STAAR SURGICAL CO 10-K

ITEM 9A. Controls and Procedures Attached as exhibits to this Annual Report on Form 10-K are certifications of STAAR’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the Exchange Act). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications. The report of BDO USA, P.C., our independent registered public accounting firm, regarding its audit of STAAR’s internal control over financial reporting follows below. This section should be read in conjunction with the certifications and the BDO USA, P.C. report for a more complete understanding of the topics presented. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the timelines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of the end of the period covered by this Annual 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 our Form 10-K for the fiscal year ended December 29, 2023, that our disclosure controls and procedures were effective. Changes in Internal Control over Financial Reporting There was no change during the fiscal quarter ended December 29, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control over Financial Reporting The Company’s management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Company. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changing conditions, effectiveness of internal control over financial reporting may vary over time. The Company’s processes contain self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 29, 2023, based on the criteria for effective internal control described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 29, 2023. 42 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors STAAR Surgical Company Lake Forest, California Opinion on Internal Control over Financial Reporting We have audited STAAR Surgical Company’s (the “Company’s”) internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2023, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 29, 2023 and December 30, 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 29, 2023, and the related notes and financial statement schedule and our report dated February 27, 2024 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, P.C. Los Angeles, California February 27, 2024 43 ITEM 9B. Othe r Information (c) Trading Plans During the quarter ended December 29, 2023 , no director or officer adopted or terminated : (i) Any contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b51-1(c); and (ii) Any “non-Rule 10b5-1 trading arrangement” as defined in paragraph (c) of item 408(a) of Regulation S-K. ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. PART III Certain information required by Part III is omitted from this Annual Report because the Company will file a definitive proxy statement within 120 days after the close of its fiscal year ended December 29, 2023, pursuant to Regulation 14A (the Proxy Statement) for its 2024 annual meeting of stockholders, and certain information included in the Proxy Statement is incorporated herein by reference. ITEM 10. Directors, Executive Of ficers and Corporate Governance We have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers, and employees. The Code of Business Conduct and Ethics is posted in the Investors section of our website, www.staar.com, under the Investor Resources & FAQs tab, as a Corporate Governance Document. We intend to disclose future amendments to, or waivers from, provisions of our Code of Business Conduct and Ethics that apply to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, or Controller, or persons performing similar functions, within four business days of such amendment or waiver. The other information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. ITEM 11. Executi ve Compensation The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. ITEM 12. Security Ownership of Certain Beneficial Ow ners and Management and Related Stockholder Matters The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. ITEM 13. Certain Relationships and Relate d Transactions, and Director Independence The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. ITEM 14. Principal Accou nting Fees and Services The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. 44 PAR T IV ITEM 15. Exhibits and Financ ial Statement Schedules We have filed the following documents as part of this Annual Report on Form 10-K: Page (1) Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets F- 4 Consolidated Statements of Income F- 5 Consolidated Statements of Comprehensive Income F- 6 Consolidated Statements of Stockholders’ Equity F- 7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F- 9 (2) Schedules required by Regulation S-X are filed as an exhibit to this report II. Schedule II — Valuation and Qualifying Accounts and Reserves F- 39 All other schedules have been omitted because they are not required, not applicable, or the required information is otherwise included. (3) Index to Exhibits Exhibit Number Description 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Appendix 2 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 26, 2018). 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the Commission on February 1, 2023). 4.1 Form of Certificate for Common Stock, par value $0.01 per share (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form 8 A/A as filed with the Commission on April 18, 2003). 4.2 Description of the Registrant’s Securities (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K, for the year ended January 3, 2020, as filed with the Commission on February 26, 2020). 10.1 # Form of Indemnity Agreement between the Company and certain officers and directors (incorporated by reference to Exhibit 10.38 to the Company’s Quarterly Report on Form 10-Q, for the period ended June 29, 2018, as filed with the Commission on August 1, 2018). 10.2 # Form of Severance Agreement between the Company and certain executives (incorporated by reference to Exhibit 10.31 to the Company’s Quarterly Report on Form 10-Q, for the period ended March 31, 2023, as filed with the Commission on May 3, 2023). 10.3 #* Form of Executive Change in Control Agreement between the Company and certain officers 10.4 # Letter of the Company dated March 27, 2012 to Samuel Gesten, Vice President and General Counsel, regarding compensation (incorporated by reference to Exhibit 10.91 to the Company’s Annual Report on Form 10-K, for the year ended December 28, 2012, as filed with the Commission on March 12, 2013). 10.5 # Letter of the Company dated July 27, 2015 to Keith Holliday, Vice President, Research and Development, regarding compensation (incorporated by reference to Exhibit 10.38 to the Company’s 45 Quarterly Report on Form 10-Q, for the period ended October 2, 2015, as filed with the Commission on November 4, 2015). 10.6 # Letter of the Company dated August 10, 2012 to James Francese, Vice President, Global Marketing, regarding compensation (incorporated by reference to Exhibit 10.92 to the Company’s Annual Report on Form 10-K, for the year ended December 28, 2012, as filed with the Commission on March 12, 2013). 10.7 # Letter of the Company dated September 11, 2017 to Scott Barnes, Chief Medical Officer, regarding compensation (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K, for the year ended January 3, 2020, as filed with the Commission on February 26, 2020). 10.8 # Letter of the Company dated June 30, 2020 to Patrick Williams, Chief Financial Officer, regarding compensation (incorporated by reference to Exhibit 10.38 to the Company’s Quarterly Report on Form 10-Q, for the period ended July 3, 2020, as filed with the Commission on August 5, 2020). 10.9 # Consulting Agreement made as of January 1, 2023 by and between the Company and Caren Mason (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the Commission on December 19, 2022). 10.10 # Employment Agreement effective January 1, 2023 by and between the Company and Thomas G. Frinzi, Chief Executive Officer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the Commission on December 19, 2022). 10.11 # Letter of the Company dated March 24, 2023 to Magda Michna, Chief Clinical, Regulatory and Medical Affairs Officer, regarding compensation (incorporated by reference to Exhibit 10.30 to the Company’s Quarterly Report on Form 10-Q, for the period ended March 31, 2023, as filed with the Commission on May 3, 2023). 10.12 # Letter of the Company dated March 24, 2023 to Warren Foust, Chief Operating Officer, regarding compensation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the Commission on March 29, 2023). 10.13 #* Letter of the Company, dated October 24, 2023 to Nathaniel Sisitsky, General Counsel, regarding compensation 10.14 Basic Agreement on Unsterilized Intraocular Lens Sales Transactions between Canon Staar Co., Inc. and Nidek Co., Ltd., dated May 23, 2005 (incorporated by reference to Exhibit 10.82 to the Company’s Annual Report on Form 10-K, for the year ended January 1, 2010 as filed with the Commission on April 1, 2010). 10.15 Basic Agreement on Injector Product Sales Transactions between Canon Staar Co., Inc. and Nidek Co., Ltd., dated May 23, 2005 (incorporated by reference to Exhibit 10.83 to the Company’s Annual Report on Form 10-K, for the year ended January 1, 2010 as filed with the Commission on April 1, 2010). 10.16 Memorandum of Understanding Concerning Basic Agreements for Purchase and Sale between STAAR Japan Inc. and Nidek Co., Ltd., dated December 25, 2008 (incorporated by reference to Exhibit 10.84 to the Company’s Annual Report on Form 10-K, for the year ended January 1, 2010 as filed with the Commission on April 1, 2010). 10.17 Acrylic Preset Supply Warranty Agreement between STAAR Japan Inc. and Nidek Co., Ltd., dated December 25, 2008 (incorporated by reference to Exhibit 10.85 to the Company’s Annual Report on Form 10-K, for the year ended January 1, 2010 as filed with the Commission on April 1, 2010). 10.18 Form of Distributorship Agreement (incorporated by reference to Exhibit 10.37 to the Company’s Quarterly Report on Form 10-Q, for the period ended June 29, 2018, as filed with the Commission on August 1, 2018). 10.19 Standard Industrial/Commercial Multi-Tenant Lease-Gross dated April 5, 2000 entered into between the Company and Kilroy Realty, L.P. (incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K, for the year ended December 29, 2000, as filed with the Commission on March 29, 2001). 46 10.20 * Tenth Amendment of Lease dated May 13, 2022, by and between the Company and Oxford Spectrum Wilson LLC 10.21 Tenancy Agreement dated June 13, 2019 between Einfache Gesellschaft Calderari & Schwab. and STAAR Surgical AG (incorporated by reference to Exhibit 10.37 to the Company’s Quarterly Report on Form 10-Q, for the period ended June 28, 2019, as filed with the Commission on July 31, 2019). 10.22 Lease Agreement entered into on September 14, 2020 between Calderari & Schwab and STAAR Surgical AG (incorporated by reference to Exhibit 10.39 to the Company’s Current Report on Form 8-K as filed with the Commission on September 14, 2020). 10.23 Lease Agreement dated August 10, 2017 by and between the Company and 2000 Gold L.P. (incorporated by reference to Exhibit 10.46 to the Company’s Quarterly Report on Form 10-Q, for the period ended September 29, 2017, as filed with the Commission on November 8, 2017). 10.24 * First Amendment to Lease Agreement dated March 23, 2023 between the Company and 2000 Gold L.P. 10.25 Lease Agreement commencing dated March 19, 2018 between the Company and Bukewihge Properties, LLC (incorporated by reference to Exhibit 10.36 to the Company’s Quarterly Report on Form 10-Q, for the period ended March 30, 2018, as filed with the Commission on May 2, 2018). 10.26 First Amendment to Lease Agreement dated August 11, 2022 between the Company and Bukewihge Properties, LLC (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K, for the year ended December 30, 2022, as filed with the Commission on February 23, 2023). 10.27 * Second Amendment to Lease Agreement dated November 15, 2023 between the Company and Bukewihge Properties, LLC 10.28 # Amended and Restated Omnibus Equity Incentive Plan (incorporated by reference to Appendix 1 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 26, 2023). 