in Other Current Liabilities in “Other” on the Condensed Consolidated Statements of Operations, see Note 6. Reimbursements made directly to the customer for general marketing incentives are treated as a reduction in revenues. The Company’s performance obligations generally occur in the same quarter as the shipment of product.

Since the payments for distinct or non-distinct services occur within the quarter corresponding with the purchases made by the customer and the shipments made by the Company to that customer, there is no remaining performance obligation by the Company to the customer. Accordingly, there are no deferred revenues associated with these types of arrangements as of September 28, 2018 or September 29, 2017.

~~Consignment Sales~~

The Company’s products are marketed to ophthalmic surgeons, hospitals, ambulatory surgery centers or vision centers, and distributors. IOLs and ICLs may be offered to surgeons and hospitals on a consignment basis. The Company maintains title and risk of loss on consigned inventory and recognizes revenue for consignment inventory at a point-in-time when the Company is notified that the lenses have been implanted, thus completing the performance obligation.

~~Royalty Income~~

From time to time, the Company licenses its patents to third parties in connection with the manufacture of product. One type of licensing contract requires that the licensee pay the Company a quarterly royalty based on a percentage of the licensee’s quarterly sales. The Company recognizes the revenue at a point-in-time, typically quarterly based on various factors including information from the licensee, historical performance and contract minimums; royalty income was as follows (in thousands):

Three Months Ended Nine Months Ended
September 28,
2018 September 29,
2017 September 28,
2018 September 29,
2017
Royalty income⁽¹⁾ $ 159 $ 141 $ 465 $ 400

⁽¹⁾	~~Shown as a separate line item in other income, net on the Condensed Consolidated Statements of Operations.~~

Another type of licensing contract requires that the licensee pay the Company a lump sum royalty once certain milestones are achieved, such as upon the first commercial sale of a product incorporating a licensed patent or technology (performance obligation occurs over a period of time); no such income was recognized for the three and nine months ended September 28, 2018 or September 29, 2017, respectively.

~~See Note 9 for additional information on disaggregation of revenues, geographic sales information and product sales.~~

~~STAAR SURGICAL COMPANY~~

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

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

~~Revenue (Continued)~~

~~The following table summarizes the impact of adopting Topic 606 on the Company’s Condensed Consolidated Balance Sheets for September 28, 2018 (in 000’s) (see also Note 14):~~

As Reported Adjustments Balances
without the
adoption of
606
Accounts receivable trade, net $ 23,732 $ (2,802 ) $ 20,930
Total current assets 147,297 (2,802 ) 144,495
Total assets 162,988 (2,802 ) 160,186
Allowance for sales returns 2,802 (2,802 ) —
Total current liabilities 27,540 (2,802 ) 24,738
Total liabilities 34,124 (2,802 ) 31,322
Total liabilities and stockholders’ equity 162,988 (2,802 ) 160,186

~~Recently Adopted Accounting Pronouncements~~

On December 30, 2017 (beginning of FY 2018), the Company adopted ASU 2017-09 “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting,” which amends 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 required to apply modification accounting under ASC 718. The adoption of ASU 2017-09 did not have a material impact on the Condensed Consolidated Financial Statements.

On December 30, 2017 (beginning of FY 2018), the Company adopted 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 adoption of ASU 2017-09 did not have a material impact on the Condensed Consolidated Financial Statements, see Note 7 for additional information.

On December 30, 2017 (beginning of FY 2018), the Company adopted 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, using the modified retrospective method, and determined that there was no cumulative effect adjustment on the Consolidated Financial Statements. The adoption of ASU 2016-16 did not have a material impact on the Condensed Consolidated Financial Statements.

On December 30, 2017 (beginning of FY 2018), the Company adopted ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The adoption of ASU 2016-15 did not have a material impact on the Condensed Consolidated Financial Statements.

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires lessees to recognize 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. ASU 2016-02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted.

STAAR SURGICAL COMPANY

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

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

Lease Accounting (Continued)

~~Recent Accounting Pronouncements Not Yet Adopted (Continued)~~

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 ~~July 2018,~~addition, the ~~FASB issued ASU 2018-10, “Codification Improvements~~Company must have both the right to ~~Topic 842, Leases,” which narrows aspects~~obtain substantially all of the ~~guidance issued in~~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, ~~including those regarding residual~~whereas, the Company includes the maintenance and service components in the value ~~guarantees,~~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 of the fair value of the underlying asset.

