Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ No ☐

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

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

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

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

The registrant has ~~48,206,299~~48,333,250 shares of common stock, par value $0.01 per share, issued and outstanding as of ~~October~~April 28, ~~2022.~~2023.


	September 30, 2022			December 31, 2021			March 31, 2023			December 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	129,242		$	199,706		$	89,968		$	86,480
Investments available for sale		82,091			—			113,879			125,159
Accounts receivable trade, net of allowance for credit losses of $103 and $43, respectively		55,429			43,531
Accounts receivable trade, net of allowance for credit losses of $43 and $20, respectively								63,494			62,447
Inventories, net		19,930			17,274			27,808			24,161
Prepayments, deposits and other current assets		10,218			10,900			17,722			13,476
Total current assets		296,910			271,411			312,871			311,723
Investments available for sale		13,360			—			13,445			13,902
Property, plant and equipment, net		48,048			35,912			53,453			50,921
Finance lease right-of-use assets, net		380			506			303			342
Operating lease right-of-use assets, net		29,503			31,310			31,182			30,270
Intangible assets, net		171			218			165			173
Goodwill		1,786			1,786			1,786			1,786
Deferred income taxes		3,710			3,813			4,744			4,824
Other assets		808			822			956			957
Total assets	$	394,676		$	345,778		$	418,905		$	414,898
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,567		$	8,699		$	9,102		$	11,576
Obligations under finance leases		167			127			171			169
Obligations under operating leases		3,474			3,283			3,538			3,524
Allowance for sales returns		5,040			4,816			5,303			5,706
Other current liabilities		29,072			31,877			28,949			30,741
Total current liabilities		45,320			48,802			47,063			51,716
Obligations under finance leases		252			382			167			210
Obligations under operating leases		26,032			28,269			28,030			27,136
Deferred income taxes		1,554			811			1,369			1,489
Asset retirement obligations		158			198			218			220
Pension liability		1,228			8,758			3,134			1,935
Total liabilities		74,544			87,220			79,981			82,706
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value; 60,000 shares authorized: 48,202 and 47,716 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		482			477
Common stock, $0.01 par value; 60,000 shares authorized: 48,331 and 48,212 shares issued and outstanding at March 31, 2023 and December 30, 2022, respectively								483			482
Additional paid-in capital		398,448			373,519			409,303			404,189
Accumulated other comprehensive loss		(310	)		(4,048	)
Accumulated other comprehensive gain (loss)								(937	)		156
Accumulated deficit		(78,488	)		(111,390	)		(69,925	)		(72,635	)
Total stockholders’ equity		320,132			258,558			338,924			332,192
Total liabilities and stockholders’ equity	$	394,676		$	345,778		$	418,905		$	414,898


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2022			October 1, 2021			September 30, 2022			October 1, 2021			March 31, 2023		April 1, 2022
Net sales	$	76,046		$	58,352		$	220,347		$	171,471		$	73,528	$	63,200
Cost of sales		15,584			13,051			46,749			37,825			15,966		13,936
Gross profit		60,462			45,301			173,598			133,646			57,562		49,264
Selling, general and administrative expenses:
General and administrative		14,011			11,018			39,934			32,671			18,098		11,940
Selling and marketing		23,130			18,175			64,633			50,229			26,354		17,270
Research and development		9,616			8,271			26,193			24,790			10,310		7,941
Total selling, general and administrative expenses		46,757			37,464			130,760			107,690			54,762		37,151
Operating income		13,705			7,837			42,838			25,956			2,800		12,113
Other expense, net:
Other income (expense), net:
Interest income (expense), net		897			(23	)		934			(35	)		1,822		(6	)
Loss on foreign currency transactions		(2,129	)		(610	)		(4,904	)		(2,040	)
Gain (loss) on foreign currency transactions														34		(915	)
Royalty income		77			185			527			496			—		273
Other income (expense), net		27			(13	)		178			(47	)
Total other expense, net		(1,128	)		(461	)		(3,265	)		(1,626	)
Other income, net														63		62
Total other income (expense), net														1,919		(586	)
Income before income taxes		12,577			7,376			39,573			24,330			4,719		11,527
Provision for income taxes		2,315			1,356			6,671			4,751			2,009		1,925
Net income	$	10,262		$	6,020		$	32,902		$	19,579		$	2,710	$	9,602
Net income per share:
Basic	$	0.21		$	0.13		$	0.69		$	0.42		$	0.06	$	0.20
Diluted	$	0.21		$	0.12		$	0.67		$	0.40		$	0.05	$	0.19
Weighted average shares outstanding:
Basic		48,102			47,483			47,915			47,064			48,247		47,755
Diluted		49,549			49,592			49,371			49,448			49,500		49,288

	Three Months Ended
	Common Stock Shares		Common Stock Par Value		Additional Paid-In Capital		Accumulated Other Compre- hensive Income (Loss)			Accumulated Deficit			Total			Three Months Ended
Balance, at July 1, 2022		48,024	$	480	$	387,328	$	249		$	(88,750	)	$	299,307
																Common Stock Shares			Common Stock Par Value		Additional Paid-In Capital			Accumulated Other Compre- hensive Income (Loss)			Accumulated Deficit			Total
Balance, at December 30, 2022																	48,212		$	482	$	404,189		$	156		$	(72,635	)	$	332,192
Net income		—		—		—		—			10,262			10,262			—			—		—			—			2,710			2,710
Other comprehensive loss		—		—		—		(559	)		—			(559	)		—			—		—			(1,093	)		—			(1,093	)
Common stock issued upon exercise of options		166		2		5,032		—			—			5,034			40			—		529			—			—			529
Stock-based compensation		—		—		6,088		—			—			6,088			—			—		6,434			—			—			6,434
Repurchase of employee common stock for taxes withheld																	(31	)		—		(1,849	)		—			—			(1,849	)
Vested restricted and performance stock		12		—		—		—			—			—			110			1		—			—			—			1
Balance, at September 30, 2022		48,202	$	482	$	398,448	$	(310	)	$	(78,488	)	$	320,132
Balance, at March 31, 2023																	48,331		$	483	$	409,303		$	(937	)	$	(69,925	)	$	338,924

Balance, at July 2, 2021		47,391	$	474	$	360,316	$	(3,836	)	$	(122,332	)	$	234,622
Balance, at December 31, 2021																	47,716		$	477	$	373,519		$	(4,048	)	$	(111,390	)	$	258,558
Net income		—		—		—		—			6,020			6,020			—			—		—			—			9,602			9,602
Other comprehensive income		—		—		—		208			—			208			—			—		—			2,985			—			2,985
Common stock issued upon exercise of options		183		2		4,210		—			—			4,212			49			1		911			—			—			912
Stock-based compensation		—		—		4,046		—			—			4,046			—			—		4,260			—			—			4,260
Vested restricted and performance stock		25		—		—		—			—			—			45			—		—			—			—			—
Balance, at October 1, 2021		47,599	$	476	$	368,572	$	(3,628	)	$	(116,312	)	$	249,108
Balance, at April 1, 2022																	47,810		$	478	$	378,690		$	(1,063	)	$	(101,788	)	$	276,317