10.29 # Form of Option Grant and Stock Option Agreement for employees (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K, for the year ended December 30, 2016, as filed with the Commission on March 2, 2017). 10.30 # Form of Option Grant and Stock Option Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K, for the year ended December 30, 2016, as filed with the Commission on March 2, 2017). 10.31 # Form of Restricted Stock Unit Grant and Agreement (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K, for the year ended December 30, 2016, as filed with the Commission on March 2, 2017). 10.32 # Form of Restricted Stock Award Grant and Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K, for the year ended December 30, 2016, as filed with the Commission on March 2, 2017). 21.1 * List of Subsidiaries. 23.1 * Consent of BDO USA, P.C.* 31.1 * Certification 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 * Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 ** Certification Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1 * Compensation Recoupment (Clawback) Policy . 47 101.INS * Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH * Inline XBRL Taxonomy Extension Schema With Embedded Linked Documents. 104 The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2023, has been formatted in Inline XBRL with applicable taxonomy extension information contained in Exhibit 101. # Management contract or compensatory plan, contract or arrangement. * Filed herewith. ** Certification furnished herewith solely to accompany this annual report pursuant to 18 U.S.C. Section 1350. Certification is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. Such certification is not deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that the registrant specifically incorporates it by reference. ITEM 16. Form 10-K Summary None. 48 SIGNA TURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STAAR SURGICAL COMPANY Date: February 27, 2024 By: /s/ THOMAS G. FRINZI Thomas G. Frinzi President, Chief Executive Officer and Chair of the Board (principal executive officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ THOMAS G. FRINZI President, Chief Executive Officer and Chair of the Board, Director February 27, 2024 Thomas G. Frinzi (principal executive officer) /s/ PATRICK F. WILLIAMS Vice President, Chief Financial Officer February 27, 2024 Patrick F. Williams (principal accounting and financial officer) /s/ STEPHEN C. FARRELL Director February 27, 2024 Stephen C. Farrell /s/ AIMEE S. WEISNER Director February 27, 2024 Aimee S. Weisner /s/ ELIZABETH YEU Director February 27, 2024 Elizabeth Yeu /s/ K. PEONY YU Director February 27, 2024 K. Peony Yu /s/ LILIAN ZHOU Director February 27, 2024 Lilian Zhou 49 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 29, 2023, December 30, 2022 and December 31, 2021 TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm (BDO USA, P.C.; Los Angeles, California; PCAOB ID# 243 ) F- 2 Consolidated Balance Sheets at December 29, 2023 and December 30, 2022 F- 4 Consolidated Statements of Income for the years ended December 29, 2023, December 30, 2022 and December 31, 2021 F- 5 Consolidated Statements of Comprehensive Income for the years ended December 29, 2023, December 30, 2022 and December 31, 2021 F- 6 Consolidated Statements of Stockholders’ Equity for the years ended December 29, 2023, December 30, 2022 and December 31, 2021 F- 7 Consolidated Statements of Cash Flows for the years ended December 29, 2023, December 30, 2022 and December 31, 2021 F- 8 Notes to Consolidated Financial Statements F- 9 Schedule II Valuation and Qualifying Accounts and Reserves F- 39 F- 1 REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors STAAR Surgical Company Lake Forest, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of STAAR Surgical Company (the “Company”) as of December 29, 2023 and December 30, 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 29, 2023, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2023 and December 30, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 27, 2024 expressed an unqualified opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Income Tax Provision As described in Notes 1 and 10 to the consolidated financial statements, the Company operates in multiple international markets and is subject to income taxes in the U.S. and numerous foreign jurisdictions. The tax provision is based on management’s understanding of current enacted tax laws and tax rates of each tax jurisdiction and assessing the realizability of the deferred tax assets. In evaluating the Company’s ability to realize the deferred tax assets, management considers the positive and negative evidence, including the reversals of deferred tax assets and liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. F- 2 We identified the realization of the Company’s deferred tax assets, including the judgment and estimation regarding projected taxable income as a critical audit matter. The principal considerations in our determination are the significant judgments required in the development of forecasts and certain assumptions related to the projected sales growth, margins, costs and income by jurisdiction that are used to assess the realizability of deferred tax assets. Auditing these elements involved especially subjective and complex auditor judgment due to the nature of audit evidence and extent of audit effort required to address these matters, including the need to involve personnel with specialized knowledge and skills. The primary procedures we performed to address this critical audit matter included: • Assessing the reasonableness of the Company’s projected forecasts and certain related assumptions against the Company’s historical performance, industry-wide performance, macro-economic factors, and evidence obtained in other areas of the audit. • Utilizing personnel with specialized knowledge and skills in domestic and international tax law to assist in: (i) evaluating the application of tax laws used in management’s allocation methodologies based on the Company’s structure and operations, (ii) evaluating the appropriateness of the transfer pricing positions taken by assessing the intercompany transactions and the rates used to cross charge and allocate costs based on transfer pricing agreements, and (iii) evaluating both positive and negative evidence and assessing the reasonableness of certain assumptions used in the Company’s valuation allowance assessment. /s/ BDO USA, P.C. We have served as the Company's auditor since 1993. Los Angeles, California February 27, 2024 F- 3 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED B ALANCE SHEETS December 29, 2023 and December 30, 2022 (In thousands, except par value amounts) 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 183,038 $ 86,480 Investments available for sale 37,688 125,159 Accounts receivable trade, net 94,704 62,447 Inventories, net 35,130 24,161 Prepayments, deposits and other current assets 14,709 13,476 Total current assets 365,269 311,723 Investments available for sale 11,703 13,902 Property, plant and equipment, net 66,835 50,921 Finance lease right-of-use assets, net 183 342 Operating lease right-of-use assets, net 34,387 30,270 Intangible assets, net — 173 Goodwill 1,786 1,786 Deferred income taxes 5,190 8,744 Other assets 3,339 957 Total assets $ 488,692 $ 418,818 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 13,557 $ 11,576 Obligations under finance leases 165 169 Obligations under operating leases 4,202 3,524 Allowance for sales returns 6,174 5,706 Other current liabilities 40,938 30,741 Total current liabilities 65,036 51,716 Obligations under finance leases 42 210 Obligations under operating leases 31,425 27,136 Deferred income taxes 1,077 1,489 Asset retirement obligations 103 220 Pension liability 5,055 1,935 Total liabilities 102,738 82,706 Commitments and contingencies (Note 13) Stockholders’ equity: Common stock, $ 0.01 par value; 60,000 shares authorized: 48,839 and 48,212 shares issued and outstanding at December 29, 2023 and December 30, 2022, respectively 488 482 Additional paid-in capital 436,947 404,189 Accumulated other comprehensive income (loss) ( 4,113 ) 156 Accumulated deficit ( 47,368 ) ( 68,715 ) Total stockholders’ equity 385,954 336,112 Total liabilities and stockholders’ equity $ 488,692 $ 418,818 The accompanying notes are an integral part of these consolidated financial statements. F- 4 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEM ENTS OF INCOME Years Ended December 29, 2023, December 30, 2022 and December 31, 2021 (In thousands, except per share amounts) 2023 2022 2021 Net sales $ 322,415 $ 284,391 $ 230,472 Cost of sales 69,764 61,008 51,835 Gross profit 252,651 223,383 178,637 Selling, general and administrative expenses: General and administrative 72,319 54,742 44,142 Selling and marketing 107,834 88,856 67,294 Research and development 44,401 35,983 33,862 Total selling, general and administrative expenses 224,554 179,581 145,298 Operating income 28,097 43,802 33,339 Other income (expense), net: Interest income (expense), net 6,986 2,448 ( 38 ) Loss on foreign currency transactions ( 1,909 ) ( 1,707 ) ( 2,964 ) Royalty income 74 804 1,015 Other income (loss), net 448 205 ( 48 ) Total other income (expenses), net 5,599 1,750 ( 2,035 ) Income before income taxes 33,696 45,552 31,304 Provision for income taxes 12,349 5,887 3,793 Net income $ 21,347 $ 39,665 $ 27,511 Net income per share: Basic $ 0.44 $ 0.83 $ 0.58 Diluted $ 0.43 $ 0.80 $ 0.56 Weighted average shares outstanding: Basic 48,523 47,987 47,210 Diluted 49,427 49,380 49,456 The accompanying notes are an integral part of these consolidated financial statements. F- 5 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 29, 2023, December 30, 2022 and December 31, 2021 (In thousands) 2023 2022 2021 Net income $ 21,347 $ 39,665 $ 27,511 Other comprehensive income (loss): Defined benefit plans: Net change in plan assets ( 3,946 ) 6,509 2,632 Reclassification into other income (expense), net ( 357 ) 187 487 Investments available for sale: Change in unrealized gain (loss) 363 ( 406 ) — Foreign currency translation loss ( 1,095 ) ( 2,090 ) ( 1,776 ) Tax effect 766 4 154 Other comprehensive income (loss), net of tax ( 4,269 ) 4,204 1,497 Comprehensive income $ 17,078 $ 43,869 $ 29,008 The accompanying notes are an integral part of these consolidated financial statements. F- 6 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Years Ended December 29, 2023, December 30, 2022 and December 31, 2021 (In thousands) Common Stock Shares Common Stock Par Value Additional Paid-In Capital Accumulated Other Compre- hensive Income (Loss) Accumulated Deficit Total Balance, at January 1, 2021 46,448 $ 464 $ 338,194 $ ( 5,545 ) $ ( 135,891 ) $ 197,222 Net income — — — — 27,511 27,511 Other comprehensive income — — — 1,497 — 1,497 Common stock issued upon exercise of options 1,206 12 19,425 — — 19,437 Stock-based compensation — — 15,900 — — 15,900 Unvested restricted stock 3 — — — — — Vested restricted and performance stock units 59 1 — — — 1 Balance, at December 31, 2021 47,716 477 373,519 ( 4,048 ) ( 108,380 ) 261,568 Net income — — — — 39,665 39,665 Other comprehensive income — — — 4,204 — 4,204 Common stock issued upon exercise of options 427 4 8,418 — — 8,422 Stock-based compensation — — 22,252 — — 22,252 Unvested restricted stock 7 — — — — — Vested restricted and performance stock units 62 1 — — — 1 Balance, at December 30, 2022 48,212 482 404,189 156 ( 68,715 ) 336,112 Net income — — — — 21,347 21,347 Other comprehensive loss — — — ( 4,269 ) — ( 4,269 ) Common stock issued upon exercise of options 518 5 9,667 — — 9,672 Stock-based compensation — — 25,188 — — 25,188 Repurchase of employee common stock for taxes withheld ( 35 ) — ( 2,097 ) — — ( 2,097 ) Unvested restricted stock 14 — — — — — Vested restricted and performance stock units 130 1 — — — 1 Balance, at December 29, 2023 48,839 $ 488 $ 436,947 $ ( 4,113 ) $ ( 47,368 ) $ 385,954 The accompanying notes are an integral part of these consolidated financial statements. F- 7 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEM ENTS OF CASH FLOWS Years Ended December 29, 2023, December 30, 2022 and December 31, 2021 (In thousands) 2023 2022 2021 Cash flows from operating activities: Net income $ 21,347 $ 39,665 $ 27,511 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant, and equipment 5,111 4,481 3,608 Amortization