STAAR SURGICAL CO 10-Q

staa-10q_20201002.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: October 2, 2020 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-11634 STAAR SURGICAL CO MPANY (Exact Name of Registrant as Specified in its Charter) Delaware 95-3797439 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 25651 Atlantic Ocean Drive Lake Forest , California 92630 (Address of Principal Executive Offices) (Zip Code) ( 626 ) 303-7902 (Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common STAA NASDAQ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ The registrant has 46,109,765 shares of common stock, par value $0.01 per share, issued and outstanding as of October 30, 2020. STAAR SURGICAL COMPANY INDEX PAGE NUMBER PART I – FINANCIAL INFORMATION 1 ITEM 1 FINANCIAL STATEMENTS 1 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 24 ITEM 4. CONTROLS AND PROCEDURES 25 PART II – OTHER INFORMATION 25 ITEM 1. LEGAL PROCEEDINGS 25 ITEM 1A. RISK FACTORS 26 ITEM 4. MINE SAFETY DISCLOSURES 26 ITEM 5. OTHER INFORMATION 26 ITEM 6. EXHIBITS 26 PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STAAR SURGICAL COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value amounts) (Unaudited) October 2, 2020 January 3, 2020 ASSETS Current assets: Cash and cash equivalents $ 128,338 $ 119,968 Accounts receivable trade, net of allowance of doubtful accounts of $ 131 and $ 88 , respectively 42,063 30,996 Inventories, net 18,234 17,142 Prepayments, deposits and other current assets 7,368 6,560 Total current assets 196,003 174,666 Property, plant and equipment, net 22,662 17,065 Finance lease right-of-use assets, net 640 1,867 Operating lease right-of-use assets, net 7,725 6,684 Intangible assets, net 275 296 Goodwill 1,786 1,786 Deferred income taxes 5,007 3,750 Other assets 600 751 Total assets $ 234,698 $ 206,865 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Line of credit $ 1,353 $ 1,827 Accounts payable 7,830 8,050 Obligations under finance leases 422 560 Obligations under operating leases 2,215 2,700 Allowance for sales returns 4,427 3,644 Other current liabilities 17,612 17,697 Total current liabilities 33,859 34,478 Obligations under finance leases 73 366 Obligations under operating leases 5,571 4,086 Asset retirement obligations 216 211 Pension liability 8,587 7,840 Total liabilities 48,306 46,981 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.01 par value; 60,000 shares authorized: 46,072 and 44,822 shares issued and outstanding at October 3, 2020 and January 3, 2020, respectively 461 448 Additional paid-in capital 328,074 304,288 Accumulated other comprehensive loss ( 2,925 ) ( 3,048 ) Accumulated deficit ( 139,218 ) ( 141,804 ) Total stockholders’ equity 186,392 159,884 Total liabilities and stockholders’ equity $ 234,698 $ 206,865 See accompanying notes to the condensed consolidated financial statements. 1 STAAR SURGICAL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Net sales $ 47,081 $ 39,055 $ 117,462 $ 111,302 Cost of sales 12,210 10,004 33,401 28,172 Gross profit 34,871 29,051 84,061 83,130 Selling, general and administrative expenses: General and administrative 8,589 7,098 24,406 21,443 Selling and marketing 12,649 12,463 34,003 34,288 Research and development 8,751 6,156 22,960 17,889 Total selling, general and administrative expenses 29,989 25,717 81,369 73,620 Operating income 4,882 3,334 2,692 9,510 Other income (expense), net: Interest income, net 1 266 237 796 Gain (loss) on foreign currency transactions 468 ( 584 ) 388 ( 821 ) Royalty income 93 106 239 440 Other income (expense), net ( 63 ) 26 ( 83 ) 124 Total other income (expense), net 499 ( 186 ) 781 539 Income before income taxes 5,381 3,148 3,473 10,049 Provision for income taxes 1,489 760 887 2,380 Net income $ 3,892 $ 2,388 $ 2,586 $ 7,669 Net income per share: Basic $ 0.08 $ 0.05 $ 0.06 $ 0.17 Diluted $ 0.08 $ 0.05 $ 0.05 $ 0.16 Weighted average shares outstanding: Basic 45,903 44,563 45,394 44,426 Diluted 48,180 46,857 47,589 46,848 See accompanying notes to the condensed consolidated financial statements. 2 STAAR SURGICAL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Net income $ 3,892 $ 2,388 $ 2,586 $ 7,669 Other comprehensive income (loss): Defined benefit plans: Net change in plan assets ( 334 ) ( 1,037 ) ( 387 ) ( 1,677 ) Reclassification into other income, net 70 26 212 80 Foreign currency translation loss 316 ( 22 ) 402 317 Tax effect ( 68 ) 115 ( 104 ) 80 Other comprehensive income (loss), net of tax ( 16 ) ( 918 ) 123 ( 1,200 ) Comprehensive income $ 3,876 $ 1,470 $ 2,709 $ 6,469 See accompanying notes to the condensed consolidated financial statements. 