The Company uses either the rate implicit in the lease ~~lessee reassessment of~~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 ~~lessor reassessment of lease term~~for any expired or existing leases and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect ofreassess initial direct costs ~~on rate implicit in the lease, and failed sale and leaseback transactions.~~

Also, in July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted improvements,” which provide an additional and optional transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for ~~the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases).~~

exiting leases. The Company is nearing the completion of its assessment and is performing a final review of its evaluation of the new standard. The Company elected to use the practical expedients of not assessing expired contracts, using current lease classification and not assessing any initial direct costs. The Company has also elected not to capitalize leases that have terms of twelve months or less.

The Company reviews ROU assets, for impairment whenever events or changes in circumstances indicate the carrying amount 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 the assets are expected to generate. When the estimated undiscounted future cash flows are less than ~~12 months. The Company will initially apply~~their carrying amount, an impairment loss is recognized equal to the ~~new standard on~~difference between the assets’ fair value and their carrying value.

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted

On December 29, 2018 (beginning of ~~Fiscal Year~~fiscal year 2019) ~~and recognize a cumulative-effect adjustment to~~, the ~~opening balance of retained earnings. The~~ Company does not believe the adoption of the new standard will result in a material adjustment to beginning retained earnings. The Company is still evaluating the effects on its financial statement disclosures.

~~In February 2018, the FASB issued~~adopted ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from 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. ~~This is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early~~The adoption ~~is permitted. The Company will adopt this standard as~~ of ASU 2018‑02 did not have material impact on the Condensed Consolidated Financial Statements.

On December 29, 2018 (beginning of ~~Fiscal Year~~fiscal year 2019) ~~and is currently evaluating~~, the ~~impact on ASU 2018-02 will have on its Condensed Consolidated Financial Statements.~~

~~In June 2018, the FASB issued~~Company adopted ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” aligns the accounting for share-based payments to nonemployees similar to employees. ~~This is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early~~Upon the adoption ~~is permitted. The Company will adopt this standard as~~ of ~~December 29, 2018 (beginning of Fiscal Year 2019) and is currently evaluating the impact on~~ ASU 2018-07, ~~will have on its Condensed Consolidated Financial Statements.~~

the Company recognized a cumulative adjustment of $315,000 which decreased the accumulated deficit.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies certain disclosures requirements for reporting fair value measurements. This is effective for fiscal years ending after December 15, 2019. Early adoption is permitted. The Company will adopt this standard as of January 4, 2020 (beginning of ~~Fiscal Year~~fiscal year 2020) and is currently evaluating the disclosure requirements and its effect on 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 (Continued)

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

In August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20); Disclosure Framework – Changes in the Disclosure Requirement for Defined Benefit Plans,” which modifies disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. This is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company will adopt this standard as of January 2, 2021 (beginning of ~~Fiscal Year~~fiscal year 2021) and is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.

~~STAAR SURGICAL COMPANY~~

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

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 28, 2018		December 29, 2017		March 29, 2019		December 28, 2018
Raw materials and purchased parts	$	2,586	$	2,506	$	3,081	$	2,678
Work in process		2,755		1,996		2,144		2,195
Finished goods		12,247		11,533		12,592		13,214
		17,588		16,035
Total inventories, gross						17,817		18,087
Less inventory reserves		1,408		2,361		1,378		1,383
Total	$	16,180	$	13,674
Total inventories, net					$	16,439	$	16,704

Note 3 — Prepayments, Deposits, and Other Current Assets

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

	September 28, 2018		December 29, 2017		March 29, 2019		December 28, 2018
Prepayments and deposits	$	2,039	$	1,435	$	2,716	$	1,707
Prepaid insurance		529		943		1,268		1,271
Consumption tax receivable		764		541		1,007		912
Value added tax (VAT) receivable		1,198		910		1,089		565
Other current assets⁽¹⁾		660		378
Total	$	5,190	$	4,207
Income tax receivable						319		285
BVG Prepayment						543		16
Other⁽¹⁾						592		289
Total prepayments, deposits and other current assets					$	7,534	$	5,045

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

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

Note 4 — Property, Plant and Equipment

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

	September 28, 2018		December 29, 2017		March 29, 2019		December 28, 2018
Machinery and equipment	$	18,607	$	16,562	$	19,127	$	19,000
Furniture and fixtures		9,853		9,201		9,328		9,860
Leasehold improvements		9,883		9,631		10,030		10,045
		38,343		35,394
Total property, plant and equipment, gross						38,485		38,905
Less accumulated depreciation		26,881		25,618		27,185		27,454
Total	$	11,462	$	9,776
Total property, plant and equipment, net					$	11,300	$	11,451