Nine Months Ended

Common
Stock Shares

Common
Stock Par
Value

Additional
Paid-In
Capital

Accumulated
Other
Compre-
hensive
Income
(Loss)

Accumulated
Deficit

Total

Balance, at December 31, 2021

47,716

$
477

$
373,519

$
(4,048
)

$
(111,390
)

$
258,558

Net income

—

—

—

—

32,902

32,902

Other comprehensive income

—

—

—

3,738

—

3,738

Common stock issued upon exercise of options

417

4

8,175

—

—

8,179

Stock-based compensation

—

—

16,754

—

—

16,754

Unvested restricted stock

7

—

—

—

—

—

Vested restricted and performance stock

62

1

—

—

—

1

Balance, at September 30, 2022

48,202

$
482

$
398,448

$
(310
)

$
(78,488
)

$
320,132

Balance, at January 1, 2021

46,448

$
464

$
338,194

$
(5,545
)

$
(135,891
)

$
197,222

Net income

—

—

—

—

19,579

19,579

Other comprehensive income

—

—

—

1,917

—

1,917

Common stock issued upon exercise of options

1,089

11

18,311

—

—

18,322

Stock-based compensation

—

—

12,067

—

—

12,067

Unvested restricted stock

3

—

—

—

—

—

Vested restricted and performance stock

59

1

—

—

—

1

Balance, at October 1, 2021

47,599

$
476

$
368,572

$
(3,628
)

$
(116,312
)

$
249,108

Nine Months Ended

September 30, 2022

October 1, 2021

Cash flows from operating activities:

Net income

$
32,902

$
19,579

Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation of property, plant, and equipment

3,101

2,671

Amortization of intangibles

22

26

Accretion/Amortization of investments available for sale

(307
)

—

Deferred income taxes

23

845

Change in net pension liability

40

91

Loss on disposal of property and equipment

—

2

Stock-based compensation expense

15,375

10,985

Provision for sales returns and bad debts

361

1,069

Inventory provision

2,020

1,097

Changes in working capital:

Accounts receivable

(13,108
)

(7,072
)
Inventories

(4,123
)

1,301

Prepayments, deposits, and other current assets

526

1,288

Accounts payable

(1,834
)

(40
)
Other current liabilities

(2,253
)

3,622

Net cash provided by operating activities

32,745

35,464

Cash flows from investing activities:

Acquisition of property and equipment

(14,083
)

(8,956
)
Purchase of investments available for sale

(95,576
)

—

Net cash used in investing activities

(109,659
)

(8,956
)
Cash flows from financing activities:

Repayment of finance lease obligations

(85
)

(314
)
Proceeds from the exercise of stock options

8,179

18,322

Proceeds from vested restricted stock

1

1

Net cash provided by financing activities

8,095

18,009

Effect of exchange rate changes on cash and cash equivalents

(1,645
)

(724
)
Increase (decrease) in cash and cash equivalents

(70,464
)

43,793

Cash and cash equivalents, at beginning of the period

199,706

152,453

Cash and cash equivalents, at end of the period

$
129,242

$
196,246

Note 1 — Basis of Presentation and Significant Accounting Policies

The Condensed Consolidated Financial Statements of the Company present the financial position, results of operations, and cash flows of STAAR Surgical Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in the Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of December ~~31, 2021~~30, 2022 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December ~~31, 2021.~~30, 2022.

The Condensed Consolidated Financial Statements for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and April 1, 2022, ~~and October 1, 2021,~~ 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 30,~~March 31, 2023 and April 1, 2022, ~~and October 1, 2021,~~ 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 and Cash Equivalents~~

Cash and cash equivalents include cash and balances in deposits and money market accounts held at banks and financial institutions. Such balances generally exceed the federal insurance limits; however, the Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is minimal.

Note 2 — Investments Available for Sale

Investments available for sale (“AFS”) are investments in debt securities for which the Company does not have the positive intent and ability to hold to maturity. The Company’s investment policy primary objective is capital preservation while maximizing its return on investment. Investments may include U.S. government and corporate debt securities, commercial paper, certain certificates of deposit and related security types, that are rated by two nationally recognized statistical rating organizations with minimum investment grade ratings of AAA to A-/A-1+ to A-2, or the equivalent. There are also limits to the amount of credit exposure in any given security type.

Investments AFS are measured at fair value and its unrealized gains and losses reported net of the allowance for credit losses and applicable income taxes, are recognized in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. The cost of investments AFS is adjusted for amortization of premiums and accretion of discounts to maturity. Interest earned, including amortization of premiums and accretion of discounts recognized, is included in interest income (expense) on the Consolidated Statements of Income. The cost of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method.

The Company recognizes other-than-temporary impairment (“OTTI”) of a debt security for which there has been a decline in fair value below amortized cost if (i) management intends to sell the security, (ii) it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis, or (iii) the Company does not expect to recover the entire amortized cost basis of the security. The amount by which amortized cost exceeds the fair value of a debt security that is considered to have OTTI is separated into a component representing the credit loss, which is recognized in other income (expense) on the Consolidated Statements of Income, and a component related to all other factors, which is recognized in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. The measurement of the credit loss component is equal to the difference between the debt security’s amortized cost basis and the present value of its expected future cash flows discounted at the security’s effective yield.

~~STAAR SURGICAL COMPANY~~

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

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

~~Vendor Concentration~~

~~There were no vendors that accounted for over 10%~~During the second half of the Company’s consolidated accounts payable as of September 30, 2022 and December 31, 2021. There were no vendors that accounted for over 10% of the Company’s consolidated purchases for the three and nine months ended September 30, 2022 and October 1, 2021, respectively.