3 STAAR SURGICAL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Three Months Ended Common Stock Shares Common Stock Par Value Additional Paid-In Capital Accumulated Other Compre- hensive Income (Loss) Accumulated Deficit Total Balance, at July 3, 2020 45,788 $ 458 $ 320,235 $ ( 2,909 ) $ ( 143,110 ) $ 174,674 Net income — — — — 3,892 3,892 Other comprehensive loss — — — ( 16 ) — ( 16 ) Common stock issued upon exercise of options 269 3 4,426 — — 4,429 Stock-based compensation — — 3,413 — — 3,413 Unvested restricted stock 11 — — — — — Vested restricted stock 4 — — — — — Balance, at October 2, 2020 46,072 $ 461 $ 328,074 $ ( 2,925 ) $ ( 139,218 ) $ 186,392 Balance, at June 28, 2019 44,534 $ 445 $ 296,063 $ ( 1,602 ) $ ( 150,571 ) $ 144,335 Net income — — — — 2,388 2,388 Other comprehensive loss — — — ( 918 ) — ( 918 ) Common stock issued upon exercise of options 64 1 718 — — 719 Stock-based compensation — — 2,816 — — 2,816 Vested restricted stock 8 — — — — — Balance, at September 27, 2019 44,606 $ 446 $ 299,597 $ ( 2,520 ) $ ( 148,183 ) $ 149,340 See accompanying notes to the condensed consolidated financial statements. 4 STAAR SURGICAL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED) (In thousands) (Unaudited) Nine Months Ended Common Stock Shares Common Stock Par Value Additional Paid-In Capital Accumulated Other Compre- hensive Income (Loss) Accumulated Deficit Total Balance, at January 3, 2020 44,822 $ 448 $ 304,288 $ ( 3,048 ) $ ( 141,804 ) $ 159,884 Net income — — — — 2,586 2,586 Other comprehensive income — — — 123 — 123 Common stock issued upon exercise of options 1,146 12 13,974 — — 13,986 Stock-based compensation — — 9,812 — — 9,812 Unvested restricted stock 11 — — — — — Vested restricted stock 93 1 — — — 1 Balance, at October 2, 2020 46,072 $ 461 $ 328,074 $ ( 2,925 ) $ ( 139,218 ) $ 186,392 Balance, at December 28, 2018 44,195 $ 442 $ 289,584 $ ( 1,320 ) $ ( 156,280 ) $ 132,426 Net income — — — — 7,669 7,669 Impact of the adoption of lease accounting standard — — — — 113 113 Impact of adoption of nonemployee share-based payment standard — — ( 315 ) — 315 — Other comprehensive loss — — — ( 1,200 ) — ( 1,200 ) Common stock issued upon exercise of options 190 2 1,827 — — 1,829 Stock-based compensation — — 8,501 — — 8,501 Unvested restricted stock 11 — — — — — Vested restricted stock 210 2 — — — 2 Balance, at September 27, 2019 44,606 $ 446 $ 299,597 $ ( 2,520 ) $ ( 148,183 ) $ 149,340 See accompanying notes to the condensed consolidated financial statements. 5 STAAR SURGICAL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended October 2, 2020 September 27, 2019 Cash flows from operating activities: Net income $ 2,586 $ 7,669 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant, and equipment 2,276 2,853 Amortization of intangibles 26 26 Deferred income taxes ( 1,215 ) 526 Change in net pension liability 522 264 Loss on disposal of property and equipment 3 14 Stock-based compensation expense 8,965 7,778 Provision for sales returns and bad debts 815 309 Inventory provision 1,195 1,222 Changes in working capital: Accounts receivable ( 10,975 ) ( 4,260 ) Inventories ( 1,353 ) ( 179 ) Prepayments, deposits, and other current assets ( 636 ) ( 230 ) Accounts payable ( 657 ) 546 Other current liabilities ( 151 ) ( 536 ) Net cash provided by operating activities 1,401 16,002 Cash flows from investing activities: Acquisition of property and equipment ( 6,259 ) ( 7,169 ) Acquisition of patents and licenses — ( 30 ) Net cash used in investing activities ( 6,259 ) ( 7,199 ) Cash flows from financing activities: Repayment of finance lease obligations ( 455 ) ( 998 ) Repayment on line of credit ( 511 ) ( 1,512 ) Proceeds from the exercise of stock options 13,986 1,829 Proceeds from vested restricted stock 1 2 Net cash provided by (used in) financing activities 13,021 ( 679 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash 207 204 Increase in cash, cash equivalents and restricted cash 8,370 8,328 Cash, cash equivalents and restricted cash, at beginning of the period 119,968 103,999 Cash, cash equivalents and restricted cash, at end of the period $ 128,338 $ 112,327 See accompanying notes to the condensed consolidated financial statements. 6 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 1 — Basis of Presentation and Significant Accounting Policies The Condensed Consolidated Financial Statements of the Company present the financial position, results of operations, and cash flows of STAAR Surgical Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in the Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of January 3, 2020 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 3, 2020. The Condensed Consolidated Financial Statements for the three and nine months ended October 2, 2020 and September 27, 2019, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The results of operations for the three and nine months ended October 2, 2020 and September 27, 2019, are not necessarily indicative of the results to be expected for any