STAAR SURGICAL COMPANY

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

Note 5 –Intangible Assets

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

September 28, 2018 December 29, 2017
Gross
Carrying
Amount Accumulated
Amortization Net Gross
Carrying
Amount Accumulated
Amortization Net
Long-lived amortized intangible assets:
Patents and licenses $ 9,240 $ (8,996 ) $ 244 $ 9,244 $ (8,973 ) $ 271
Customer relationships 1,381 (1,381 ) — 1,392 (1,392 ) —
Developed technology 878 (878 ) — 885 (885 ) —
Total $ 11,499 $ (11,255 ) $ 244 $ 11,521 $ (11,250 ) $ 271

March 29, 2019

December 28,

2018

Long-lived amortized intangible assets

Gross

Carrying

Amount

Accumulated

Amortization

Net

Gross

Carrying

Amount

Accumulated

Amortization

Net

Patents and licenses

9,284

(9,021

)

263

9,257

(9,014

)

243

~~STAAR SURGICAL COMPANY~~

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

Note 6 – Other Current Liabilities

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

	September 28, 2018		December 29, 2017		March 29, 2019		December 28, 2018
Accrued salaries and wages	$	3,792	$	2,407	$	5,397	$	3,172
Accrued insurance		33		565		666		1,061
Accrued consumption tax		820		446		1,155		995
Accrued income taxes		1,121		210
Accrued bonuses		3,408		2,026		944		5,113
Other⁽¹⁾⁾		1,761		1,685
Total	$	10,935	$	7,339
Income taxes payable						1,183		1,105
Other⁽¹⁾						1,972		1,985
Total other current liabilities					$	11,317	$	13,431

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

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 March 29, 2019) plus a 0.50% spread, and may be renewed quarterly (the current line expires on May 21, 2019). The credit facility is not collateralized. The Company had 362,500,000 Yen and 417,500,000 Yen outstanding on the line of credit as of March 29, 2019 and December 28, 2018, respectively (approximately $3,272,000 and 3,780,000 based on the foreign exchange rates on March 29, 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 137,500,000 Yen and 82,500,000 Yen available for borrowing as of March 29, 2019 and December 28, 2018, respectively (approximately $1,241,000 and $747,000 based on the foreign exchange rate on March 29, 2019 and December 28, 2018, respectively). At maturity on May 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 March 29, 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 no borrowings outstanding as of March 29, 2019 and December 28, 2018.

The Company is in compliance with covenants of its credit facilities and lines of credit as of March 29, 2019.

During the three months ended March 29, 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.

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 was as follows (dollars in thousands):

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

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 was as follows (dollars in thousands):

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

Estimated future minimum lease payments under operating and finance leases having initial or remaining non-cancelable lease terms more than one year as of March 29, 2019 and December 28, 2018 are as follows (in thousands):

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 pre-GILTI U.S. income. The Company has elected to account for GILTI as a current period expense when incurred.

For the three months ended March 29, 2019, the Company included GILTI of $2,064,000 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 pre-GILTI U.S. tax income.

As of March 29, 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 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.

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):

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

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

Note 8 11 — ~~Basic and Diluted Net Income (Loss) Per Share~~Stockholders’ Equity

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

Because the Company had a net loss for the nine months ended September 29, 2017, the number of diluted shares is equal to the number of basic shares. Outstanding options and warrants to purchase common stock, restricted stock and restricted stock units would have had an anti-dilutive effect on diluted per share amounts.

The following table sets forth (in thousands) the weighted average number of options and warrants 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 calculation of diluted per share amounts because the effects would be anti-dilutive.

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

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

~~Note 9 — Disaggregation of Revenues, 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 countries based on location of customers. The composition of the Company’s net sales to unaffiliated customers is set forth below (in thousands):

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

One customer, our distributor in China, accounted for 42% and 38% of net sales for the three and nine months ended September 28, 2018, respectively, and the same customer accounted for 32% and 27% of net sales for the three and nine months ended September 29, 2017, respectively. As of September 28, 2018 and December 29, 2017, respectively, one customer, our distributor in China, accounted for 36% and 24% of consolidated trade receivables.

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

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

The Company recorded stock-based compensation costs in the following categories ~~on the accompanying Condensed Consolidated Statements of Operations~~ (in thousands):

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). ~~Restricted~~Grants of restricted stock ~~grants~~outstanding under the Plan generally vest over ~~a period between~~periods of one to three years. Grants of RSUs outstanding under the Plan generally vest based on service, performance, or a combination of both. As of ~~September 28, 2018,~~March 29, 2019, there were ~~2,488,237~~1,694,616 shares available for ~~grants~~grant under the ~~Plan.~~

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 cancellationsand represents the period of time that options granted are expected to be outstanding. The Company has calculated an ~~11%~~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.