~~Note 2~~ — ~~Investments Available for Sale~~

~~In the three months ended September 30,~~ 2022, the Company started to invest its cash in slightly higher yielding securities. Investments ~~AFS~~available for sale (“AFS”) and the related fair value measurement consisted of the following (dollars in thousands):


	March 31, 2023
										Fair Value Measurements
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value		Level 1		Level 2
Commercial paper	$	34,464	$	4	$	(28	)	$	34,440	$	—	$	34,440
Certificates of deposit		18,414		3		(42	)		18,375		—		18,375
U.S. Treasury securities		24,430		26		(9	)		24,447		24,447		—
U.S. agency securities		10,965		15		(2	)		10,978		—		10,978
Corporate debt securities		39,342		3		(261	)		39,084		—		39,084
Total investments AFS	$	127,615	$	51	$	(342	)	$	127,324	$	24,447	$	102,877

	December 30, 2022
										Fair Value Measurements
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value		Level 1		Level 2
Commercial paper	$	44,054	$	11	$	(62	)	$	44,003	$	—	$	44,003
Certificates of deposit		17,355		4		(75	)		17,284		—		17,284
U.S. Treasury securities		21,847		3		(15	)		21,835		21,835		—
U.S. agency securities		10,688		16		(3	)		10,701		—		10,701
Corporate debt securities		45,522		4		(288	)		45,238		—		45,238
Total investments AFS	$	139,466	$	38	$	(443	)	$	139,061	$	21,835	$	117,226

September 30, 2022

Amortized Cost

Unrealized Gains

Unrealized Losses

Estimated Fair Value

Level 2 Fair Value Measurements:

Commercial paper

$
35,093

$
1

$
(75
)

$
35,019

Certificates of deposit

14,404

1

(66
)

14,339

U.S. Treasury and agency securities

4,188

—

(1
)

4,187

Corporate debt securities

41,898

5

(297
)

41,606

Accrued interest receivable

300

—

—

300

Total investments AFS

$
95,883

$
7

$
(439
)

$
95,451

STAAR SURGICAL COMPANY

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

Note 2 — Investments Available for Sale (Continued)

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

The Company assessed each debt security with gross unrealized losses for ~~credit~~ impairment. As part of that assessment, the Company concluded that it does not intend to sell and it is more-likely-than-not that the Company will not be required to sell, prior to the recovery of the amortized cost basis. The Company did ~~not~~not recognize impairment for the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023.

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


	As of March 31, 2023
	Within one year		After one year through five years		Total
Commercial paper	$	34,440	$	—	$	34,440
Certificates of deposit		18,375		—		18,375
U.S. Treasury securities		16,331		8,116		24,447
U.S. agency securities		9,256		1,722		10,978
Corporate debt securities		35,477		3,607		39,084
Total investments AFS	$	113,879	$	13,445	$	127,324

During the three months ended March 31, 2023, the Company sold $600,000 in securities due to a downgraded credit rating. The Company recognized a realized gain upon sale of $2,000 during the three months ended March 31, 2023.

As of September 30, 2022

Within one year

After one year through five years

Total

Commercial paper

$
35,019

$
—

$
35,019

Certificates of deposit

14,339

—

14,339

U.S. Treasury and agency securities

4,187

—

4,187

Corporate debt securities

28,246

13,360

41,606

Accrued interest receivable

300

—

300

Total investments AFS

$
82,091

$
13,360

$
95,451

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

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):


	March 31, 2023			December 30, 2022
Raw materials and purchased parts	$	7,252		$	6,703
Work in process		5,886			5,499
Finished goods		16,455			13,633
Total inventories, gross		29,593			25,835
Less inventory reserves		(1,785	)		(1,674	)
Total inventories, net	$	27,808		$	24,161

September 30, 2022

December 31, 2021

Raw materials and purchased parts

$
5,607

$
3,971

Work in process

4,038

4,031

Finished goods

12,109

10,429

Total inventories, gross

21,754

18,431

Less inventory reserves

(1,824
)

(1,157
)
Total inventories, net

$
19,930

$
17,274

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


	March 31, 2023		December 30, 2022
Prepayments and deposits	$	5,245	$	3,986
Prepaid insurance		2,468		2,620
Prepaid marketing costs		2,388		2,534
Consumption tax receivable		872		864
Value added tax (VAT) receivable		4,677		2,661
BVG (Swiss Pension) prepayment		1,536		111
Other(1)		536		700
Total prepayments, deposits and other current assets	$	17,722	$	13,476

September 30, 2022

December 31, 2021

Prepayments and deposits

$
3,716

$
4,047

Prepaid insurance

517

2,647

Prepaid marketing

2,590

543

Consumption tax receivable

694

830

Value added tax (VAT) receivable

1,555

2,197

BVG (Swiss Pension) prepayment

722

15

Other⁽¹⁾

424

621

Total prepayments, deposits and other current assets

$
10,218

$
10,900

(1)

No individual category 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.~~

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


	March 31, 2023			December 30, 2022
Machinery and equipment	$	28,241		$	28,026
Computer equipment and software		9,283			9,266
Furniture and fixtures		4,451			4,276
Leasehold improvements		15,466			14,965
Construction in process		34,947			32,269
Total property, plant and equipment, gross		92,388			88,802
Less accumulated depreciation		(38,935	)		(37,881	)
Total property, plant and equipment, net	$	53,453		$	50,921

September 30, 2022

December 31, 2021

Machinery and equipment

$
27,860

$
24,127

Computer equipment and software

9,243

8,807

Furniture and fixtures

4,453

3,658

Leasehold improvements

12,212

11,821

Construction in process

31,398

21,827

Total property, plant and equipment, gross

85,166

70,240

Less accumulated depreciation

(37,118
)

(34,328
)
Total property, plant and equipment, net

$
48,048

$
35,912

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

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


	March 31, 2023							December 30, 2022
Long-lived amortized intangible assets	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Patents and licenses	$	9,235	$	(9,070	)	$	165	$	9,240	$	(9,067	)	$	173

September 30, 2022

December 31, 2021

Long-lived amortized intangible assets

Gross
Carrying
Amount

Accumulated
Amortization

Net

Gross
Carrying
Amount

Accumulated
Amortization

Net

Patents and licenses

$
9,194

$
(9,023
)

$
171

$
9,315

$
(9,097
)

$
218

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


	March 31, 2023		December 30, 2022
Accrued salaries and wages	$	8,181	$	10,862
Accrued bonuses		2,339		6,925
Severance payable		1,595		410
Income taxes payable		5,461		3,845
Marketing obligations		1,832		1,374
Other(1)		9,541		7,325
Total other current liabilities	$	28,949	$	30,741

September 30, 2022

December 31, 2021

Accrued salaries and wages

$
9,174

$
12,030

Accrued bonuses

5,356

8,091

Income taxes payable

5,232

2,248

Marketing obligations

2,418

2,243

Other⁽¹⁾

6,892

7,265

Total other current liabilities

$
29,072

$
31,877

(1)

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

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

Note 8 – Leases (Continued)

Finance Leases (Continued)


	March 31, 2023			December 30, 2022
Machinery and equipment	$	30		$	30
Computer equipment and software		18			18
Furniture and fixtures		475			475
Finance lease right-of-use assets, gross		523			523
Less accumulated depreciation		(220	)		(181	)
Finance lease right-of-use assets, net	$	303		$	342

Current finance lease obligations	$	171		$	169
Long-term finance lease obligations		167			210
Total finance lease liability	$	338		$	379
Weighted-average remaining lease term (in years)		2.0			2.2
Weighted-average discount rate		4.12	%		4.10	%