other interim period or for the entire year. Each of the Company’s fiscal reporting periods ends on the Friday nearest to the quarter ending date and generally consists of 13 weeks. Unless the context indicates otherwise “we,” “us,” the “Company,” and “STAAR” refer to STAAR Surgical Company and its consolidated subsidiaries. Vendor Concentration There were two vendors which accounted for over 29 % of the Company’s consolidated accounts payable as of October 2, 2020. There was one vendor which accounted for over 11 % of the Company’s consolidated accounts payable as of January 3, 2020. There was one vendor who accounted for over 10 % of the Company’s consolidated purchases for the three months ended October 2, 2020. There were no vendors who accounted for over 10 % of the Company’s consolidated purchases for the nine months ended October 2, 2020. Use of Estimates During the COVID-19 pandemic, the Company believes it has used reasonable estimates and assumptions in 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. Throughout the COVID-19 pandemic the Company offered extended payment terms to assist its surgeon customers and their clinics as they resumed business. During the quarter ended October 2, 2020, the Company has experienced improvements in customer payments and is unaware of any material impairment of customer receivables. The Company’s sales representatives throughout the world remain engaged with customers conducting online training and other educational courses which have been very well attended. This activity has given the Company insight into COVID-19’s impact on customers and potential impairment of receivables. Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted On January 4, 2020 (beginning of fiscal year 2020), the Company adopted Accounting Standards Update (“ASU”) 2016‑13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which (i) significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model; and (ii) provides for recording credit losses on available-for-sale debt securities through an allowance account. ASU 2016-13 also requires certain incremental disclosures. Subsequently, the FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2020-02 and ASU 2020-03 to clarify and improve ASU 2016-13. The adoption of ASU 2016-13 did not have a material impact on the Condensed Consolidated Financial Statements. 7 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 1 — Basis of Presentation and Significant Accounting Policies (Continued) Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted (Continued) On January 4, 2020 (beginning of fiscal year 2020), the Company adopted ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies certain disclosures requirements for reporting fair value measurements. The adoption of ASU 2018-13 did not have a material impact on the Condensed Consolidated Financial Statements. On January 4, 2020 (beginning of fiscal year 2020), the Company adopted ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20); Disclosure Framework – Changes in the Disclosure Requirement for Defined Benefit Plans,” which modifies disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. The adoption of ASU 2018-14 did not have a material impact on the Condensed Consolidated Financial Statements. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 removes the following exceptions: exception to the incremental approach for intra period tax allocation; exception to accounting for basis differences when there are ownership changes in foreign investments; and exception to interim period tax accounting for year to date losses that exceed anticipated losses. ASU 2019-12 also improves financial reporting for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this standard as of January 2, 2021 (beginning of fiscal year 2021) and is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements. Note 2 — Inventories Inventories, net are stated at the lower of cost and net realizable value, determined on a first-in, first-out basis and consisted of the following (in thousands): October 2, 2020 January 3, 2020 Raw materials and purchased parts $ 1,818 $ 3,334 Work in process 4,693 1,870 Finished goods 13,018 12,976 Total inventories, gross 19,529 18,180 Less inventory reserves 1,295 1,038 Total inventories, net $ 18,234 $ 17,142 Note 3 — Prepayments, Deposits, and Other Current Assets Prepayments, deposits, and other current assets consisted of the following (in thousands): October 2, 2020 January 3, 2020 Prepayments and deposits $ 3,534 $ 3,031 Prepaid insurance 242 1,488 Consumption tax receivable 1,059 875 Value added tax (VAT) receivable 1,492 713 Other (1) 1,041 453 Total prepayments, deposits and other current assets $ 7,368 $ 6,560 (1) No individual item in “other current assets” exceeds 5 % of the total prepayments, deposits and other current assets. 