A summary of stock option activity under the Plan for the three months ended March 29, 2019 is presented below:

~~A summary of option activity under the Plan for the quarter ended September 28, 2018 is presented below:~~

~~As of September 28, 2018, exercise prices of outstanding stock options ranged between $0.95~~Restricted Stock and ~~$39.90 per share.~~

A summary of restricted stock and RSU activity under the Plan for the ~~quarter~~three months ended ~~September 28, 2018~~March 29, 2019 is presented below:

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 $346,000 and $1,452,000 for the three and nine months ended September 28, 2018, respectively, and $410,000 and $697,000 for the three and nine months ended September 29, 2017, respectively, 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.

For the fiscal year-ended December 29, 2017 and prior years, the Company provided foreign withholding and U.S. income taxes on all unremitted foreign earnings, as the earnings from the Company’s foreign subsidiaries were not considered to be permanently reinvested. Effective for the current year, the Company no longer provides U.S. income taxes on foreign earnings (see discussion below). Although foreign earnings are no longer subject to U.S. taxation, the Company continues to provide withholding taxes related to such unremitted earnings.

On December 22, 2017, the United States enacted major tax reform legislation. Most of the changes from the new law are effective for years beginning after December 31, 2017 with the noted exemption of the deemed repatriation of offshore earnings. Public Law No. 115-97, commonly referred to as the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”) put into effect a number of changes impacting operations outside the United States including, but not limited to, the imposition of a one-time tax “deemed repatriation” on accumulated offshore earnings not previously subject to U.S. tax, and shifts the U.S taxation of multinational corporations from a worldwide system of taxation to a territorial system. As such, the 2017 Tax Act provides an exemption against U.S. federal taxation on foreign earnings generated after December 31, 2017 and repatriated back to the U.S.

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

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 28, 2018) plus a 0.50% spread, and may be renewed quarterly (the current line expires on November 21, 2018). The credit facility is not collateralized. The Company had 472,500,000 Yen and 500,000,000 Yen outstanding on the line of credit as of September 28, 2018 and December 29, 2017, respectively (approximately $4,162,000 and $4,438,000 based on the foreign exchange rates on September 28, 2018 and December 29, 2017, 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 28, 2018 there was 27,500,000 Yen (approximately $242,000) available for borrowing and as of December 29, 2017 there were no available borrowings under the line. At maturity on November 21, 2018, 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 28, 2018 and December 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 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 no borrowings outstanding as of September 28, 2018 and December 29, 2017.

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

On March 8, 2018, the Company entered into lease schedule 011 with Farnam Street Financial, Inc. (“Farnam”). The line of credit provides for borrowings of up to $500,000 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 28, 2018, approximately $392,000 of the line was available for borrowing.

On March 8, 2018, the Company entered into lease schedule 010R with Farnam. Under 010R, equipment with a cost of $1,560,000 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 28, 2018, approximately $1,044,000 was outstanding on this capital lease.

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 28, 2018 and December 29, 2017, approximately $330,000 and $1,067,000, respectively, was outstanding on this capital lease.

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

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

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~~agreement’s 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.

~~Note 13 – Stockholders’ Equity~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

The following table sets forth the ~~Company closed an offering~~computation of ~~its common stock. As part~~basic and diluted net income per share (in thousands except per share amounts):

The following table sets forth (in thousands) the weighted average number of ~~this transaction, the Company issued 1,999,850~~options to purchase shares of ~~its~~ common stock, ~~at a~~restricted stock, and restricted stock units with either exercise prices or unrecognized compensation cost per share greater than the average market price ~~of $36.309~~ per share. Net proceeds, after deducting expenses, received from this offering were $72,150,000. The Company intends to use the net proceeds of this offering to fund operations, which may include advancing and broadening commercialization of its ICL family of products, funding pipeline research and development activities and clinical trials, funding incremental investments in automation and precision manufacturing, and capital expenditures, such as information systems, and for general corporate purposes, including working capital. The Company has not yet determined the amounts on anyshare of the ~~areas listed above or~~Company’s common stock, which were not included in the ~~timing~~calculation of ~~these expenditures. The Company invests~~diluted per share amounts because 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.~~effects would be anti-dilutive.

Note 14 — ~~Reclassifications~~Disaggregation of Revenues, Geographic Sales and Product Sales

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

~~In accordance with ASU 2014-09,~~Note 14 — Disaggregation of Revenues, Geographic Sales and Product Sales (Continued)

The Company markets and sells its products in ~~order to disclose contract assets~~over 75 countries and ~~contract liabilities,~~conducts its manufacturing in the United States. Other than China, Japan and Korea, the Company ~~reclassified~~does not conduct business in any country in which its sales exceed 10% of worldwide consolidated net sales. Sales are attributed to countries based on location of customers. The composition of the ~~estimated amount~~Company’s net sales to unaffiliated customers is set forth below (in thousands):