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021		March 31, 2023		April 1, 2022
Amortization of finance lease right-of-use asset	$	39	$	15	$	121	$	71	$	39	$	43
Interest on finance lease liabilities		5		1		13		6		4		3
Cash paid for amounts included in the measurement of finance lease liabilities:
Operating cash flows		5		1		13		6		4		3
Financing cash flows		40		36		85		314		42		18

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


	March 31, 2023			December 30, 2022
Machinery and equipment	$	807		$	789
Computer equipment and software		445			446
Real property		35,565			34,465
Operating lease right-of-use assets, gross		36,817			35,700
Less accumulated depreciation		(5,635	)		(5,430	)
Operating lease right-of-use assets, net	$	31,182		$	30,270

Current operating lease obligations	$	3,538		$	3,524
Long-term operating lease obligations		28,030			27,136
Total operating lease liability	$	31,568		$	30,660
Weighted-average remaining lease term (in years)		7.4			7.5
Weighted-average discount rate		4.49	%		3.87	%

September 30, 2022

December 31, 2021

Machinery and equipment

$
762

$
760

Computer equipment and software

446

472

Real property

33,751

34,426

Operating lease right-of-use assets, gross

34,959

35,658

Less accumulated depreciation

(5,456
)

(4,348
)
Operating lease right-of-use assets, net

$
29,503

$
31,310

Current operating lease obligations

$
3,474

$
3,283

Long-term operating lease obligations

26,032

28,269

Total operating lease liability

$
29,506

$
31,552

Weighted-average remaining lease term (in years)

7.6

7.8

Weighted-average discount rate

4.04
%

3.56
%

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

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

~~Maturities~~Estimated future maturities of lease liabilities under operating and finance leases having initial or remaining non-cancelable lease terms more than one year as of ~~September 30, 2022~~March 31, 2023 is as follows (in thousands):

As of September 30, 2022
12 Months Ended

Operating Leases

Finance Leases

September 2023

$
5,179

$
181

September 2024

5,152

176

September 2025

4,224

85

September 2026

3,659

—

September 2027

3,671

—

Thereafter

13,099

—

Total future minimum lease payments

$
34,984

$
442

Less amounts representing interest

(5,478
)

(23
)
Present value of future minimum lease payments

$
29,506

$
419


As of March 31, 2023 12 Months Ended	Operating Leases			Finance Leases
March 2024	$	5,488		$	182
March 2025		5,655			170
March 2026		4,322			—
March 2027		4,364			—
March 2028		4,416			—
Thereafter		13,877			—
Total future minimum lease payments	$	38,122		$	352
Less amounts representing interest		(6,554	)		(14	)
Total lease liability	$	31,568		$	338

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

Three Months Ended

Nine Months Ended

September 30, 2022

October 1, 2021

September 30, 2022

October 1, 2021

Provision for income taxes

$
2,315

$
1,356

$
6,671

$
4,751


	Three Months Ended
	March 31, 2023		April 1, 2022
Provision for income taxes	$	2,009	$	1,925

The effective tax rates for the three months ended ~~September 30,~~March 31, 2023 and April 1, 2022 were 42.6% and ~~October 1, 2021 was 18.4% and 18.4%~~16.7%, ~~respectively, and was 16.9% and 19.5%, for the nine months ended September 30, 2022 and October 1, 2021,~~ respectively. The Company’s effective tax rates differ from the U.S. federal statutory rate of ~~21%~~21% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and April 1, 2022, ~~and October 1, 2021,~~ respectively, primarily due to the income taxes generated in foreign jurisdictions. ~~The differences in the effective tax rate for the three and nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to jurisdictions in which the income is earned.~~

STAAR SURGICAL COMPANY

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

Note 10 – Defined Benefit Pension Plans

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


	Three Months Ended
	March 31, 2023			April 1, 2022
Service cost(1)	$	249		$	326
Interest cost(2)		87			20
Expected return on plan assets(2)		(87	)		(118	)
Prior service credit(2),(3)		(45	)		(45	)
Actuarial loss recognized in current period(2),(3)		(7	)		97
Net periodic pension cost	$	197		$	280

Three Months Ended

Nine Months Ended

September 30, 2022

October 1, 2021

September 30, 2022

October 1, 2021

Service cost⁽¹⁾

$
306

$
326

$
941

$
1,003

Interest cost⁽²⁾

22

14

63

42

Expected return on plan assets⁽²⁾

(125
)

(99
)

(366
)

(299
)
Prior service credit⁽^2),(3)

(44
)

(10
)

(135
)

(32
)
Actuarial loss recognized in current period⁽^2),(3)

98

131

274

393

Net periodic pension cost

$
257

$
362

$
777

$
1,107

(1)

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

(2)

Recognized in other expense, net on the Condensed Consolidated Statements of Income.

(3)

Amounts reclassified from accumulated other comprehensive income (loss).

⁽¹⁾

~~Recognized in selling general and administrative expenses on the Condensed Consolidated Statements of Income.~~

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

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

~~STAAR SURGICAL COMPANY~~

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

~~Note 10 – Defined Benefit Pension Plans (Continued)~~

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


	Three Months Ended
	March 31, 2023		April 1, 2022
Employer contribution	$	217	$	216

Three Months Ended

Nine Months Ended

September 30, 2022

October 1, 2021

September 30, 2022

October 1, 2021

Employer contribution

$
230

$
204

$
666

$
601

Note 11 — Stockholders’ Equity

Stock-Based Compensation

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021		March 31, 2023		April 1, 2022
Employee stock options	$	2,865	$	2,594	$	7,649	$	7,850	$	2,977	$	2,327
Restricted stock		67		109		618		507		67		109
Restricted stock units		1,249		700		3,242		2,048		1,601		762
Performance stock units		1,240		124		2,932		325		1,106		382
Nonemployee stock options		306		136		934		255		314		314
Total stock-based compensation expense	$	5,727	$	3,663	$	15,375	$	10,985	$	6,065	$	3,894

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021		March 31, 2023		April 1, 2022
Cost of sales	$	233	$	61	$	409	$	150	$	149	$	70
General and administrative		2,584		1,671		7,171		4,925		3,363		1,781
Selling and marketing		1,335		851		3,548		2,637		857		889
Research and development		1,575		1,080		4,247		3,273		1,696		1,154
Total stock-based compensation expense, net		5,727		3,663		15,375		10,985		6,065		3,894
Amounts capitalized as part of inventory		361		383		1,379		1,082		369		366
Total stock-based compensation expense, gross	$	6,088	$	4,046	$	16,754	$	12,067	$	6,434	$	4,260

STAAR SURGICAL COMPANY

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

Note 11 — Stockholders’ Equity (Continued)

Incentive Plan

The Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, restricted stock units (“RSUs”) and performance stock units (“PSUs”). Options under the Plan are granted at fair market value on the date of grant, become exercisable generally over a three-year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control and pre-established financial metrics are met (as defined in the Plan). Grants of restricted stock outstanding under the Plan generally vest over periods of one to three ~~years.~~years. Grants of RSUs and PSUs outstanding under the Plan generally vest based on service, performance, or a combination of both. As of ~~September 30, 2022,~~March 31, 2023, there were ~~2,133,765~~856,885 shares available for grant under the Plan.