8 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 4 — Property, Plant and Equipment Property, plant and equipment, net consisted of the following (in thousands): October 2, 2020 January 3, 2020 Machinery and equipment $ 21,275 $ 17,173 Computer equipment and software 6,686 6,244 Furniture and fixtures 4,614 4,169 Leasehold improvements 11,200 10,151 Construction in process 10,293 8,477 Total property, plant and equipment, gross 54,068 46,214 Less accumulated depreciation 31,406 29,149 Total property, plant and equipment, net $ 22,662 $ 17,065 Note 5 –Intangible Assets Intangible assets, net consisted of the following (in thousands): October 2, 2020 January 3, 2020 Long-lived amortized intangible assets Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Patents and licenses $ 9,369 $ ( 9,094 ) $ 275 $ 9,353 $ ( 9,057 ) $ 296 Note 6 – Other Current Liabilities Other current liabilities consisted of the following (in thousands): October 2, 2020 January 3, 2020 Accrued salaries and wages $ 5,194 $ 4,400 Accrued bonuses 1,000 4,184 Accrued insurance 96 1,346 Income taxes payable 3,898 2,710 Accrued consumption tax 1,228 1,164 Accrued professional fees for clinical trials 1,554 567 Marketing obligations 1,197 633 Other (1) 3,445 2,693 Total other current liabilities $ 17,612 $ 17,697 (1) No individual item in “Other” exceeds 5 % of the other current liabilities . Note 7 – Lines of Credit Since 1998, the Company’s wholly owned Japanese subsidiary, STAAR Japan, has had an agreement with Mizuho Bank which provides for borrowings of up to 500,000,000 Yen, at an interest rate equal to the uncollateralized overnight call rate (approximately 0.06 % as of October 2, 2020) plus a 0.50 % spread, and may be renewed quarterly (the current line expires on November 21, 2020 ). The credit facility is not collateralized. The Company had 142,500,000 Yen and 197,500,000 Yen outstanding on the line of credit as of October 2, 2020 and January 3, 2020, respectively (approximately $ 1,353,000 and $ 1,827,000 based on the foreign exchange rates on October 2, 2020 and January 3, 2020, respectively), which approximates fair value due to the short-term maturity and market interest rates of the line of credit. In case of default, the interest rate will be increased to 14 % per annum. There was 357,500,000 Yen and 302,500,000 Yen available for borrowing as of October 2, 2020 and January 3, 2020, respectively (approximately $ 3,393,000 and $ 2,798,000 based on the foreign exchange rate on October 2, 2020 and January 3, 2020, respectively). At maturity on November 21, 2020, the Company expects to renew this line of credit for an additional three months, with similar terms. 9 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 7 – Lines of Credit (Continued) In September 2013, the Company’s wholly owned Swiss subsidiary, STAAR Surgical AG, entered into a framework agreement for loans (“framework agreement”) with Credit Suisse (the “Bank”). The framework agreement provides for borrowings of up to 1,000,000 CHF (Swiss Francs) (approximately $ 1,100,000 and $ 1,000,000 at the rate of exchange on October 2, 2020 and January 3, 2020 respectively), to be used for working capital purposes. Accrued interest and 0.25 % commissions on average outstanding borrowings is payable quarterly and the interest rate will be determined by the Bank based on the then prevailing market conditions at the time of borrowing. The framework agreement is automatically renewed on an annual basis based on the same terms assuming there is no default. The framework agreement may be terminated by either party at any time in accordance with its general terms and conditions. The framework agreement is not collateralized and contains certain conditions such as providing the Bank with audited financial statements annually and notice of significant events or conditions, as defined in the framework agreement. The Bank may also declare all amounts outstanding to be immediately due and payable upon a change of control or a “material qualification” in STAAR Surgical independent auditors’ report, as defined. There were no borrowings outstanding as of October 2, 2020 and January 3, 2020. The Company is in compliance with covenants of its credit facilities and lines of credit as of October 2, 2020. Note 8 – Leases Finance Leases The Company entered into finance leases primarily related to purchases of equipment used for manufacturing or computer-related equipment. These finance leases are two to five years in length and have fixed payment amounts for the term of the contract and have options to purchase the assets at the end of the lease term. Supplemental balance sheet information related to finance leases consisted of the following (dollars in thousands): October 2, 2020 January 3, 2020 Machinery and equipment $ 569 $ 1,885 