100% of ~~inventory expected to be returned~~the Company’s sales are generated from the ~~allowance for sales returns to inventories, net on~~ophthalmic surgical product segment and the ~~Condensed Consolidated Balance Sheets. In addition,~~chief operating decision maker makes operating decisions and allocates resources based upon the consolidated operating results, and therefore the Company ~~reclassified~~operates as one operating segment for financial reporting purposes. The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery and intraocular lenses (“IOLs”) used in cataract surgery. The composition of the ~~allowance~~Company’s net sales by product line is as follows (in thousands):

One customer, our distributor in China, accounted for 36% and 29% of net sales ~~returns from accounts receivable, net to a separate line item~~for the three months ended March 29, 2019 and March 30, 2018, respectively. As of March 29, 2019 and December 28, 2018, respectively, one customer, our distributor in ~~current liabilities on the Condensed Consolidated Balance Sheets, see~~ China, accounted for 37% and 36% of consolidated trade receivables.

Certain compensation related expenses were reclassified from General and Administrative to Marketing and Selling and Research and Development line items on the Condensed Consolidated ~~Statements~~Statement of ~~Operations~~Income for the three ~~and nine~~ months ended ~~September 29, 2017 to conform with 2018 presentation.~~March 30, 2018.

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 remediation expense or 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 EVO family of lenses in the U.S.); commercialization of new or improved products; future economic conditions or size of market opportunities; ~~and~~ expected costs of quality ~~systems or operations;~~system remediation efforts; statements of belief, including as to achieving ~~2018~~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 February ~~28, 2018.~~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.

STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and companion delivery systems used to deliver the lenses into the eye. We are the world’s leading manufacturer of intraocular lenses for patients seeking refractive vision correction, 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.” 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 or contact lenses while achieving excellent visual acuity through refractive vision correction. We position our IOL lenses used in surgery that treats cataracts based on quality and value.

We ~~achieved a 35% increase in~~believe that the ICL continues to gain vision correction market share. Total ICL net ~~total~~ sales ~~and a 46% increase in~~for the first quarter of 2019 grew 31% over prior year quarter. Total ICL ~~sales~~units grew 39% globally in the ~~third~~first quarter, ~~of 2018~~including 86% growth in Japan, 62% in Korea, 56% in China, 27% in Germany and 23% in India as compared to the ~~third quarter~~prior year quarter. The leading refractive ophthalmic societies in Germany and Japan have now expanded the recommended lower diopter range for use of ~~2017. ICL unit growth of 56% for~~ the ~~third quarter of 2018 arose in part from~~ EVO Visian ICL ~~unit growth~~to negative 3 diopters from negative 6 diopters. We believe current versions of ~~100% in China, 95% growth in Japan, 27% growth in India and 20% growth in Germany. Sales of “Other” products, representing approximately 17% of overall sales~~the ICL can, in the near-to-medium term, achieve a 20% to 30% market share for myopia or distance vision correction, which would equate to between 800,000 and 1.2 million lenses per year. We anticipate the “Other” product sales rate of decline will be sequentially less in the second and third ~~quarter of 2018, were essentially flat from the third quarter of 2017 at $5.4 million~~quarters, in ~~sales.~~

We believe our sales momentum can continue for the remainder of the year. Therefore, we believe our full year fiscal 2018 sales growth percentage target should exceed 30% over 2017 based on current market conditions.

~~Furthermore,~~line with previously disclosed expectations. On an annual basis we continue to ~~believe gross margins will increase as~~anticipate an approximately $3.6 million decline compared to ~~2017.~~prior year for the Other products segment. We ~~expect operating expenses~~purchased equipment for manufacture of our EVO Visian ICL with an EDOF optic (intended to treat presbyopia) at our Lake Forest facility and construction of clean rooms is underway at that facility. For our myopia lenses, the planned doubling of manufacturing capacity at our Monrovia, California facility is expected to begin in the ~~fourth quarter~~second half of ~~2018 will exceed that of the fourth quarter of 2017 as we continue to invest in the business.~~

We continue to expect profitability improvement as compared to 2017 and expect to achieve positive GAAP net income for the full year of 2018. We continue to expect to increase cash from operations for the full year.

On September 13, 2018, we announced that the FDA granted approval of our PMA Supplement for the Visian Toric ICL for the correction of myopia with astigmatism. Our staged rollout of that product is in process. Our European multi-site EVO with EDOF presbyopia clinical trial remains ongoing. While the clinical trial continues, we cannot predict when, or if, we will succeed in meeting our end-points.