of intangibles 13 28 34 Impairment of intangibles 154 — — Accretion/amortization of investments available for sale ( 2,501 ) ( 1,198 ) — Deferred income taxes 3,264 ( 2,254 ) ( 1,515 ) Change in net pension liability ( 956 ) 53 137 Loss on disposal of property and equipment 73 65 2 Stock-based compensation expense 23,516 20,371 14,605 Change in asset retirement obligation ( 102 ) 47 — Provision for sales returns and credit losses 663 913 318 Inventory provision 4,851 2,423 1,654 Changes in working capital: Accounts receivable ( 32,760 ) ( 19,601 ) ( 8,868 ) Inventories ( 14,361 ) ( 7,943 ) 66 Prepayments, deposits, and other assets ( 3,413 ) ( 2,549 ) ( 711 ) Accounts payable ( 701 ) 1,805 108 Other current liabilities 10,396 ( 591 ) 7,013 Net cash provided by operating activities 14,594 35,715 43,962 Cash flows from investing activities: Acquisition of property and equipment ( 18,188 ) ( 18,108 ) ( 13,645 ) Purchase of investments available for sale ( 52,313 ) ( 155,748 ) — Proceeds from sale or maturity of investments available for sale 144,848 17,480 — Net cash provided by (used in) investing activities 74,347 ( 156,376 ) ( 13,645 ) Cash flows from financing activities: Repayment of finance lease obligations ( 161 ) ( 126 ) ( 348 ) Repayment of line of credit — — ( 1,297 ) Repurchase of employee common stock for taxes withheld ( 2,097 ) — — Proceeds from the exercise of stock options 9,672 8,422 19,437 Proceeds from vested restricted stock 1 1 1 Net cash provided by financing activities 7,415 8,297 17,793 Effect of exchange rate changes on cash and cash equivalents 202 ( 862 ) ( 857 ) Increase (decrease) in cash and cash equivalents 96,558 ( 113,226 ) 47,253 Cash and cash equivalents, at beginning of year 86,480 199,706 152,453 Cash and cash equivalents, at end of year $ 183,038 $ 86,480 $ 199,706 The accompanying notes are an integral part of these consolidated financial statements. F- 8 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — Organization and Description of Business and Accounting Policies Organization and Description of Business STAAR Surgical Company, a Delaware corporation, was first incorporated in 1982, and together with its subsidiaries (the “Company”) designs, develops, manufactures, and sells implantable lenses for the eye and accessory delivery systems used to deliver the lenses into the eye. The Company generates worldwide revenue almost exclusively from sales of its implantable Collamer lenses (“ICLs”), which are used in corrective or “refractive” surgery. Historically, the Company also manufactured and sold intraocular lenses (“IOLs”), for use in surgery to treat cataracts. As the Company has focused its business and strategy on its ICL product offerings, it has phased out its cataract IOL product line. The Company markets and sells ICLs for refractive surgery to treat myopia (nearsightedness) as its “EVO” family of lenses. The Company’s EVO family of lenses includes its EVO ICL, EVO+ ICL, and EVO Visian ICL. The Company’s newest offering, EVO Viva, has an extended depth of focus (EDoF) optic, which is designed to treat myopia with presbyopia (age-related loss of ability to focus). The Company also markets and sells an ICL lens to treat hyperopia (farsightedness), which is called Visian ICL. The Company makes its ICL product offerings available in multiple models, powers and lengths, including some with toric ICL (TICL) versions to correct for astigmatism (blurred vision). Not all of the Company’s products are currently available in all markets where it sells ICLs today. As of December 29, 2023, the Company’s significant subsidiaries consisted of: • STAAR Surgical AG, a wholly owned subsidiary organized under the laws of Switzerland (“STAAR AG”) • STAAR Japan, Inc., a wholly owned subsidiary organized under the laws of Japan (“STAAR Japan”) The Company operates as one operating segment, the ophthalmic surgical market, for financial reporting purposes (see Note 17). Principles of Consolidation The accompanying consolidated financial statements include the accounts of STAAR Surgical Company and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany balances and transactions have been eliminated. Fiscal Year and Interim Reporting Periods The Company’s fiscal year ends on the Friday nearest December 31 and each of the Company’s quarterly reporting periods generally consists of 13 weeks. Fiscal years 2023, 2022 and 2021 are based on a 52-week period. Foreign Currency The functional currency of STAAR Japan is the Japanese yen. The functional currency of STAAR AG is the U.S. dollar. Assets and liabilities of STAAR Japan are translated at rates of exchange in effect at the close of the period. Sales and expenses are translated at the weighted average of exchange rates in effect during the period. Net foreign translation gain (loss) was as follows (in thousands): Years Ended 2023 2022 2021 Foreign currency translation loss (1) $ ( 1,095 ) $ ( 2,090 ) $ ( 1,776 ) Loss on foreign currency transactions (2) ( 1,909 ) ( 1,707 ) ( 2,964 ) (1) Shown as a separate line item on the Consolidated Statements of Comprehensive Income. (2) Shown as a separate line item on the Consolidated Statements of Income. F- 9 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 — Organization and Description of Business and Accounting Policies (Continued) Cash and Cash Equivalents Cash and cash equivalents include cash and balances in deposits and money market accounts held at banks and financial institutions with original maturities of three months or less. 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. Use of Estimates The consolidated financial statements have been prepared in conformity with GAAP and, as such, include amounts based on significant estimates and judgments of management with consideration given to materiality. Estimates used include determining valuation allowances for uncollectible trade receivables, sales returns reserves, obsolete and excess inventory reserves, deferred income taxes, and tax reserves, including valuation allowances for deferred tax assets, pension liabilities, evaluation of asset impairment, in determining the useful life of depreciable and definite-lived intangible assets, and in the variables and assumptions used to calculate and record stock-based compensation. Actual results could differ materially from those estimates. Significant estimates used include determining valuation allowances for sales returns reserves, obsolete and excess inventory reserves, deferred income taxes, and tax reserves, including valuation allowances for deferred tax assets, pension liabilities, and in the variables and assumptions used to calculate and record stock-based compensation. Other estimates made by management not considered to be significant include determining valuation allowances for uncollectible trade receivables, evaluation of asset impairment, and in determining the useful life of depreciable and definite-lived intangible assets. Revenue Recognition 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). Payment for product sales is typically collected within a short period following transfer of control of product. The Company presents sales tax and similar taxes it collects from its customers on a net basis (excluded from revenues). Historically, the Company marketed and sold cataract IOLs and related injectors and injector parts. The Company phased out sales of such products in fiscal 2023, and it does not expect to sell any such products in fiscal 2024 or thereafter. Sales of such products involved sales by the Company of injector parts to an unrelated customer and supplier (collectively referred to as “supplier”) whereby these injector part sales were either made as a final sale to the supplier or, were sold to be combined with an acrylic cataract IOL by the supplier into finished goods inventory (a preloaded acrylic cataract IOL). These finished goods were then sold back to the Company at an agreed upon, contractual price. The Company made a profit margin on either type of sale with the supplier and each type of sale was made under separate purchase and sales orders between the two parties resulting in cash settlement for the orders sold or repurchased. For parts that were sold as a final sale, the Company recognized a sale and those sales were classified as other product sales in total net sales. For the injector parts that were sold to be combined with an acrylic cataract IOL into finished goods, the Company recorded the transaction at its carrying value deferring any profit margin as contra-inventory, until the finished goods inventory was sold to an end-customer (not the supplier) at which point the Company recognized 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 disaggregates its revenue into the following categories: non-consignment sales and consignment sales. F- 10 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 — Organization and Description of Business and Accounting Policies (Continued) Revenue Recognition (Continued) • 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 STAAR Japan, which is typically recognized when the customer receives the product. The Company does not have significant deferred revenues as of December 29, 2023, December 30, 2022 and December 31, 2021, as delivery to the customer is generally made within the same or the next day of shipment. • Consignment Sales – The Company’s products are marketed to ophthalmic surgeons, hospitals, ambulatory surgery centers or vision centers, and distributors. ICLs may be offered to surgeons and hospitals on a consignment basis, and historically, cataract IOLs were also offered 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. See Note 17 for additional information on disaggregation of revenues, geographic sales information and product sales. 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 share the expense 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 on the Consolidated Balance Sheets, see Note 8. 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. Sales and marketing expenses for distinct services were as follows (in thousands): Years Ended 2023 2022 2021 Marketing and support services related to strategic cooperation agreements $ 1,891 $ 1,662 $ 714 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 December 29, 2023, December 30, 2022 and December 31, 2021 . Allowance for Credit Losses 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 an expected loss model which considers its historical experience, any specific customer collection issues that have been identified and other relevant observable data, including current economic conditions. Amounts determined to be uncollectible are written off against the allowance for credit losses. F- 11 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 — Organization and Description of Business and Accounting Policies (Continued) Concentration of Credit Risk and Sales Financial instruments that potentially subject the Company to credit risk principally consist of trade receivables. This risk is limited due to the large number of customers comprising the Company’s customer base, and their geographic dispersion. As of December 29, 2023 and December 30, 2022 , there was one customer who accounted for 70 % and 59 %, respectively, of the Company’s consolidated trade receivables. Ongoing credit evaluations of customers’ financial condition are performed and, generally, no collateral is required. The Company maintains reserves for potential credit losses and such losses, taken together, have not exceeded management’s expectations. There was one customer who accounted for 58 %, 52 % and 47 % of the Company’s consolidated net sales for the years ended 2023, 2022 and 2021 , respectively. Sales Return Reserve The Company generally may permit returns of product if the product, upon issuance of a Return Goods Authorization, 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 is based on an expected loss model which considers historical and current/anticipated 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 Consolidated Balance Sheets, the balances associated for estimated sales returns were as follows (in thousands): 2023 2022 Estimated returns - inventory (1) $ 818 $ 888 Allowance for sales returns 6,174 5,706 (1) Recognized in inventories, net on the Consolidated Balance Sheets 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. 