~~STAAR SURGICAL COMPANY~~

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

~~Note 11~~ ~~— Stockholders’ Equity (Continued)~~

Assumptions

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-vesting cancellations and represents the period of time that options granted are expected to be outstanding. The Company has calculated a 5%7% estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S. Treasury yield curve corresponding to the expected term at the time of the grant.


	Three Months Ended
	March 31, 2023			April 1, 2022
Expected dividend yield		0	%		0	%
Expected volatility		60	%		54	%
Risk-free interest rate		3.96	%		1.71	%
Expected term (in years)		5.05			5.10

Three Months Ended

Nine Months Ended

September 30, 2022

October 1, 2021

September 30, 2022

October 1, 2021

Expected dividend yield

0
%

0
%

0
%

0
%
Expected volatility

54
%

53
%

54
%

53
%
Risk-free interest rate

2.91
%

0.79
%

1.88
%

0.84
%
Expected term (in years)

5.10

5.38

5.10

5.38

Stock Options

A summary of stock option activity under the Plan for ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 is presented below:

	Stock Options (in 000’s)			Minimum Exercise Price		Maximum Exercise Price
Outstanding at December 31, 2021		2,435
								Stock Options (in 000’s)			Minimum Exercise Price		Maximum Exercise Price
Outstanding at December 30, 2022									2,469
Granted		443							496
Exercised		(417	)						(40	)
Forfeited or expired		(23	)						(24	)
Outstanding at September 30, 2022		2,438		$	5.34	$	154.96
Exercisable at September 30, 2022		1,778
Outstanding at March 31, 2023									2,901		$	5.54	$	154.96
Exercisable at March 31, 2023									1,980

Restricted Stock, Restricted Stock Units and Performance Stock Units

A summary of restricted stock, RSUs and PSUs activity under the Plan for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 is presented below (shares in thousands):

	Restricted Stock			RSUs			PSUs
Unvested at December 31, 2021		3			131			10
										Restricted Stock		RSUs			PSUs
Unvested at December 30, 2022											4		192			118
Granted		6			116			113			—		223			173
Vested		(5	)		(57	)		(5	)		—		(80	)		(30	)
Unvested at September 30, 2022		4			190			118
Forfeited or expired											—		(6	)		(11	)
Unvested at March 31, 2023											4		329			250

Note 12 - Commitments and Contingencies

Severance Payable

As of March 31, 2023 and December 30, 2022 there was severance payable of $1,595,000 and $410,000, respectively. recognized in other current liabilities on the Consolidated Balance Sheets, which included approximately $1,490,000 and $300,000, respectively, in one-time employee benefits to be paid to certain employees in STAAR Japan who work primarily in IOL sales. During the three months ended March 31, 2023, the Company recognized $1,242,000 related to this. The Company is expected to incur through the end of 2023, one-time employee benefits of approximately $1,475,000 related to this. These one-time employee benefits are recognized in general and administrative expense on the Consolidated Statements of Income.

Litigation and Claims

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

Employment Agreements

The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective ~~March~~January 1, ~~2015. She~~2023. He and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all its assets, or termination “without cause or for good reason” as defined in the employment agreements.

Note 13 — Basic and Diluted Net Income Per Share

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


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2022			October 1, 2021			September 30, 2022			October 1, 2021			March 31, 2023			April 1, 2022
Numerator:
Net income	$	10,262		$	6,020		$	32,902		$	19,579		$	2,710		$	9,602
Denominator:
Weighted average common shares:
Common shares outstanding		48,106			47,486			47,919			47,067			48,251			47,758
Less: Unvested restricted stock		(4	)		(3	)		(4	)		(3	)		(4	)		(3	)
Denominator for basic calculation		48,102			47,483			47,915			47,064			48,247			47,755
Weighted average effects of potentially diluted common stock:
Stock options		1,336			2,013			1,378			2,277			1,116			1,470
Unvested restricted stock		2			—			2			6			3			1
RSUs		64			86			55			90			81			55
PSUs		45			10			21			11			53			7
Denominator for diluted calculation		49,549			49,592			49,371			49,448			49,500			49,288
Net income per share:
Basic	$	0.21		$	0.13		$	0.69		$	0.42		$	0.06		$	0.20
Diluted	$	0.21		$	0.12		$	0.67		$	0.40		$	0.05		$	0.19

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

Three Months Ended

Nine Months Ended

September 30, 2022

October 1, 2021

September 30, 2022

October 1, 2021

Stock options

864

33

865

201

Restricted stock, RSUs and PSUs

2

6

20

3

Total

866

39

885

204

1513

STAAR SURGICAL COMPANY

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

Note 13 — Basic and Diluted Net Income Per Share (Continued)


	Three Months Ended
	March 31, 2023		April 1, 2022
Stock options		1,392		613
Restricted stock, RSUs and PSUs		15		24
Total		1,407		637

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

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021		March 31, 2023		April 1, 2022
Non-consignment sales	$	71,223	$	53,819	$	205,236	$	156,604	$	67,163	$	57,569
Consignment sales		4,823		4,533		15,111		14,867		6,365		5,631
Total net sales	$	76,046	$	58,352	$	220,347	$	171,471	$	73,528	$	63,200

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%~~10% of worldwide consolidated net sales. Sales are attributed to countries based on location of customers.The composition of the Company’s net sales to unaffiliated customers was as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2022

October 1, 2021

September 30, 2022

October 1, 2021

Domestic

$
3,873

$
2,385

$
10,375

$
7,429

Foreign:

China

42,246

28,411

116,635

80,984

Japan

10,546

10,488

32,481

29,374

Other⁽¹⁾

19,381

17,068

60,856

53,684

Total foreign sales

72,173

55,967

209,972

164,042

Total net sales

$
76,046

$
58,352

$
220,347

$
171,471


	Three Months Ended
	March 31, 2023		April 1, 2022
Domestic	$	4,551	$	2,630
Foreign:
China		35,090		28,239
Japan		10,936		11,633
Other(1)		22,951		20,698
Total foreign sales		68,977		60,570
Total net sales	$	73,528	$	63,200

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

(1)

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

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


	Three Months Ended
	March 31, 2023		April 1, 2022
ICLs	$	70,625	$	58,675
Other product sales:
Cataract IOLs		1,476		2,902
Other surgical products(1)		1,427		1,623
Total other product sales		2,903		4,525
Total net sales	$	73,528	$	63,200