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. On December ~~30, 2017~~29, 2018 (beginning of fiscal year ~~2018)~~2019), the Company adopted Accounting Standards Update ~~2014-09, “Revenue from Contract with Customers~~2016-02, “Leases (Topic ~~606)~~842)”and its subsequent ~~amendments. The Company determined that~~amendments, the ~~adoption~~impact of this new accounting standard ~~did not materially impact revenue recognition, see Note~~are discussed in Notes 1 and 8 of the Condensed Consolidated Financial Statements. Other than the adoption of Topic ~~606,~~842, management believes that there have been no significant changes during the ~~nine~~three months ended ~~September 28, 2018~~March 29, 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 ~~29, 2017.~~

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.

Other income, net for the three months ended ~~September 28, 2018~~March 29, 2019 was ~~$0.2~~$0.3 million, ~~a decrease~~an increase from ~~$0.5~~$0.1 million reported for the same period of ~~2017.~~2018. The ~~decrease~~increase in other income, net was ~~a result of lower~~due to the increase in interest income earned on cash and cash equivalents, offset by an increase in foreign exchange ~~gains~~losses (primarily the euro). Other expense, net for the nine months ended September 28, 2018 was $0.1 million compared to other income, net of $1.1 million reported for the same period of 2017. This change was a result of foreign exchange losses during the nine months ended September 28, 2018 compared to foreign exchange gains during the same period of 2017, due primarily to fluctuations in the euro rates.

The provision for income taxes is determined using an estimated annual effective tax rate. We recorded income taxes of ~~$0.3~~$0.5 million and ~~$1.5~~$0.3 million for the three ~~and nine~~ months ended ~~September 28,~~March 29, 2019 and March 30, 2018, ~~respectively and $0.4 million and $0.7 million for the three and nine months ended September 29, 2017.~~respectively. The income tax provision was due primarily to pre-tax income generated in certain foreign jurisdictions. We have no unrecognized tax benefits pertaining to any uncertain tax positions as of any period presented.

For the three months ended March 29, 2019, we included Global Intangible Low Tax Income (“GILTI”) of $2.1 million 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 pre-GILTI U.S. tax 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 March 29, 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 $45.1 million as of March 29, 2019.

We believe our current cash balances coupled with cash flows from operating activities is expected to be adequate to cover our operational and business needs through at least the next 12 months. Our financial condition at March 29, 2019 and December 28, 2018 included the following (in millions):

On August 10, 2018, we closed an offering of our common stock. As part of this transaction, we issued 1,999,850 shares of common stock at a price of $36.309 per share. Net proceeds, after deducting expenses, received from this offering were $72,150,000. We intend to use the net proceeds of this offering to fund operations, which may include advancing and broadening commercialization of its ICL family of products, funding pipeline research and development activities and clinical trials, funding incremental investments in automation and precision manufacturing, and capital expenditures, such as information systems, and for general corporate purposes, including working capital. We have not yet determined the amounts on any of the areas listed above or the timing of these expenditures.

We 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.

~~As of September 28, 2018, we had cash, cash equivalents and restricted cash of $102.3 million.~~ Additionally, at March 29, 2019, we have a line of credit with a Japanese lender, in the amount of ~~$4.4~~$4.5 million, with ~~$0.2~~$1.2 million of availability and a line of credit with a Swiss lender, in the amount of $1.0 million, which is fully available for borrowing. ~~Cash provided by operations and financing activities is expected to be adequate to cover our operational and business needs through at least the next 12 months.~~

Net cash provided by operating activities was ~~$10.4~~$0.7 million and $2.5 million for the ~~nine~~three months ended ~~September~~March 29, 2019 and March 28, 2018, ~~and $1.7 million for the nine months ended September 29, 2017. The net~~respectively. Net cash provided by operating activities for the ~~nine~~three months ended ~~September 28, 2018, resulted from net income~~March 29, 2019, consisted of ~~$3.9 million and $9.4~~$4.5 million in non-cash items and $1.4 million in net income, offset by ~~a $2.9~~$5.1 million ~~decrease~~ in ~~net working capital.~~working-capital changes. The ~~increase~~decrease in net cash provided by operating activities during the ~~nine~~three months ended ~~September 28, 2018~~March 29, 2019 was due to ~~recognition~~the decrease in net working capital of $4.0 million, offset by an increase of $1.4 million in non-cash items and an increase in net income of ~~$3.9 million for the nine months ended September 28, 2018 compared to a net loss of $2.0 million for the nine months ended September 29, 2017 and an increase of $3.0 million in non-cash items.~~

Net cash used in investing activities was ~~$1.7~~$2.2 million and $1.0 million for the ~~nine~~three months ended ~~September~~March 29, 2019 and March 28, 2018, respectively, and ~~September 29, 2017, respectively, due~~relate primarily to the acquisition of property, plant, and equipment.

The increase in investment in property, plant and equipment during 2019, relative to 2018, is primarily due to continued increased investments in manufacturing and quality system improvement projects.