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. Investments AFS with maturities of twelve months or less, are classified as short-term, otherwise, they are classified as long-term. Accrued interest receivable is recognized in current investments AFS on the Consolidated Balance Sheets. 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 impairment of a debt security for which there has been a decline in fair value below amortized cost if management intends to sell the security, or it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis. Impairment related to credit losses is recognized in other income (expense) on the Consolidated Statements of Income. Any portion of impairment not related to credit losses 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. F- 12 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 — Organization and Description of Business and Accounting Policies (Continued) Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value: • Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. • Level 3 – Inputs to the valuation methodology are unobservable; that reflect management’s own assumptions about the assumptions market participants would make and significant to the fair value. The carrying values reflected on the Consolidated Balance Sheets for cash and cash equivalents, trade accounts receivable, net, prepayments, deposits and other current assets, accounts payable and other current liabilities approximate their fair values because of the short maturity of these instruments. Inventories, Net Inventories, net are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Inventories include the costs of raw material, labor, and manufacturing overhead, work in process and finished goods. Inventories also include as a contra item, deferred margins for certain injector parts described under the revenue recognition policy. The Company provides estimated inventory allowances for excess, expiring, slow moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable value to properly reflect inventory at the lower of cost or market. Property, Plant, and Equipment Property, plant, and equipment are recorded at cost. Depreciation on property, plant, and equipment is computed using the straight-line method over the estimated useful lives of the assets as noted below. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the related expected lease term. Major improvements are capitalized and minor replacements, maintenance and repairs are charged to expense as incurred. Also included in property, plant and equipment is construction in process. Construction in process includes the cost of design plans and build out of facilities and the cost of equipment, as well as the direct costs incurred in the testing and validation of machinery and equipment and facilities before they are ready for productive use. Upon placement in service, costs are reclassified into the appropriate asset category and depreciation commences. The estimated useful lives of assets are as follows: Machinery and equipment 5 - 10 years Computer equipment and software 2 - 5 years Furniture and equipment 3 - 7 years Leasehold improvements The shorter of the useful life of the asset or the expected term of the associated lease F- 13 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 — Organization and Description of Business and Accounting Policies (Continued) Goodwill Goodwill, which has an indefinite life, is not amortized but instead is tested for impairment on an annual basis or between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is done at the reporting unit level. Reporting units can be one level below the operating segment level and can be combined when reporting units within the same operating segment have similar economic characteristics. The Company has determined that its reporting units have similar economic characteristics, and therefore, can be combined into one reporting unit for the purposes of goodwill impairment testing. The Company performed its annual impairment test and determined that its goodwill was not impaired. As of December 29, 2023 and December 30, 2022 , the carrying value of goodwill was $ 1,786,000 . Long-Lived Assets The Company reviews property, plant, and equipment and intangible assets, excluding goodwill, 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 their carrying amount, an impairment loss is recognized equal to the difference between the assets’ fair value and their carrying value. A review of long-lived assets was conducted as of December 29, 2023 and December 30, 2022 and no impairment was identified. Amortization is computed on the straight-line basis, which is the Company’s best estimate of the economic benefits realized over the estimated useful lives of the assets which range from 3 to 20 years for patents, certain acquired rights and licenses, 10 years for customer relationships, and 3 to 10 years for developed technology. Cloud-Based Software Implementation Costs The Company has entered into cloud-based software hosting arrangements for which it incurs implementation costs. Certain costs incurred during the application development stage are capitalized and included within Prepayments, deposits and other current assets or Other assets on the Consolidated Balance Sheet, depending on the short- or long-term nature of such costs, in line with the Company’s policy on the accounting for prepaid software hosting arrangements. Costs incurred during the preliminary project stage and post-implementation stage are expensed as incurred. Capitalized cloud-based software implementation costs are amortized, beginning on the date the related software or module is ready for its intended use, on a straight-line basis over the remaining term of the hosting arrangement. Amortization is recognized as a component of selling, general, and administrative expenses, in the same line item as the expense for the associated hosting arrangement. As of December 29, 2023 , the Company recognized $ 2,406,000 of net capitalized cloud-based software implementation costs recorded within Other assets on the Consolidated Balance Sheets. There were no capitalized cloud-based software implementation costs recognized at December 30, 2022. As of December 29, 2023 , these assets are not currently placed into service. No amortization of capitalized cloud-based software implementation costs was recognized during the year ended December 29, 2023 . Lease Accounting The Company recognizes right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months on the Consolidated Balance Sheets. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statements of Income. A contract contains a lease if the contract conveys the right to control an identified asset for a period of time in exchange for consideration. An asset is either explicitly identified or implicitly identified and must be physically distinct. In addition, the Company must have both the right to obtain substantially all of the economic benefits from use of the identified asset and has the right to direct the use of the identified asset. F- 14 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 — Organization and Description of Business and Accounting Policies (Continued) Lease Accounting (Continued) 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, whereas the Company includes the maintenance and service components in the value of the ROU asset and lease liability while evaluating automobile leases. When determining whether a lease is a finance lease or operating lease, the Company uses (i) greater than 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 than or equal to 90% to determine whether the present value of the sum of lease payments is substantially all of the fair value of the underlying asset. The Company uses either the rate implicit in the lease or its incremental borrowing rate as the discount rate in lease accounting. The Company 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 their carrying amount, an impairment loss is recognized equal to the difference between the assets’ fair value and their carrying value. Research and Development Costs Expenditures for research activities relating to product development and improvement are charged to expense as incurred. Advertising Costs Advertising costs, which are included in selling and marketing expenses, are expensed as incurred, and were as follows (in thousands): Years Ended 2023 2022 2021 Advertising costs $ 46,680 $ 37,918 $ 21,989 Income Taxes The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities, net operating loss and credit carryforwards, and uncertainty in income taxes, on a jurisdiction-by-jurisdiction basis. For each tax entity and tax jurisdiction, the Company presents deferred tax liabilities and assets, as well as any related valuation allowance, as a single non-current amount. The Company does not offset deferred tax liabilities and assets attributable to different tax entities or to different tax jurisdictions. In evaluating the Company’s ability to recover the deferred tax assets within a jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, 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, projected sales growth, margins, costs and income by jurisdiction, the amount of future federal, state, and foreign pretax operating income, the reversal of temporary differences and the successful implementation of 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 that historical results provide, the Company also 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. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and reflected in the financial statements in the period of enactment. F- 15 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 — Organization and Description of Business and Accounting Policies (Continued) Income Taxes (Continued) The Company has made a policy election to apply the incremental cash tax savings approach when analyzing the impact Global Intangible Low Tax Income (“GILTI”) could have on its U.S. valuation allowance. As a result of future expected GILTI inclusions, and because of the 2017 Tax Cuts and Jobs Act’s ordering rules, U.S. companies may now expect to utilize tax attribute carryforwards (e.g., net operating losses and deferred tax assets) for which a valuation allowance has historically been recorded (this is referred to as the “tax law ordering approach”). However, due to the mechanics of the GILTI rules, companies that have a GILTI inclusion may realize a reduced (or no) cash tax savings from utilizing such tax attribute carryforwards (this view is referred to as the “incremental cash tax savings approach”). The Company recognizes the income tax benefit from an uncertain tax position when it is more likely than not that, based on technical merits, the position will be sustained upon examination, including resolutions of any related appeals or litigation processes. The amount of tax benefit recorded, if any, is limited to the extent it is not greater than 50 percent likely to be realized upon settlement with the taxing authority (that has full knowledge of all relevant information). Accrued interest, if any, related to uncertain tax positions is included as a component of income tax expense, and penalties, if incurred, are recognized as a component of operating income or loss. The Company does not have any uncertain tax positions as of any of the periods presented. Basic and Diluted Net Income Per Share The Company has only one class of common stock and no participating securities which would require the two-class method of calculating basic earnings per share. Basic per share information is calculated by dividing net income by the weighted average number of shares outstanding during the period, net of unvested stock-based awards. Diluted per share information is calculated by dividing net income by the weighted average number of shares outstanding during the period, adjusted for the effects of potentially dilutive securities using the treasury stock method. Potentially dilutive securities include the Company’s outstanding stock-based awards. As of December 29, 2023 , the Company had outstanding grants of stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”). Stock options that are anti-dilutive, where their exercise