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

Three Months Ended

Nine Months Ended

September 30, 2022

October 1, 2021

September 30, 2022

October 1, 2021

ICLs

$
71,953

$
54,153

$
208,550

$
159,889

Other product sales:

Cataract IOLs

2,191

2,525

7,640

9,324

Other surgical products

1,902

1,674

4,157

2,258

Total other product sales

4,093

4,199

11,797

11,582

Total net sales

$
76,046

$
58,352

$
220,347

$
171,471

One customer, the Company’s distributor in China, accounted for ~~56%~~48% and ~~49%~~45% of net sales for the three months ended ~~September 30,~~March 31, 2023 and April 1, 2022, ~~and October 1, 2021, respectively, and the same customer accounted for 53% and 47% for the nine months ended September 30, 2022 and October 1, 2021,~~ respectively. As of ~~September~~March 31, 2023 and December 30, 2022, ~~and December 31, 2021,~~ respectively, one customer, the Company’s distributor in China, accounted for ~~57%~~55% and ~~47%~~59% of consolidated trade receivables.

Note 15 — COVID-19 Developments

In December 2019, COVID-19 surfaced and in March 2020, the World Health Organization declared a pandemic related to the rapid spread of COVID-19 around the world. The impact of the COVID-19 outbreak on the businesses and the economy in the U.S. and the rest of the world is, and is expected to continue to be, uncertain and may continue to be significant as COVID-19 variant strains emerge. The Company’s revenues have been adversely impacted, and the Company experienced a substantial slowdown in sales beginning March 20, 2020 in global geographies characterized as “hot spots” for the COVID-19 virus, including parts of Europe, North America, Asia, the Middle East and India. In certain of these markets, sales have paused as elective surgeries are discouraged to support COVID-19 related needs. While COVID-19 restrictions have since eased globally during 2022, a resurgence of the COVID-19 pandemic in global geographies, depending upon its duration and severity, could material adversely impact the global economy and the Company's industry, operations and financial condition and performance. The Company continues to monitor the commercial and operational impact of new variants of ~~COVID-19.~~ COVID-19 in its markets.

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

The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can recognize forward-looking statements by the use of words like “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “should,” “forecast” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements about any of the following: any projections of or guidance as to earnings, revenue, sales, profit margins, expense rate, cash, effective tax rate, product mix, capital expense or any other financial items; the expected impact of the COVID-19 pandemic and related public health measures (including but not limited to their impact on sales, operations or clinical trials globally), the plans, strategies, and objectives of management for future operations or prospects for achieving such plans; statements regarding new, existing, or improved products, including but not limited to, expectations for success of new, existing, and improved products in the U.S. or international markets or government approval of a new or improved products; commercialization of new or improved products; future economic conditions or size of market opportunities; expected costs of operations; statements of belief, including as to achieving ~~2022 and~~ 2023 business plans; expected regulatory activities and approvals, product launches, and any statements of assumptions underlying any of the foregoing.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and we can give no assurance that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described in in our Annual Report on Form 10-K in “Item 1A. Risk Factors” filed on February 23, ~~2022.~~2023. We undertake no obligation to update these forward-looking statements after the date of this report to reflect future events or circumstances or to reflect actual outcomes.

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

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 eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction. We position our cataract IOL lenses used in surgery that treats cataracts based on quality and value.

STAAR achieved ~~30% net sales~~20% growth in both ICL units and sales in the ~~third~~first quarter, ~~despite constant currency challenges and, in Europe, macroeconomic headwinds. In~~compared to the ~~third~~first quarter ~~global ICL unit growth was up 40% year over year, highlighted by~~of 2022, with unit growth in ~~China~~APAC up ~~52%~~19%, EMEA up 18%, and the U.S. up ~~63%, Japan up 40%, South Korea up 49% and Asia Pacific distributor markets up 47%~~78%. ~~We advanced our patient awareness, engagement and market building initiatives for EVO~~In China, ICL procedure volumes increased strongly in the ~~U.S. during and subsequent to the third~~first quarter ~~and introduced our presbyopia lens, EVO Viva™, to surgeons at our Experts Meeting preceding the annual congress~~ of ~~the European Society of Cataract and Refractive Surgeons. In China, we expect to exceed~~2023 with end-market procedures reaching a ~~25% share of refractive surgery market units by year end.~~record level. Due to ~~tighter COVID restrictions~~our growth investments and the increase in ~~China resulting in expected delayed demand in the fourth quarter, ongoing headwinds in Europe, weakness in the Yen and Euro, and lower Other Products sales,~~stock-based compensation we now anticipate ~~total net sales~~operating margin for fiscal year 2023 will be approximately ~~$285 million~~10%, at the middle of the range of our 5-year average. We anticipate accelerating sales momentum as we move through the year. We are therefore raising our outlook for fiscal ~~2022. Our fiscal 2022 outlook~~2023 net sales from $340 million to approximately $348 million, which includes ~~ICL sales of~~ approximately ~~$272~~$3 million ~~representing 28% year over year growth, and Other Products sales of approximately $13 million.”~~

Our low margin Other Products business, which represents approximately 5% of sales and consists of cataract IOLs, IOL injectors and injector parts, has faced increasing supply chain challenges. As a result of third-party materials and supply chain

~~challenges that only affect our Other Products business, we will no longer be able to support Other Products as we have historically. We will continue to support customers~~ of Other ~~Products through~~Product sales in the ~~end of 2023. As we look to fiscal 2023, we expect to achieve approximately 30%~~first quarter. Our updated outlook represents 28% global ICL sales growth year over ~~year, to approximately $355 million in total company net sales which contemplates limited sales from Other Products. We do not expect contribution from~~year.

Regarding our Other Products ~~thereafter. We continue~~business, in March we issued a Field Safety Notice to ~~see significant growth potential for~~affected customers in Japan, France, Germany, Poland, and Italy to stop using our KS-SP preloaded acrylic IOL product manufactured by STAAR Japan, used in cataract procedures (unrelated to the EVO ~~family of lenses globally.~~ICL). This was done as a precautionary measure in response to a Field Safety Notice issued by another company regarding a similarly manufactured product. Our communication asked customers to stop using

the KS-SP product until we determine the specific root cause, and is not considered a product recall. STAAR will update customers after completing its investigation. As of March 31, 2023, we had approximately $1.2 million of KS-SP inventory.

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

Management believes that there have been no significant changes during the ~~nine~~three months ended ~~September 30, 2022~~ March 31, 2023 to the items that we disclosed as our critical accounting estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2021.~~30, 2022.