Computer equipment and software 827 912 Furniture and fixtures — 102 Leasehold improvements — 27 Finance lease right-of-use assets, gross 1,396 2,926 Less accumulated depreciation 756 1,059 Finance lease right-of-use assets, net $ 640 $ 1,867 Total finance lease liability $ 495 $ 926 Weighted-average remaining lease term (in years) 1.0 1.1 Weighted-average discount rate 3.71 % 6.17 % Supplemental cash flow information related to finance leases consisted of the following (dollars in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Amortization of finance lease right-of-use asset $ 48 $ 141 $ 215 $ 447 Interest on finance lease liabilities 7 17 25 58 Cash paid for amounts included in the measurement of finance lease liabilities: Operating cash flows 7 17 25 58 Financing cash flows 109 317 455 998 Right-of-use assets obtained in exchange for new finance lease liabilities — — 22 679 10 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 8 – Leases (Continued) 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 did not include any lease extensions in the initial valuation unless the Company was reasonably certain to extend the lease. Depending on the lease, there are those with fixed payment amounts for the entire length of the contract or payments which increase periodically as noted in the contract or increased at an inflation rate indicator. For operating leases that increase using an inflation rate indicator, the Company used the inflation rate at the time the lease was entered into for the length of the lease term. Supplemental balance sheet information related to operating leases consisted of the following (dollars in thousands): October 2, 2020 January 3, 2020 Machinery and equipment $ 845 $ 765 Computer equipment and software 462 462 Real property 14,115 11,116 Operating lease right-of-use assets, gross 15,422 12,343 Less accumulated depreciation 7,697 5,659 Operating lease right-of-use assets, net $ 7,725 $ 6,684 Total operating lease liability $ 7,786 $ 6,786 Weighted-average remaining lease term (in years) 5.5 2.3 Weighted-average discount rate 2.49 % 1.82 % Supplemental cash flow information related to operating leases was as follows (dollars in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Operating lease cost $ 752 $ 726 $ 2,238 $ 2,020 Cash paid for amounts included in the measurement of operating lease liabilities: Operating cash flows 780 739 2,281 2,031 Right-of-use assets obtained in exchange for new operating lease liabilities 2,842 140 3,160 2,797 Future Minimum Lease Commitments Estimated future minimum lease payments under operating and finance leases having initial or remaining non-cancelable lease terms more than one year as of October 2, 2020 is as follows (in thousands): As of October 2, 2020 12 Months Ended Operating Leases Finance Leases September 2021 $ 2,374 $ 433 September 2022 1,632 51 September 2023 1,404 15 September 2024 896 8 September 2025 637 — Thereafter 1,228 — Total minimum lease payments, including interest $ 8,171 $ 507 Less amounts representing interest 385 12 Total minimum lease payments $ 7,786 $ 495 11 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 9 — Income Taxes The Company recorded an income tax provision as follows (in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Provision for income taxes $ 1,489 $ 760 $ 887 $ 2,380 The Company recorded income taxes of $ 1,489,000 for the three months ended October 2, 2020 due to pre-tax income generated in certain foreign jurisdictions, partially offset by a reversal of $ 154,000 of its U.S. valuation allowance, as a result of an increase in foreign income and changes in the usage and release of certain deferred tax assets. The Company recorded income taxes of $ 760,000 for the three months ended September 27, 2019 due to pre-tax income generated in certain foreign jurisdictions and withholding taxes on foreign operations. The Company recorded income taxes of $ 887,000 for the nine months ended October 2, 2020 due to income tax expense from profits generated from its foreign operations, partially offset by the release of its U.S. valuation allowance. The Company recorded income taxes of $ 2,380,000 for the nine months ended September 27, 2019, primarily due to pre-tax income generated in certain foreign jurisdictions and withholding taxes on foreign operations. The Company’s quarterly provision for income taxes is determined by estimating an annual effective tax rate. This estimate may fluctuate throughout the year as new information becomes available affecting its underlying assumptions. In the fourth quarter of fiscal year 2019, the Company reversed all previously recorded withholding taxes recorded for 2019, at which time the Company formed STAAR Surgical UK Limited as a holding company for its foreign operations. Based on the current tax treaties between