price exceeds the average market price of the common stock, are not included in the treasury stock method calculation for diluted net income per share. Employee Defined Benefit Plans The Company maintains a passive pension plan (the “Swiss Plan”) covering employees of STAAR AG. The Swiss Plan conforms to the features of a defined benefit plan. The Company also maintains a noncontributory defined benefit pension plan which covers substantially all the employees of STAAR Japan. The Company recognizes the funded status, or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the Consolidated Balance Sheets, with a corresponding adjustment to accumulated other comprehensive income (loss). If the projected benefit obligation exceeds the fair value of plan assets, then that difference or unfunded status represents the pension liability. The Company records a net periodic pension cost in the Consolidated Statements of Income. The liabilities and annual income or expense of both plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of asset return (asset returns and fair-value of plan assets are applicable for the Swiss Plan only). The fair values of plan assets are determined based on prevailing market prices. F- 16 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 — Organization and Description of Business and Accounting Policies (Continued) Stock-Based Compensation The Company maintains an Amended and Restated Omnibus Equity Incentive Plan (the “Equity Plan”). The Equity Plan provides the Company with the ability to grant various types of stock-based awards to executive officers, employees, consultants and members of its Board of Directors (the “Board”). The Equity Plan allows for awards of stock options, stock appreciation rights, restricted stock, RSUs, and other stock- and cash-based awards, including awards that are subject to service-based and performance-based vesting conditions. As of December 29, 2023, the Company had outstanding grants of stock options, restricted stock awards, RSUs and PSUs. Stock-based compensation expense for all stock-based awards granted is based on the grant-date fair value of the award. The Company recognizes this compensation expense on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three to four years for executive officers, employees and consultants, and one year for Board members. For performance-based awards, vesting is contingent upon the Company meeting certain internally established performance conditions and is subject to the grantee’s continued service with the Company. The Company recognizes compensation expense for performance-based awards when the Company concludes that it is probable that the performance condition will be achieved, net of an estimate of pre-vesting forfeitures, over the requisite service period based on the grant-date fair value of the award. The Company reassesses the probability of vesting at each reporting period and adjusts compensation cost based on its probability assessment. While the majority of the Company’s outstanding stock-based awards are stock options, RSUs and PSUs, the Company also, at times, grants awards in the form of restricted stock. Restricted stock awards provide for the issuance of common stock upon grant, subject to restrictions that lapse over the requisite service period of the award. For restricted stock awards granted to the Board, the restrictions lapse over a one-year service period and for executive officers and employees, it is typically a three-year service period. In each case the awards are subject to forfeiture (or acceleration, depending upon the circumstances) until the service period is completed. Restricted stock compensation expense is recognized on a straight-line basis over the requisite service period of one to three years, based on the grant-date fair value of the award. Restricted stock awards are included in the Company’s shares of common stock issued and outstanding on the grant date. Shares subject to RSU and PSU awards are not issuable until the requisite service and applicable performance conditions are satisfied, so they are not included in the Company’s shares of common stock issued and outstanding until the vesting of such awards. Comprehensive Income (Loss) The Company presents comprehensive income (loss) on the Consolidated Balance Sheets and the Consolidated Statements of Comprehensive Income. Total comprehensive income (loss) includes, in addition to the net income, changes in equity that are excluded from the Consolidated Statements of Income and are recorded directly into a separate section of stockholders’ equity on the Consolidated Balance Sheets. The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) attributable to the Company for the years ended December 29, 2023, December 30, 2022 and December 31, 2021 (in thousands): F- 17 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 — Organization and Description of Business and Accounting Policies (Continued) Comprehensive Income (Loss) (Continued) Foreign Currency Translation Investments Available for Sale Defined Benefit Pension Plan – Japan Defined Benefit Pension Plan – Switzerland Accumulated Other Com- prehensive Income (Loss) Balance, at January 1, 2021 $ 1,151 $ — $ 15 $ ( 6,711 ) $ ( 5,545 ) Other comprehensive income (loss) ( 1,776 ) — 254 2,865 1,343 Tax effect 537 — ( 77 ) ( 306 ) 154 Balance, at December 31, 2021 ( 88 ) — 192 ( 4,152 ) ( 4,048 ) Other comprehensive income (loss) ( 2,090 ) ( 406 ) ( 11 ) 6,707 4,200 Tax effect 631 70 3 ( 700 ) 4 Balance, at December 30, 2022 ( 1,547 ) ( 336 ) 184 1,855 156 Other comprehensive income (loss) ( 1,095 ) 363 ( 182 ) ( 4,121 ) ( 5,035 ) Tax effect 345 ( 64 ) 54 431 766 Balance, at December 29, 2023 $ ( 2,297 ) $ ( 37 ) $ 56 $ ( 1,835 ) $ ( 4,113 ) Recent Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Segment Reporting (Topic 280).” ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments (a) disclose significant segment expenses regularly provided to the chief operating decision maker (“CODM”), (b) disclose an amount for other segment items by reportable segment and description of its composition, (c) extend certain annual disclosures to interim periods, (d) clarify single reportable segment entities must apply Topic 280 in its entirety, (e) permit more than one measure of segment profit or loss to be reported under certain conditions and (f) require disclosure of the title and position of the CODM. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company will adopt the annual disclosure requirements of ASU 2023-07 as of beginning of fiscal year 2024 and will adopt the interim disclosure requirements beginning fiscal year 2025. The Company is currently evaluating the disclosure requirements and its effect on the Consolidated Financial Statements. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740).” ASU 2023-09 improves the transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. It also includes certain other amendments to improve the effectiveness of income tax disclosures regarding (a) income or loss from continuing operations disaggregated between domestic and foreign and (b) income tax expense or benefit from continuing operations disaggregated by federal, state and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company will adopt ASU 2023-09 at the beginning of fiscal year 2025. The Company is currently evaluating the disclosure requirements and its effect on the Consolidated Financial Statements. F- 18 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2 — Investments Available for Sale During 2022, the Company started to invest its cash in investments AFS, in accordance with its investment policy. Investments AFS and the related fair value measurement consisted of the following (dollars in thousands): December 29, 2023 Fair Value Measurements Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Level 1 Level 2 Commercial paper $ 7,720 $ 9 $ — $ 7,729 $ — $ 7,729 Certificates of deposit 3,716 4 — 3,720 — 3,720 U.S. Treasury securities 23,036 3 ( 56 ) 22,983 22,983 — U.S. agency securities 3,423 — ( 4 ) 3,419 — 3,419 Corporate debt securities 11,538 12 ( 10 ) 11,540 — 11,540 Total investments AFS $ 49,433 $ 28 $ ( 70 ) $ 49,391 $ 22,983 $ 26,408 December 30, 2022 Fair Value Measurements Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Level 1 Level 2 Commercial paper $ 44,054 $ 11 $ ( 62 ) $ 44,003 $ — $ 44,003 Certificates of deposit 17,355 4 ( 75 ) 17,284 — 17,284 U.S. Treasury securities 21,847 3 ( 15 ) 21,835 21,835 — U.S. agency securities 10,688 16 ( 3 ) 10,701 — 10,701 Corporate debt securities 45,522 4 ( 288 ) 45,238 — 45,238 Total investments AFS $ 139,466 $ 38 $ ( 443 ) $ 139,061 $ 21,835 $ 117,226 The Company obtains the fair value from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers and other industry and economic events. The Company assessed each debt security (see Note 1 for information on composition of the portfolio) 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 no t recognize impairment for the years ended December 29, 2023 and December 30, 2022. The following table shows the fair value of investments AFS by contractual maturity (dollars in thousands): As of December 29, 2023 Within one year After one year through five years Total Commercial paper $ 7,729 $ — $ 7,729 Certificates of deposit 3,720 — 3,720 U.S. Treasury securities 14,533 8,450 22,983 U.S. agency securities 3,419 — 3,419 Corporate debt securities 8,287 3,253 11,540 Total investments AFS $ 37,688 $ 11,703 $ 49,391 F- 19 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2 — Investments Available for Sale (Continued) During 2023 and 2022, two of the Company’s investments AFS were the subject of a downgraded credit rating. The Company sold its investments of $ 1,300,000 and $ 359,000 during 2023 and 2022, respectively, in aggregate securities following the downgrade. The Company recognized a realized loss upon sale of less than $ 1,000 for 2023 and 2022. Note 3 — Accounts Receivable Trade, Net Accounts receivable trade, net consisted of the following (in thousands): 2023 2022 Domestic $ 2,009 $ 2,430 Foreign 92,886 60,037 Total accounts receivable trade, gross 94,895 62,467 Less allowance for credit losses ( 191 ) ( 20 ) Total accounts receivable trade, net $ 94,704 $ 62,447 Note 4 — Inventories, Net Inventories, net consisted of the following (in thousands): 2023 2022 Raw materials and purchased parts $ 9,766 $ 6,703 Work in process 5,722 5,499 Finished goods 23,150 13,633 Total inventories, gross 38,638 25,835 Less inventory reserves ( 3,508 ) ( 1,674 ) Total inventories, net $ 35,130 $ 24,161 Note 5 — Prepayments, Deposits and Other Current Assets Prepayments, deposits and other current assets consisted of the following (in thousands): 2023 2022 Prepayments and deposits $ 6,216 $ 3,986 Prepaid insurance 2,314 2,620 Prepaid marketing 2,141 2,534 Consumption tax receivable 820 864 Value added tax (VAT) receivable 2,456 2,661 Other (1) 762 811 Total prepayments, deposits and other current assets $ 14,709 $ 13,476 (1) No individual category in “other” exceeds 5 % of the total prepayments, deposits and other current assets. F- 20 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 6 — Property, Plant and Equipment, Net Property, plant and equipment, net consisted of the following (in thousands): 2023 2022 Machinery and equipment $ 30,874 $ 28,026 Computer equipment and software 8,495 9,266 Furniture and fixtures 4,122 4,276 Leasehold improvements 10,780 14,965 Construction in process 40,364 32,269 Total property, plant and equipment, gross 94,635 88,802 Less accumulated depreciation ( 27,800 ) ( 37,881 ) Total property, plant and equipment, net $ 66,835 $ 50,921 Depreciation expense and loss on disposal of property, plant and equipment were as follows (in thousands): Years Ended 2023 2022 2021 Depreciation expense $ 4,960 $ 4,321 $ 3,525 Loss on disposal of property, plant and equipment 73 65 2 Note 7 — Intangible Assets, Net Intangible assets, net consisted of the following (in thousands): 2023 2022 Long-lived amortized intangible assets Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Patents and licenses $ 9,205 $ ( 9,205 ) $ — $ 9,240 $ ( 9,067 ) $ 173 During 2023, the Company recognized impairment of $ 154,000 for the remaining unamortized Japan patent and licenses related to cataract IOLs. Amortization