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


	Percentage of Net Sales for Three Months						Percentage of Net Sales for Nine Months						Percentage of Net Sales for Three Months
	September 30, 2022			October 1, 2021			September 30, 2022			October 1, 2021			March 31, 2023			April 1, 2022
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		20.5	%		22.4	%		21.2	%		22.1	%		21.7	%		22.1	%
Gross profit		79.5	%		77.6	%		78.8	%		77.9	%		78.3	%		77.9	%
General and administrative		18.4	%		18.9	%		18.1	%		19.0	%		24.7	%		18.9	%
Selling and marketing		30.4	%		31.1	%		29.3	%		29.3	%		35.8	%		27.3	%
Research and development		12.7	%		14.2	%		12.0	%		14.5	%		14.0	%		12.6	%
Total selling, general and administrative		61.5	%		64.2	%		59.4	%		62.8	%		74.5	%		58.8	%
Operating income		18.0	%		13.4	%		19.4	%		15.1	%		3.8	%		19.1	%
Total other expense, net		(1.5	)%		(0.8	)%		(1.5	)%		(0.9	)%
Total other income (expense), net														2.6	%		(0.9	)%
Income before income taxes		16.5	%		12.6	%		17.9	%		14.2	%		6.4	%		18.2	%
Provision for income taxes		3.0	%		2.3	%		3.0	%		2.8	%		2.7	%		3.0	%
Net income		13.5	%		10.3	%		14.9	%		11.4	%		3.7	%		15.2	%

Net sales for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~30%~~16% from the same period of ~~2021.~~2022. The increase in net sales was primarily due to increased ICL sales of ~~$17.8~~$12.0 million. Changes in foreign currency unfavorably impacted net sales by ~~$4.0~~$2.0 million.

Net sales for the nine months ended September 30, 2022 increased 29% from same period of 2021. The increase in net sales was due to increased ICL sales of $48.7 million. Changes in foreign currency unfavorably impacted net sales by $9.0 million.17

Total ICL sales for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~33%~~20% from the same period of ~~2021,~~2022, with unit increase of ~~40%~~20%. The APAC region sales increased by ~~40%~~20%, with unit growth up ~~47%~~19%, due to sales growth in ~~Korea up 50%, China up 49%,~~ other APAC regions up ~~49%~~34%, China up 25%, Korea up 19% and Japan up ~~12%~~6%. The Europe, Middle East, Africa and Latin America region sales ~~decreased 9%~~increased 10% with unit ~~decrease~~increase of 2%18%, due to sales ~~decreases~~growth in in our distributor markets up 16% and direct markets ~~down 12% and distributor markets down 4%~~up 6%. The North America region sales increased ~~66%~~56%, with unit growth up ~~56%~~60%, primarily due to sales growth in the U.S. up ~~75%~~71%. In late March 2022, the U.S. started to sell EVO ICLs. Changes in foreign currency unfavorably impacted ICL sales by ~~$3.2~~$1.7 million for the three months ended ~~September 30, 2022,~~March 31, 2023, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented ~~94.6%~~96.1% and 92.8% of our total sales for the three months ended ~~September 30,~~March 31, 2023 and April 1, 2022, respectively.

Other product sales, includes cataract IOLs, delivery systems and ~~October 1, 2021, respectively.~~

~~Total ICL~~normal recurring sales adjustments such as sales return allowances. As a result of third-party materials and supply chain challenges that affect our cataract IOLs and associated delivery devices, we will no longer manufacture cataract IOLs, though we will continue to support these products through the end of 2023, as supplies permit. We do not expect this decision to have a significant impact to revenue growth in future years. Other product sales for the ~~nine~~three months ended ~~September 30, 2022 increased 30%~~March 31, 2023, decreased 36% from the same period of ~~2021, with unit increase of 38%. The APAC region sales increased by 38%, with unit growth up 43%,~~2022, due to ~~sales growth in other APAC regions up 59%, India up 44%,~~China up 44%, Korea up 25% and Japan up 16%. The Europe, Middle East, Africa and Latin America region sales decreased 1% with unit growth up 12%, due to sales decreases in our direct markets down 8%, offset by sales growth in distributor markets up 8%. The North America region sales increased 43%, with unit growth up 35%, primarily due to sales growth in the U.S. up 47%. In late March 2022, the U.S. started to sell EVO ICLs. Changes in foreign currency unfavorably impacted ICL sales by $7.2 million for the nine months ended September 30, 2022, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented 94.6% and 93.2% of our total sales for the nine months ended September 30, 2022 and October 1, 2021, respectively.

~~Other product sales, including cataract IOLs for the three months ended September 30, 2022, decreased 3% from the same period of 2021, due~~ to decreased sales of cataract IOLs, partially offset by other surgical products. Other product sales for the nine months ended September 30, 2022, increased 2% due to other surgical products, offset by decreased sales of cataract IOLs. Included in other product sales are sales of preloaded injector parts. In the first half of 2021, we experienced product yield issues requiring rework related to preloaded injector parts manufactured on our behalf by a third-party vendor then sold by us to a third-party manufacturer for product they sell to their customers. Changes in foreign currency unfavorably impacted other product sales by ~~$0.8 million and $1.8~~$0.3 million for the three ~~and nine~~ months ~~September 30, 2022, respectively.~~ ended March 31, 2023. Other product sales represented ~~5.4%~~3.9% and 7.2% of our total sales for the three months ended ~~September 30,~~March 31, 2023 and April 1, 2022, ~~and October 1, 2021, respectively, and~~ respectively.~~represented~~

~~5.4% and 6.8% of our total sales for the nine months ended September 30, 2022 and October 1, 2021, respectively.~~

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

Gross profit for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~33.5%~~16.8% from the same period of ~~2021.~~2022. Gross profit margin increased to ~~79.5%~~78.3% of revenue for the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~77.6%~~77.9% of revenue for the three months ended ~~October~~April 1, ~~2021,~~2022, due mainly to product and geographic sales mix, partially offset by increased period costs associated with manufacturing ~~projects~~.

Gross profit for the nine months ended September 30, 2022 increased 29.9% from the same period of 2021. Gross profit margin increased to 78.8% of revenue for the nine months ended September 30, 2022 compared to 77.9% of revenue for the nine months ended October 1, 2021, due mainly to product and geographic sales mix, partially offset by inventory reserves recognized as a result of discontinuance of our older generation Visian ICL in the U.S. and increased period costs associated with manufacturing projects.

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

General and administrative expenses for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~27.2%~~51.6% from the same period of ~~2021~~2022 due to increased bonus and stock-based compensation expenses, ~~facility costs~~Japan one-time employee benefits, outside services, salary-related and outside services. General and administrative expenses for the nine months ended September 30, 2022 increased 22.2% from the same period of 2021 due to increased facility costs, stock-based compensationpayroll tax expenses and ~~outside services.~~facility costs.

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

Selling and marketing expenses for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~27.3%~~52.6% from the same period of 2021 due to increased trade shows and sales meetings, advertising and promotional activities, travel expenses and stock-based compensation expenses. Selling and marketing expenses for the nine months ended September 30, 2022 ~~increased 28.7% from the same period of 2021~~ due to increased advertising and promotional activities, especially in the U.S., sales commission expenses and trade shows and sales meetings ~~travel expenses and stock-based compensation~~ expenses.