Net cash used in financing activities was $0.2 million for the three months ended March 29, 2019 and net cash provided by financing activities ~~was $75.1~~of $0.1 million ~~and $1.1 million for the nine months ended September~~March 28, ~~2018 and September 29, 2017, respectively.~~2018. Net cash ~~provided by~~used in financing activities ~~during~~consisted of $0.5 million repayment on the ~~first nine months~~Japan line of ~~2018 resulted primarily from the~~credit and $0.4 million repayment of finance lease obligations, offset by $0.6 million of proceeds from the ~~equity offering, as discussed above. In addition, the increase is due to vested restricted stock and exercises~~exercise of stock ~~options, partially offset by the repayment of capital lease obligations and repayment on the line of credit.~~options.

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

The Company is in compliance with the covenants of its credit facilities as of ~~September 28, 2018.~~March 29, 2019.

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.

During the ~~nine~~three months ended ~~September 28, 2018,~~March 29, 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 ~~29, 2017.~~28, 2018.

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 28, 2018~~March 29, 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.These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While we do not believe that any of the claims known is likely to have a material adverse effect on our financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.

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 ~~29, 2017.~~28, 2018. Such risks and uncertainties could materially adversely affect our business, financial condition or operating results.

STAAR Surgical Company’s Swiss subsidiary STAAR Surgical Ltd (the “Company”) entered into a lease agreement (the “Lease”) with GZK Real Estate Ltd (“Lessor”), to lease the real property located at Portstr. 35, 2555 Brügg, Switzerland including a commercial building of approximately 1,500 square meters (the “Premises”). The Lease is dated January 29, 2019, went into effect on March 1, 2019 and has an initial term through February 29, 2024. The foregoing summary is qualified in its entirety by reference to the Lease, which is filed as Exhibit 10.36 to this Quarterly Report on Form 10-Q and incorporated herein by this reference.

☐	~~For the quarterly period ended: September 28, 2018~~
	Or
¨	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	o ☐	Smaller reporting company	☐

o Emerging growth company	☐

			PAGE NUMBER

PART I – FINANCIAL INFORMATION			1

ITEM 1.1	FINANCIAL STATEMENTS		1

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		18

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		23

ITEM 4.	CONTROLS AND PROCEDURES		23

PART II – OTHER INFORMATION		24	23

ITEM 1.	LEGAL PROCEEDINGS	24	23

ITEM 1A.	RISK FACTORS	24	23

ITEM 4.	MINE SAFETY DISCLOSURES		24

ITEM 5.	OTHER INFORMATION		24

ITEM 6.	EXHIBITS	25	24

	September 28, 2018		December 29, 2017
Estimated returns - inventory⁽¹⁾	$	678	$	534
Allowance for sales returns		2,802		2,546

	As Reported		Adjustments			Balances without the adoption of 606
Accounts receivable trade, net	$	23,732	$	(2,802	)	$	20,930
Total current assets		147,297		(2,802	)		144,495
Total assets		162,988		(2,802	)		160,186
Allowance for sales returns		2,802		(2,802	)		—
Total current liabilities		27,540		(2,802	)		24,738
Total liabilities		34,124		(2,802	)		31,322
Total liabilities and stockholders’ equity		162,988		(2,802	)		160,186

	September 28, 2018							December 29, 2017
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Long-lived amortized intangible assets:
Patents and licenses	$	9,240	$	(8,996	)	$	244	$	9,244	$	(8,973	)	$	271
Customer relationships		1,381		(1,381	)		—		1,392		(1,392	)		—
Developed technology		878		(878	)		—		885		(885	)		—
Total	$	11,499	$	(11,255	)	$	244	$	11,521	$	(11,250	)	$	271

	Three Months Ended
	March 29, 2019
Amortization of finance lease right-of-use asset	$	161
Interest on finance lease liabilities		19
Cash paid for amounts included in the measurement of finance lease liabilities:
Operating cash flows		19
Financing cash flows		365
Right-of-use assets obtained in exchange for new finance lease liabilities		642

	Three Months Ended
	March 29, 2019
Operating lease cost	$	611
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows		601
Right-of-use assets obtained in exchange for new operating lease liabilities		1,464

As of March 29, 2019 12 Months Ended	Operating Leases		Finance Leases
March 2020	$	2,663	$	1,221
March 2021		2,237		572
March 2022		1,042		110
March 2023		779		—
March 2024		349		—
Thereafter		7		—
Total minimum lease payments, including interest	$	7,077	$	1,903
Less amounts representing interest		312		89
Total minimum lease payments	$	6,765	$	1,814