expense for intangible assets were as follows (in thousands): Years Ended 2023 2022 2021 Amortization expense $ 13 $ 28 $ 34 Note 8 — Other Current Liabilities Other current liabilities consisted of the following (in thousands): 2023 2022 Accrued salaries and wages $ 12,519 $ 10,862 Accrued bonuses 3,456 6,925 Accrued insurance 2,315 — Income taxes payable 10,848 3,845 Marketing obligations 1,874 1,374 Other (1) 9,926 7,735 Total other current liabilities $ 40,938 $ 30,741 (1) No individual category in “Other” exceeds 5 % of the other current liabilities. F- 21 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 9 — Leases Finance Leases The Company entered into finance leases primarily related to purchases of equipment used for manufacturing, furniture and computer-related equipment. These finance leases are two to five years in length and have fixed payment amounts for the term of the contract and have options to purchase the assets at the end of the lease term. Supplemental balance sheet information related to finance leases consisted of the following (dollars in thousands): 2023 2022 Machinery and equipment $ — $ 30 Computer equipment and software 6 18 Furniture and fixtures 475 475 Finance lease ROU assets, gross 481 523 Less accumulated depreciation ( 298 ) ( 181 ) Finance lease ROU assets, net $ 183 $ 342 Current finance lease obligations $ 165 $ 169 Long-term finance lease obligations 42 210 Total finance lease liability $ 207 $ 379 Weighted-average remaining lease term (in years) 1.3 2.2 Weighted-average discount rate 4.24 % 4.10 % Supplemental cash flow information related to finance leases consisted of the following (in thousands): Years Ended 2023 2022 2021 Amortization of finance lease ROU asset $ 151 $ 160 $ 83 Interest on finance lease liabilities 12 17 6 Cash paid for amounts included in the measurement of finance lease liabilities: Operating cash flows 12 17 6 Financing cash flows 161 126 348 ROU assets obtained in exchange for new finance lease liabilities — — 475 Operating Leases The Company entered into operating leases primarily related to real property (office, manufacturing and warehouse facilities), automobiles and copiers. These operating leases are two to ten years in length with options to extend. The Company does not include any lease extensions in the initial valuation unless the Company was reasonably certain to extend the lease. Depending on the lease, there are those with fixed payment amounts for the entire length of the contract or payments which increase periodically as noted in the contract or increased at an inflation rate indicator. For operating leases that increase using an inflation rate indicator, the Company used the inflation rate at the time the lease was entered into for the length of the lease term. F- 22 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 9 — Leases (Continued) Operating Leases (Continued) Supplemental balance sheet information related to operating leases consisted of the following (dollars in thousands): 2023 2022 Machinery and equipment $ 735 $ 789 Computer equipment and software 446 446 Real property 40,869 34,465 Operating lease ROU assets, gross 42,050 35,700 Less accumulated depreciation ( 7,663 ) ( 5,430 ) Operating lease ROU assets, net $ 34,387 $ 30,270 Current operating lease obligations $ 4,202 $ 3,524 Long-term operation lease obligations 31,425 27,136 Total operating lease liability $ 35,627 $ 30,660 Weighted-average remaining lease term (in years) 7.3 7.5 Weighted-average discount rate 5.48 % 3.87 % Supplemental cash flow information related to operating leases was as follows (in thousands): Years Ended 2023 2022 2021 Operating lease cost $ 5,239 $ 4,473 $ 3,345 Cash paid for amounts included in the measurement of operating lease liabilities: Operating cash flows 4,875 4,171 3,259 ROU assets obtained in exchange for new operating lease liabilities 8,498 2,860 29,269 Future Maturities of Lease Liabilities Estimated future maturities of lease liabilities under operating and finance leases having initial or remaining non-cancelable lease terms more than one year are as follows (in thousands): Year Ended Operating Leases Finance Leases 2024 $ 6,247 $ 171 2025 5,583 42 2026 5,246 — 2027 5,506 — 2028 5,581 — Thereafter 17,705 — Total minimum lease payments, including interest $ 45,868 $ 213 Less amounts representing interest ( 10,241 ) ( 6 ) Total lease liability $ 35,627 $ 207 F- 23 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 10 — Income Taxes Provision for Income Taxes Income (loss) from continuing operations before provision for income taxes was as follows (in thousands): Years Ended 2023 2022 2021 Domestic $ ( 46,388 ) $ ( 25,366 ) $ ( 15,565 ) Foreign 80,084 70,918 46,869 Income before income taxes $ 33,696 $ 45,552 $ 31,304 The provision (benefit) for income taxes consisted of the following (in thousands): Years Ended 2023 2022 2021 Current tax provision: U.S. federal $ — $ — $ — State 21 — — Foreign 9,064 8,141 5,308 Total current provision 9,085 8,141 5,308 Deferred tax provision (benefit): U.S. federal 3,306 ( 1,821 ) ( 2,218 ) State 12 82 53 Foreign ( 54 ) ( 515 ) 650 Total deferred provision (benefit) 3,264 ( 2,254 ) ( 1,515 ) Provision for income taxes $ 12,349 $ 5,887 $ 3,793 A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate was as follows (dollars in thousands): Years Ended 2023 2022 2021 Amount Amount Amount Income before income taxes $ 33,696 $ 45,552 $ 31,304 Income tax expense: Taxes at federal statutory tax rate 7,076 9,566 6,574 State taxes, net of federal income tax benefit 440 3,673 ( 448 ) Equity compensation 1,035 ( 331 ) ( 14,629 ) Foreign rate differential ( 7,611 ) ( 7,022 ) ( 3,890 ) Foreign income inclusion 16,922 14,583 171 Net operating loss adjustments — 532 — Valuation allowance ( 4,233 ) ( 15,560 ) 16,308 Tax credits ( 930 ) ( 39 ) — Other ( 350 ) 485 ( 293 ) Total income tax expense $ 12,349 $ 5,887 $ 3,793 Effective tax rate 36.6 % 12.9 % 12.1 % The Company has elected to recognize U.S. taxes on GILTI as a period expense in the year the tax is incurred. The Company utilized the high-tax exception to exclude income from foreign jurisdictions with foreign taxes at an effective rate that is higher than 90 percent of the applicable highest U.S. corporate tax rate. F- 24 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 10 — Income Taxes (Continued) Deferred Tax Assets and Liabilities Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets (liabilities) were as follows (in thousands): 2023 2022 Deferred tax assets: Accrued expenses $ 1,435 $ 2,021 Stock-based compensation 4,010 3,051 Operating lease liability 6,162 6,071 Net operating loss and other credit carryforwards 44,998 51,255 Other deferred tax assets 2,376 1,621 Gross deferred tax assets 58,981 64,019 Valuation allowance ( 42,744 ) ( 46,977 ) Total deferred tax assets $ 16,237 $ 17,042 Deferred tax liabilities: Property, plant, equipment and intangibles $ ( 4,222 ) $ ( 2,169 ) Operating lease ROU assets ( 6,019 ) ( 5,979 ) Foreign taxes ( 1,883 ) ( 1,639 ) Total deferred tax liabilities ( 12,124 ) ( 9,787 ) Total net deferred tax assets $ 4,113 $ 7,255 The ultimate realization of deferred tax assets is dependent upon future generation of income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the projected future income and tax planning strategies in making this assessment. In addition, management considers all other available positive and negative evidence in its analysis. This includes existing profits in foreign jurisdiction as well as projected future profits. Under the incremental cash tax savings approach, the total net deferred assets represent the Company’s net cash tax savings and benefit at December 29, 2023. Under the incremental cash tax savings approach, the deferred tax asset valuation allowance activity was as follows (in thousands): Years Ended 2023 2022 2021 Balance at beginning of period $ ( 46,977 ) $ ( 62,860 ) $ ( 46,611 ) Release (recapture) due to incremental cash tax savings ( 3,318 ) 910 3,363 Current year change due to deferred tax asset realization 7,551 14,973 ( 19,612 ) Balance at end of period $ ( 42,744 ) $ ( 46,977 ) $ ( 62,860 ) F- 25 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 10 — Income Taxes (Continued) Deferred Tax Assets and Liabilities (Continued) As of December 29, 2023, the Company had U.S. net operating loss (“NOL”) carryforwards consisting of the following (in thousands): 2023 Expiration Date Pre-2018 federal NOL carryforwards $ 50,225 will begin to expire in 2026 Post-2018 federal NOL carryforwards 124,895 indefinite State NOL carryforwards 54,978 will begin to expire in 2024 As of December 29, 2023, the Company had U.S. tax credit carryforwards consisting of the following (in thousands): 2023 Expiration Date Federal credit carryforwards $ 1,404 will begin to expire in 2030 State research tax credit carryforwards 833 indefinite Federal foreign tax credit carryforwards 2,013 will begin to expire in 2028 The Company files income tax returns in the U.S. federal, various states and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The following tax years remain subject to examination: Significant jurisdictions Open Years U.S. Federal 2020 – 2022 U.S. States 2019 – 2022 Foreign 2019 – 2022 In various jurisdictions, years prior to 2019 remain open solely for the purposes of examination of the Company’s NOL and credit carryforwards. Tax Holiday The Company operates under a tax holiday in Switzerland, which is effective through 2024, and it may be extended through 2029 if certain additional requirements are satisfied. The tax holiday is conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays is as follows (in thousands, except per share amounts): Years Ended 2023 2022 2021 Tax impact related to tax holidays $ 8,683 $ 7,394 $ 4,887 Impact of tax holidays on diluted earnings per share $ 0.17 $ 0.15 $ 0.10 Uncertain Tax Benefits The Company does not have any uncertain tax positions as of December 29, 2023 . The Company does not expect any significant changes in its uncertain tax positions within the next twelve months. F- 26 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 11 – Employee Benefit Plans Defined Benefit Plan – Switzerland The Company maintains a passive pension plan (the “Swiss Plan”) covering employees of STAAR AG, which is accounted for as a defined benefit plan. In Switzerland employers are required to provide a minimum pension plan for their staff. Contributions of both the employees and employer finance the Swiss Plan. The amount of the contributions is defined by the plan regulations and cannot be decreased without amending the plan regulations. It is required that the employer contribute an amount equal to or greater than the employee contribution. The following table shows the changes in the benefit obligation and plan assets and the Swiss Plan’s funded status (in thousands): 2023 2022 Change in Projected Benefit Obligation: Projected benefit obligation, beginning of period $ 21,463 $ 26,247 Service cost 916 1,133 Interest cost 413 82 Participant contributions 863 772 Benefits deposited (paid) ( 7,101 ) 208 Actuarial (gain) loss 5,411 ( 6,979 ) Projected benefit obligation, end of period $ 21,965 $ 21,463 Change in Plan Assets: Plan assets at fair value, beginning of period $ 20,709 $ 18,809 Actual return on plan assets (including foreign currency impact) 1,922 12 Employer contributions 988 908 Participant contributions 863 772 Benefits deposited (paid) ( 7,101 ) 208 Plan assets at fair value, end of period $ 17,381 $ 20,709 Funded status (pension liability), end of year (1) $ ( 4,584 ) $ ( 754 ) Amount Recognized in Accumulated Other Comprehensive Income (Loss), net of tax: Actuarial loss on plan assets $ ( 38 ) $ ( 1,354 ) Actuarial loss on benefit obligation ( 5,378 ) ( 531 ) Actuarial gain recognized in current year 1,849 1,847 Prior service credit 1,122 1,283 Effect of curtailments 610 610 Accumulated other comprehensive income (loss) $ ( 1,835 ) $ 1,855 Accumulated benefit obligation at year end $ ( 20,729 ) $ ( 20,784 ) (1) The underfunded balance was included in pension liability on the Consolidated Balance Sheets. F- 27 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 11 – Employee Benefit Plans (Continued) Defined Benefit Plan – Switzerland (Continued) Net periodic pension cost associated