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

Research and development expenses for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~16.3%~~29.8% from the same period of ~~2021 due mainly to increased salary-related and payroll tax expenses. Research and development expenses for the nine months ended September 30,~~ 2022 ~~increased 5.7% from the same period of 2021~~ due mainly to increased salary-related and payroll tax expenses and ~~stock-based compensation expenses, partially offset by decreased~~ clinical expenses associated with our U.S. post-approval clinical trials.

The change in other ~~expense,~~income (expense), net for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and April 1, 2022, ~~and October 1, 2021,~~ respectively, was due ~~primarily~~ to ~~foreign exchange losses (primarily euro), and for the three and nine months ended September 30, 2022, partially offset by~~ increased interest income mainly due to our investments held available for ~~sale.~~ sale and foreign exchange gains (primarily euro), for the three months ended March 31, 2023 compared to foreign exchange losses for three months ended April 1, 2022.

The effective tax rates for the three months ended ~~September 30,~~March 31, 2023 and April 1, 2022 were 42.6% and ~~October 1, 2021 was 18.4% and 18.4%~~16.7%, ~~respectively, and was 16.9% and 19.5%, for the nine months ended September 30, 2022 and October 1, 2021,~~ respectively. Our effective tax rates differ from the U.S. federal statutory rate of 21% ~~for the three and nine months ended September 30, 2022 and October 1, 2021, respectively,~~, primarily due to the income taxes generated in foreign jurisdictions. ~~The differences in the effective tax rate for the three and nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to jurisdictions in which the income is earned.~~

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

We believe that current cash and cash equivalents, investments available for sale (“AFS”) and future cash flow from operating activities will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the financial statements included in this quarterly report. Our financial condition at ~~September 30, 2022~~March 31, 2023 and December 31, 2021 included the following (in thousands):

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

A summary of cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and April 1, 2022 ~~and October 1, 2021~~ was as follows (in thousands):

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023 net cash used by operating activities consisted of ~~$32.9~~$14.3 million in ~~net income, $20.6~~working-capital changes partially offset by $6.5 million in non-cash items ~~offset by $20.8 million~~and net income of $2.7 million.

In the ~~three months ended September 30,~~second half of 2022, we decided to invest our cash in slightly higher yielding securities. For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, net cash ~~used in~~provided by investment activities was ~~$109.7~~$10.0 million which consisted of ~~$95.6~~$40.3 million of proceeds from the sale or maturity of investments AFS, partially offset by $27.4 million in purchases of investments ~~available for sale~~AFS and ~~$14.1~~$2.9 million in purchases of property, plant and equipment. ~~The increase~~For the three months ended April 1, 2022, net cash used in ~~investments~~investment activity consisted of $2.5 million in purchases of property, plant and ~~equipment of $5.1 million for the nine months ended September 30, 2022 relative to the same period of 2021, was due to increased investments in manufacturing facilities.~~ equipment.

Net cash ~~provided by~~used in financing activities for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was $1.4 million which consisted of ~~$8.2~~$1.8 million to repurchase of employee common stock for taxes withheld, partially offset by $0.5 million of proceeds from the exercise of stock options. For the ~~nine~~three months ended ~~October~~April 1, ~~2021~~,2022, net cash provided by financing activities consisted of ~~$18.3~~$0.9 million of proceeds from the exercise of stock ~~options, partially offset by $0.3 million repayment of finance lease obligations.~~options.

The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective ~~March~~January 1, ~~2015. She~~2023. He and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all of its assets, or termination “without cause or for good reason” as defined in the employment agreements.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, there have been no material changes in the Company’s qualitative and quantitative market risk since the disclosure in the Company’s Annual Report on Form 10-K for the year ended December ~~31, 2021.~~30, 2022.

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 30, 2022~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 ~~31, 2021.~~30, 2022. Such risks and uncertainties could materially adversely affect our business, financial condition or operating results.


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


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


		PAGE NUMBER

PART I – FINANCIAL INFORMATION		1

ITEM 1	FINANCIAL STATEMENTS	1

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1816

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2421

ITEM 4.	CONTROLS AND PROCEDURES	2421

PART II – OTHER INFORMATION		2421

ITEM 1.	LEGAL PROCEEDINGS	2421

ITEM 1A.	RISK FACTORS	2521

ITEM 4.	MINE SAFETY DISCLOSURES	2522

ITEM 5.	OTHER INFORMATION	2522

ITEM 6.	EXHIBITS	2522


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021		March 31, 2023		April 1, 2022
Operating lease cost	$	1,167	$	931	$	3,471	$	2,571	$	1,107	$	1,138
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows		1,103		846		3,069		2,432		1,173		932
Right-of-use assets obtained in exchange for new operating lease liabilities		126		15,212		1,166		19,219		1,909		675


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

	As of September 30, 2022
	Within one year		After one year through five years		Total
Commercial paper	$	35,019	$	—	$	35,019
Certificates of deposit		14,339		—		14,339
U.S. Treasury and agency securities		4,187		—		4,187
Corporate debt securities		28,246		13,360		41,606
Accrued interest receivable		300		—		300
Total investments AFS	$	82,091	$	13,360	$	95,451


	Three Months Ended				Percentage Change			Nine Months Ended				Percentage Change			Three Months Ended				Percentage Change
	September 30, 2022		October 1, 2021		2022 vs. 2021			September 30, 2022		October 1, 2021		2022 vs. 2021			March 31, 2023		April 1, 2022		2023 vs. 2022
ICLs	$	71,953	$	54,153		32.9	%	$	208,550	$	159,889		30.4	%	$	70,625	$	58,675		20.4	%
Other product sales:
Cataract IOLs		2,191		2,525		(13.2	)%		7,640		9,324		(18.1	)%		1,476		2,902		(49.1	)%
Other surgical products		1,902		1,674		13.6	%		4,157		2,258		84.1	%		1,427		1,623		(12.1	)%
Total other product sales		4,093		4,199		(2.5	)%		11,797		11,582		1.9	%		2,903		4,525		(35.8	)%
Net sales	$	76,046	$	58,352		30.3	%	$	220,347	$	171,471		28.5	%	$	73,528	$	63,200		16.3	%


	March 31, 2023		December 30, 2022		2023 vs. 2022
Cash and cash equivalents	$	89,968	$	86,480	$	3,488
Investments available for sale		127,324		139,061		(11,737	)
Total	$	217,292	$	225,541	$	(8,249	)

Current assets	$	312,871	$	311,723	$	1,148
Current liabilities		47,063		51,716		(4,653	)
Working capital	$	265,808	$	260,007	$	5,801