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

	Three Months Ended				Nine Months Ended
	September 28, 2018		September 29, 2017		September 28, 2018		September 29, 2017
Non-consignment sales	$	27,503	$	19,590	$	79,345	$	53,432
Consignment sales		4,267		3,883		13,423		12,327
Total net sales		31,770		23,473		92,768		65,759
Royalty income⁽¹⁾		159		141		465		400
Total revenues	$	31,929	$	23,614	$	93,233	$	66,159

	Stock Options (in 000’s)			Minimum Exercise Price		Maximum Exercise Price
Outstanding at December 28, 2018		3,920
Granted		749
Exercised		(74	)
Forfeited or expired		(1	)
Outstanding at March 29, 2019		4,594		$	1.92	$	43.84
Exercisable at March 29, 2019		2,839

	~~Option~~ ~~Shares~~ ~~(000’s)~~
~~Outstanding at December 29, 2017~~		~~3,725~~
~~Granted~~		~~805~~
~~Exercised~~		~~(524~~	)
~~Forfeited or expired~~		~~(27~~	)
~~Outstanding at September 28, 2018~~		~~3,979~~
~~Exercisable at September 28, 2018~~		~~2,584~~

	Restricted Shares (000’s)			Restricted Units (000’s)
Outstanding at December 29, 2017		21			488
Granted		11			49
Vested		(21	)		(185	)
Forfeited or expired		—			(8	)
Outstanding at September 28, 2018		11			344

	Restricted Stock (in 000’s)		Restricted Stock Units (in 000’s)
Unvested at December 28, 2018		11		322
Granted		—		19
Vested		—		(178	)
Forfeited or expired		—		(1	)
Unvested at March 29, 2019		11		162

	Percentage of Net Sales for Three Months						Percentage of Net Sales for Nine Months						Percentage of Net Sales for Three Months
	September 28, 2018			September 29, 2017			September 28, 2018			September 29, 2017			March 29, 2019			March 30, 2018
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		24.9			28.2			26.1			28.7			25.8	%		28.3	%
Gross profit		75.1			71.8			73.9			71.3			74.2	%		71.7	%

General and administrative		19.2			20.1			19.5			21.9			21.0	%		21.3	%
Marketing and selling		33.4			27.7			31.0			31.1			31.1	%		27.5	%
Research and development		17.5			19.6			17.6			21.9			17.3	%		20.0	%
Total selling, general and administrative expenses		70.1			67.4			68.1			74.9
Operating income (loss)		5.0			4.4			5.8			(3.6	)
Other income (expense), net		0.7			2.3			(0.1	)		1.7
Income (loss) before provision for income taxes		5.7			6.7			5.7			(1.9	)
Total selling, general and administrative														69.4	%		68.8	%
Operating income														4.8	%		2.9	%
Total other income, net														0.9	%		0.4	%
Income before income taxes														5.7	%		3.3	%
Provision for income taxes		1.1			1.7			1.6			1.1			1.5	%		1.1	%
Net income (loss)		4.6	%		5.0	%		4.1	%		(3.0	)%
Net income														4.2	%		2.2	%

	Three Months Ended				Percentage Change
	March 29, 2019		March 30, 2018		2019 vs. 2018
ICLs	$	27,786	$	21,158		31.3	%
Other product sales
IOLs		4,017		4,058		(1.0	)%
Other surgical products		780		1,877		(58.4	)%
Total other product sales		4,797		5,935		(19.2	)%
Net sales	$	32,583	$	27,093		20.3	%

	March 29, 2019		December 28, 2018		2019 vs. 2018
Cash and cash equivalents	$	102.1	$	103.9	$	(1.8	)
Current assets	$	152.7	$	151.6	$	1.1
Current liabilities		28.2		27.7		0.5
Working capital	$	124.5	$	123.9	$	0.6

3.1	Amended and Restated Certificate of Incorporation.(1)
~~3.2~~
3.2	Amended and Restated Bylaws.(2)
~~4.1~~
4.1	Form of Certificate for Common Stock, par value $0.01 per share.(3)
~~†4.2~~
†4.2	Amended and Restated Omnibus Equity Incentive Plan.(4)
~~31.1~~
10.36	Lease Agreement dated January 29, 2019 between GZK Real Estate Ltd. and STAAR Surgical Ltd.*

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~~
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~~
32.1	Certification Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
~~101~~
101	Financial statements from the quarterly report on Form 10-Q of STAAR Surgical Company for the quarter ended ~~September 28, 2018,~~March 29, 2019, formatted in Extensible Business Reporting Language (XBRL), 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.*

			STAAR SURGICAL COMPANY

Dated: ~~October 31, 2018~~	~~By:~~	May 1, 2019	By:	/s/ DEBORAH J. ANDREWS
				Deborah J. Andrews
				Chief Financial Officer
				(on behalf of the Registrant and as its principal financial officer)