with the Swiss Plan included the following components (in thousands): Years Ended 2023 2022 2021 Service cost (1) $ 916 $ 1,133 $ 1,089 Interest cost (2) 413 82 55 Expected return on plan assets (2) ( 452 ) ( 494 ) ( 434 ) Prior service credit (2),(3) ( 179 ) ( 179 ) ( 42 ) Actuarial loss recognized in current period (2),(3) — 390 524 Net periodic pension cost $ 698 $ 932 $ 1,192 (1) Recognized in selling general and administrative expenses on the Consolidated Statements of Income. (2) Recognized in other income (expense), net, on the Consolidated Statements of Income. (3) Amounts reclassified from accumulated other comprehensive income (loss). Changes in other comprehensive income (loss), net of tax, associated with the Swiss Plan included the following components (in thousands): Years Ended 2023 2022 2021 Current year actuarial gain (loss) on plan assets $ 1,316 $ ( 432 ) $ ( 724 ) Current year actuarial gain (loss) on benefit obligation ( 4,847 ) 6,251 1,671 Actuarial gain recorded in current year 2 348 470 Prior service credit ( 161 ) ( 160 ) 1,142 Change in other comprehensive gain (loss) $ ( 3,690 ) $ 6,007 $ 2,559 Net periodic pension cost and projected and accumulated pension obligation for the Company’s Swiss Plan were calculated using the following assumptions: 2023 2022 Discount rate 1.5 % 2.2 % Salary increases 2.5 % 2.0 % Expected return on plan assets 3.0 % 2.5 % Expected average remaining working lives in years 9.5 9.3 The discount rates are based on an assumed duration of the pension obligations and estimated using the rates of returns for AAA and AA-rated Swiss and foreign CHF-denominated corporate bonds listed on the SIX Swiss Exchange. The salary increase rate was based on the Company’s best estimate of future increases over time. The expected long-term rate of return on plan assets is based on the expected asset allocation and assumptions concerning long-term interest rates, inflation rates, and risk premiums for equities above the risk-free rates of return. These assumptions take into consideration historical long-term rates of return for relevant asset categories. Under Swiss law, pension funds are legally independent from the employer and all the contributions are invested with regulated entities. The Company has a contract with Allianz Suisse Life Insurance Company’s BVG Collective Foundation (the “Foundation”) to manage its Swiss pension fund. Multiple employers contract with the Foundation to manage the employers’ respective pension plans. The Foundation manages the pension plans of its contracted employers as a collective entity. The investment strategy is determined by the Foundation and applies to all members of the collective Foundation. There are no separate financial statements for each employer contract. The pension plan assets of all the employers that contract with the Foundation are comingled. They are considered multiple-employer plans and therefore accounted for as single-employer plans. F- 28 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 11 – Employee Benefit Plans (Continued) Defined Benefit Plan – Switzerland (Continued) As there are no separate financial statements for each employer contract, there are no individual investments that can be directly attributed to the Company’s pension plan assets. However, the funds contributed by an employer are specifically earmarked for its employees and the total assets of the plan allocable to Company’s employees are separately tracked by the Foundation. The lack of visibility into the specific investments of the plan assets and how they are valued is a significant unobservable input, therefore, the Company considers the plan assets collectively to be Level 3 assets under the fair value hierarchy. The table below sets forth the fair value of Plan assets at December 29, 2023 and December 30, 2022, and the related activity in years ended 2023 and 2022 (in thousands): Insurance Contracts (Level 3) Ending balance at December 31, 2021 $ 18,809 Actual return on plan assets 12 Purchases, sales, and settlement 1,888 Ending balance at December 30, 2022 $ 20,709 Actual return on plan assets 1,922 Purchases, sales, and settlement ( 5,250 ) Ending balance at December 29, 2023 $ 17,381 During fiscal year 2024, the Company expects to make cash contributions totaling approximately $ 1,099,000 to the Swiss Plan. The estimated future benefit payments for the Swiss Plan are as follows (in thousands): Year Ended Amount 2024 $ 196 2025 131 2026 158 2027 202 2028 3,897 Thereafter — Total $ 4,584 Defined Benefit Plan-Japan STAAR Japan maintains a noncontributory defined benefit pension plan (“Japan Plan”) substantially covering all the employees of STAAR Japan. Benefits under the Japan Plan are earned, vested, and accumulated based on a point-system, primarily based on the combination of years of service, actual and expected future grades (management or non-management) and actual and future zone (performance) levels of the employees. Each point earned is worth a fixed monetary value, 1,000 Yen per point, regardless of the level grade or zone of the employee. Gross benefits are calculated based on the cumulative number of points earned over the service period multiplied by 1,000 Yen. The mandatory retirement age limit is 60 years old. STAAR Japan administers the pension plan and funds the obligations of the Japan Plan from STAAR Japan’s operating cash flows. STAAR Japan is not required, and does not intend, to provide contributions to the Plan to meet benefit obligations and therefore does not have any plan assets. Benefit payments are made to beneficiaries as they become due. F- 29 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 11 – Employee Benefit Plans (Continued) Defined Benefit Plan-Japan (Continued) The funded status of the benefit plan was as follows (in thousands): 2023 2022 Change in Projected Benefit Obligation: Projected benefit obligation, beginning of period $ 1,181 $ 1,320 Service cost 60 116 Interest cost 3 2 Actuarial (gain) loss 8 ( 42 ) Benefits paid ( 705 ) ( 46 ) Foreign exchange adjustment ( 76 ) ( 169 ) Projected benefit obligation, end of period $ 471 $ 1,181 Change in Plan Assets: Plan assets at fair value, beginning of period $ — $ — Actual return on plan assets — — Employer contributions — — Benefits paid — — Distribution of plan assets — — Foreign exchange adjustment — — Plan assets at fair value, end of period $ — $ — Funded status (pension liability), end of year (1) $ ( 471 ) $ ( 1,181 ) Amount Recognized in Accumulated Other Comprehensive Income (Loss), net of tax: Actuarial loss $ ( 28 ) $ ( 30 ) Prior service cost 3 4 Settlement ( 106 ) — Curtailment ( 2 ) — Net gain (loss) 189 210 Accumulated other comprehensive income $ 56 $ 184 Accumulated benefit obligation at year end $ ( 446 ) $ ( 1,134 ) (1) The underfunded balance was included in pension liability on the Consolidated Balance Sheets. Net periodic pension cost associated with the Japan Plan included the following components (in thousands): Years Ended 2023 2022 2021 Service cost (1) $ 60 $ 116 $ 177 Interest cost (2) 3 2 6 Prior service credit (2),(3) ( 14 ) ( 24 ) 5 Settlement gain (2),(3) ( 160 ) — — Curtailment gain (2),(3) ( 4 ) — — Net periodic pension cost $ ( 115 ) $ 94 $ 188 (1) Recognized in selling general and administrative expenses on the Consolidated Statements of Income. (2) Recognized in other income (expense), net, on the Consolidated Statements of Income. (3) Amounts reclassified from accumulated other comprehensive loss. F- 30 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 11 – Employee Benefit Plans (Continued) Defined Benefit Plan-Japan (Continued) Changes in other comprehensive income (loss), net of tax, associated with the Japan Plan include the following components (in thousands): Years Ended 2023 2022 2021 Amortization of actuarial loss $ 2 $ 5 $ 3 Prior service cost ( 1 ) ( 2 ) ( 1 ) Actuarial income (loss) recorded in current year ( 21 ) ( 11 ) 175 Settlement ( 106 ) — — Curtailment loss ( 2 ) — — Change in other comprehensive income (loss) $ ( 128 ) $ ( 8 ) $ 177 Net periodic pension cost and projected and accumulated pension obligation for the Company’s Japan Plan were calculated using the following assumptions: 2023 2022 Discount rate 0.8 % 0.4 % Salary increases 4.8 % 3.8 % Expected return on plan assets N/A N/A Expected average remaining working lives in years 6.0 10.2 The discount rates are based on the yield curve of corporate bonds rated AA or higher. The salary increase average rate was based on the Company’s best estimate of future increases over time. The estimated future benefit payments for the Japan Plan are as follows (in thousands): Year Ended Amount 2024 $ 40 2025 45 2026 49 2027 51 2028 64 Thereafter 222 Total $ 471 Defined Contribution Plan The Company has a 401(k) profit sharing plan (“401(k) Plan”) for the benefit of qualified employees in the U.S. During the year ended December 29, 2023 , employees who participate may elect to make salary deferral contributions to the 401(k) Plan up to $ 22,500 of the employees’ eligible payroll subject to annual Internal Revenue Code maximum limitations (with a $7 ,500 annual catch-up contribution permitted for those over 50 years old). The Company’s contribution percentage is 80 % of the employee’s contribution up to the first 6 % of the employee’s compensation. In addition, STAAR may make a discretionary contribution to qualified employees, in accordance with the 401(k) Plan. The Company’s contributions, net of forfeitures, to the 401(k) Plan were as follows (in thousands): Years Ended 2023 2022 2021 Employer contributions, net of forfeitures $ 2,720 $ 2,004 $ 1,563 F- 31 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12 — Stockholders’ Equity Incentive Plan The Company maintains an Amended and Restated Omnibus Equity Incentive Plan (the “Equity Plan”). The Equity Plan allows for awards of stock options, stock appreciation rights, restricted stock, RSUs, and other stock- and cash-based awards, including awards that are subject to service-based and performance-based vesting conditions. As of December 29, 2023, the Company had outstanding grants of stock options, restricted stock awards, RSUs and PSUs. Stock options granted under the Equity 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, and expire over periods not exceeding 10 years from the date of grant. Certain stock options and stock-based awards provide for accelerated vesting if there is a change in control and pre-established financial metrics are met (as defined in the Equity Plan). Grants of restricted stock outstanding under the Equity Plan generally vest over periods of one to three years . Grants of RSUs and PSUs outstanding under the Equity Plan generally vest based on service, performance, or a combination of both. On June 15, 2023, the Company’s stockholders approved a proposal to increase the number of shares that may be issued pursuant to stock-based awards granted under the Equity Plan, which increased the share pool by 2,170,000 shares, for a total of 20,205,000 shares. As of December 29, 2023 , there were 2,993,717 shares available for grants of stock-based awards under the Equity Plan. Stock-Based Compensation The following table represents the fair value of stock-based compensation granted during the year ended 2023 (in thousands): Fair Value Stock options $ 21,239 RSUs 17,227 PSUs 10,338 Restricted stock 715 Total stock-based compensation expense $ 49,519 The Company recorded stock-based compensation expense by award as follows (in thousands): Years Ended 2023 2022 2021 Employee stock options $ 12,842 $ 10,403 $ 10,373 Restricted stock 548 686 616 RSUs 7,987 4,512 2,667 PSUs 1,270 3,525 371 Nonemployee stock options 869 1,245 578 Total stock-based compensation expense $ 23,516 $ 20,371 $ 14,605 The Company recorded stock-based compensation expense in the following categories (in thousands): Years Ended 2023 2022 2021 Cost of sales $ 716 $ 501 $ 215 General and administrative 12,125 9,402 6,495 Selling and marketing 4,083 4,795 3,454 Research and development 6,592 5,673 4,441 Total stock-based compensation expense, net 23,516 20,371 14,605 Amounts capitalized as part of inventory 1,672 1,881 1,295 Total stock-based compensation expense, gross $ 25,188 $ 22,252 $ 15,900 F- 32 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12 — Stockholders’ Equity (Continued) Stock-Based Compensation (Continued) As of December 29, 2023, total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Equity Plan were as follows (in thousands): 2023 Stock options $ 22,001 Restricted stock, RSUs and PSUs 16,952 Total unrecognized stock-based compensation cost $ 38,953 This cost is expected to be recognized over a weighted-average period of approximately two years . Assumptions The fair value of each stock 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 stock options granted is derived from the historical exercises and post-vesting cancellations, and represents the period of time that stock options granted are expected to be outstanding. The Company has calculated a 7 % estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S. Treasury yield curve corresponding to the expected term at the time of the grant. Years Ended 2023 2022 2021 Expected dividend yield 0 % 0 % 0 % Expected volatility 60 % 54 % 53 % Risk-free interest rate 3.98 % 2.09 % 0.84 % Expected term (in years) 5.05 5.10 5.38 Stock Options A summary of stock option activity under the Equity Plan for the year ended December 29, 2023 was as follows: Shares (in 000’s) Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in 000’s) Outstanding at December 30, 2022 2,469 $ 39.63 Granted 749 51.88 Exercised ( 518 ) 18.67 Forfeited or expired ( 70 ) 72.30 Outstanding at December 29, 2023 2,630 $ 46.38 6.04 $ 10,088 Exercisable at December 29, 2023 1,704 $ 40.70 4.55 $ 10,088 F- 33 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12 — Stockholders’ Equity (Continued) Stock Options (Continued) A summary of unvested stock options activity under the Equity Plan for the year ended December 29, 2023 was as follows: Shares (in 000’s) Weighted- Average Grant-Date Fair Value Outstanding at December 30, 2022 633 $ 35.37 Granted 749 28.36 Forfeited or expired ( 70 ) 35.30 Vested ( 386 ) 34.63 Unvested at December 29, 2023 926 $ 30.09 The weighted average grant date fair value of stock options granted under the Equity Plan and the total intrinsic value of stock options exercised were as follows: Years Ended 2023 2022 2021 Weighted-average grant-date fair value $ 28.36 $ 35.68 $ 45.08 Intrinsic value of options exercised (in thousands) $ 17,041 $ 25,000 $ 127,024 Restricted Stock, Restricted Stock Units and Performance Stock Units A summary of restricted stock, RSU and PSU activity under the Equity Plan for the year ended December 29, 2023 was as follows: Restricted Stock Restricted Stock Units Performance Stock Units Units (in 000’s) Weighted- Average Grant- Date Fair Value Units (in 000’s) Weighted- Average Grant- Date Fair Value Units (in 000’s) Weighted- Average Grant- Date Fair Value Outstanding at December 30, 2022 4 $ 62.10 192 $ 73.25 118 $ 73.78 Granted 15 46.70 336 51.28 182 56.64 Vested ( 5 ) 55.99 ( 95 ) 68.43 ( 35 ) 71.41 Forfeited or expired — — ( 32 ) 75.86 ( 209 ) 58.93 Outstanding at December 29, 2023 14 $ 47.61 401 $ 55.75 56 $ 74.80 Note 13 — Commitments and Contingencies Asset Retirement Obligation The Company recorded certain Asset Retirement Obligations (“ARO”), in connection with the Company’s obligation to return its Japan facility to its “original condition,” as defined in the lease agreement. The Company has recorded approximately $ 103,000 and $ 220,000 , representing the fair value of the ARO liability obligation in noncurrent liabilities at December 29, 2023 and December 30, 2022, respectively. This lease expires in 2025. Open Purchase Orders As of December 29, 2023, there were open purchase orders of $ 18,199,000 . F- 34 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 13 — Commitments and Contingencies (Continued) Severance Paid For 2023 and 2022, the Company recognized expense of $ 1,392,000 and $ 297,000 for one-time employee benefits paid to certain employees in STAAR Japan who work primarily in cataract IOL sales. These one-time employee benefits were recognized in general and administrative expense on the Consolidated Statements of Income. Indemnification Agreements The Company has entered into indemnification agreements with its directors and officers that may require the Company: (a) to indemnify them against liabilities that may arise by reason of their status or service as directors or officers, except as prohibited by applicable law; (b) to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified; and (c) to make a good faith determination whether or not it is practicable for the Company to obtain directors’ and officers’ insurance. The Company currently has directors’ and officers’ liability insurance through a third-party carrier. Also, in connection with the sale of products and entering into business relationships in the ordinary course of business, the Company may make representations affirming, among other things, that its products do not infringe on the intellectual property rights of others and agrees to indemnify customers against third-party claims for such infringement as well as its negligence. The Company has not been required to make material payments under such provisions. Tax Filings The Company’s tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for taxes; however, final assessments, if any, could be significantly different than the amounts recorded in the Consolidated Financial Statements. Employment Agreements The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective January 1, 2023. He and certain officers, have as provisions of their agreements, certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all its assets, or termination “without cause or for good reason” as defined in the employment agreements. 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. Note 14 — Related Party Transactions The Company has made various advances to certain non-executive employees. Amounts due from employees are included in prepayments, deposits, and other current assets were as follows (in thousands): 2023 2022 Due from employees $ — $ 5 F- 35 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 15 — Supplemental Disclosure of Cash Flow Information The Company’s non-cash investing and financing activities, and cash paid were as follows (in thousands): Years Ended 2023 2022 2021 Non-cash investing and financing activities: ROU assets obtained in exchange for new finance lease liabilities $ — $ — $ 475 Purchase of property and equipment included in accounts payable $ 2,768 $ 1,314 $ 1,331 Cash paid: Interest $ 75 $ 52 $ 75 Taxes $ 2,844 $ 6,633 $ 7,466 Note 16 — 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): Years Ended 2023 2022 2021 Numerator: Net income $ 21,347 $ 39,665 $ 27,511 Denominator: Weighted average common shares outstanding 48,523 47,991 47,213 Less: Unvested restricted stock — ( 4 ) ( 3 ) Weighted average common shares outstanding for basic 48,523 47,987 47,210 Dilutive potential common stock outstanding: Stock options 813 1,310 2,145 Unvested restricted stock 3 2 5 RSUs 56 55 86 PSUs 32 26 10 Weighted average common shares outstanding for diluted 49,427 49,380 49,456 Net income per share: Basic $ 0.44 $ 0.83 $ 0.58 Diluted $ 0.43 $ 0.80 $ 0.56 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. Years Ended 2023 2022 2021 Stock options 2,073 933 228 Restricted stock, RSUs and PSUs 32 18 6 Total 2,105 951 234 F- 36 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 17 — 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 line. The following breaks down revenues into the following categories (in thousands): Years Ended 2023 2022 2021 Non-consignment sales $ 301,163 $ 264,620 $ 210,517 Consignment sales 21,252 19,771 19,955 Total net sales $ 322,415 $ 284,391 $ 230,472 The Company markets and sells its products in more than 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 in that country exceed 10 % of 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): Years Ended 2023 2022 2021 Domestic $ 17,221 $ 14,679 $ 10,095 Foreign: China (1) 185,554 148,167 107,333 Japan 38,472 43,093 40,973 Other (2) 81,168 78,452 72,071 Total foreign sales 305,194 269,712 220,377 Total net sales $ 322,415 $ 284,391 $ 230,472 (1) The China region includes sales into China and Hong Kong. (2) No other location individually exceeds 10 % of the total net sales. 100 % of the Company’s sales are generated from the ophthalmic surgical product segment and the chief operating decision maker makes the operating decisions and allocates resources based upon the consolidated operating results, therefore, the Company operates as one operating segment for financial reporting purposes. The Company’s principal product, ICLs, are used in refractive surgery. Historically the Company marketed and sold cataract IOLs and related injectors and injector parts. The Company phased out sales of such products in fiscal 2023, and it does not expect to sell any such products in fiscal 2024 or thereafter. The composition of the Company’s net sales by product line was as follows (in thousands): Years Ended 2023 2022 2021 ICLs $ 319,427 $ 269,712 $ 212,905 Other product sales Cataract IOLs 1,139 9,638 12,519 Other surgical products (1) 1,849 5,041 5,048 Total other product sales 2,988 14,679 17,567 Total net sales $ 322,415 $ 284,391 $ 230,472 (1) Other surgical products include delivery systems and normal recurring sales adjustments such as sales return allowances. The Company sells its products internationally, which subjects the Company to several potential risks, including fluctuating exchange rates (to the extent the Company’s transactions are not in U.S. dollars), regulation of fund transfers by foreign governments, U.S. and foreign export and import duties and tariffs, and political instability. F- 37 STAAR SURGICAL COMPANY AND SUBSDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 18 —Geographic Assets The composition of the Company’s long-lived assets between those in the U.S., Japan and Switzerland was as follows (in thousands): 2023 U.S. Japan Switzerland Total Property, plant and equipment, net $ 55,851 $ 147 $ 10,837 $ 66,835 Finance lease ROU assets, net 182 1 — 183 Operating lease ROU assets, net 26,501 796 7,090 34,387 Total $ 82,534 $ 944 $ 17,927 $ 101,405 2022 U.S. Japan Switzerland Total Property, plant and equipment, net $ 41,912 $ 129 $ 8,880 $ 50,921 Finance lease ROU assets, net 329 13 — 342 Operating lease ROU assets, net 23,303 280 6,687 30,270 Intangible assets, net 83 90 — 173 Total $ 65,627 $ 512 $ 15,567 $ 81,706 Note 19 – 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 was significant. The Company’s revenues have been adversely impacted since the first quarter of 2020 in global geographies characterized as “hot spots” for the COVID-19 virus and its variants as customers in those locations were limited in their ability to carry out medical procedures or were otherwise limited in their activities by government regulations intended to contain the spread of COVID-19 and variant strains. While many world economies are returning to pre-pandemic levels of business, disruptions from COVID-19 remain a risk, particularly as novel COVID-19 variant strains emerge. The extent to which COVID-19 and its variants may impact medical procedures and lens orders in the future, and the related impact on the Company’s results is uncertain; however, it could have a material adverse impact on the Company’s results of operations, cash flows and financial condition. F- 38 STAAR SURGICAL COMPANY AND SUBSDIARIES SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Column A Column B Column C - Additions Column D Column E Description Balance at Beginning of Year Charged to costs and expenses Charged to other accounts Deductions Balance at End of Year (in thousands) 2023 Allowance for credit losses $ 20 $ 171 $ — $ — $ 191 Sales return reserve 5,706 15,967 — 15,499 6,174 Deferred tax asset valuation allowance 46,977 3,318 — 7,551 42,744 $ 52,703 $ 19,456 $ — $ 23,050 $ 49,109 2022 Allowance for credit losses $ 43 $ 55 $ — $ 78 $ 20 Sales return reserve 4,816 15,459 — 14,569 5,706 Deferred tax asset valuation allowance 62,860 ( 910 ) — 14,973 46,977 $ 67,719 $ 14,604 $ — $ 29,620 $ 52,703 2021 Allowance for credit losses $ 59 $ 5 $ — $ 21 $ 43 Sales return reserve 4,532 14,159 — 13,875 4,816 Deferred tax asset valuation allowance 46,611 ( 3,363 ) — ( 19,612 ) 62,860 $ 51,202 $ 10,801 $ — $ ( 5,716 ) $ 67,719 F- 39