the U.S., United Kingdom and Switzerland, the Company will no longer accrue for Switzerland withholding taxes on foreign earnings after fiscal 2018 (see also Note 10 in its fiscal 2019 Form 10-K for more information). There are no unrecognized tax benefits related to uncertain tax positions taken by the Company. All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. The 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50 percent of GILTI, however this deduction is limited by the Company’s U.S. taxable income. The Company has elected to account for GILTI as a current period expense when incurred. On July 20, 2020 the U.S. Treasury issued final regulations for addressing the treatment of foreign income that is subject to a high rate of foreign tax (the GILTI high-tax exclusion). The final regulations allow companies to exclude certain high-taxed income from their GILTI calculation. The GILTI high-tax exclusion applies if the effective foreign tax rate is 90% or more of the rate that would apply if the income were subject to the maximum US rate of tax specified in section 11 (currently 18.9%, based on a maximum rate of 21%). The final regulations also provide that the GILTI high-tax exclusion is an annual election made each year and is retroactive to years beginning after December 31, 2017. The Company has made the election to exclude certain high-taxed income from its GILTI calculation for 2019 and the three and nine months ended October 2, 2020. 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. As of fiscal year end 2019, the Company had three years of accumulated profits for federal and various state income tax purposes as a result of GILTI. However, the three-year income position is not solely determinative and, accordingly, 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. As further described in Notes 1 and 10 of the Company’s fiscal 2019 Form 10-K, under the “incremental cash tax savings approach,” the Company recorded a valuation allowance release of $ 3,003,000 and $ 373,000 against the federal and certain states deferred tax assets, respectively. During the nine months ended October 2, 2020, the Company revised its global forecasts as a result of COVID‑19, and due to changes in the usage and release of certain deferred tax assets, the Company released an additional $ 1,215,000 of valuation allowance. As of October 2, 2020, the Company released approximately $ 4,591,000 of valuation allowance on its deferred tax assets in the U.S. jurisdiction utilizing the incremental cash tax savings approach. 12 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 9 — Income Taxes (Continued) Under the incremental cash tax savings approach, the U.S. valuation allowances of $ 35,745,000 , will remain as the usage of the remaining net operating losses and deferred tax assets will not result in cash tax savings and therefore provide no additional benefit. As of October 2, 2020, the Company had net deferred tax assets in the U.S. of $ 4,727,000 , which consisted of the federal and state valuation allowance release of $ 4,307,000 and $ 284,000 , respectively, and the refundable alternative minimum tax credit of $ 136,000 . On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. The Company reviewed the provisions of the CARES Act, but does not expect it to have a material impact to its tax provision (also see note 15). Note 10 – Defined Benefit Pension Plans The Company has defined benefit plans covering employees of its Switzerland and Japan operations. The following table summarizes the components of net periodic pension cost recorded for the Company’s defined benefit pension plans (in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Service cost (1) $ 320 $ 240 $ 959 $ 720 Interest cost (2) 12 20 34 60 Expected return on plan assets (2) ( 47 ) ( 36 ) ( 136 ) ( 103 ) Prior service credit (2),(3) ( 9 ) ( 6 ) ( 26 ) ( 17 ) Actuarial loss recognized in current period (2),(3) 79 32 238 97 Net periodic pension cost $ 355 $ 250 $ 1,069 $ 757 (1) Recognized in selling general and administrative expenses on the Condensed Consolidated Statements of Income. ( 2 ) Recognized in other income (expense), net on the Condensed Consolidated Statements of Income. (3) Amounts reclassified from accumulated other comprehensive income (loss). The Company currently is not required to and does not make contributions to its Japan pension plan. The Company’s contributions to its Swiss pension plan are as follows (in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Employer contribution $ 189 $ 141 $ 519 $ 404 13 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 11 — Stockholders’ Equity Stock-Based Compensation The cost that has been charged against income for stock-based compensation is set forth below (in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Employee stock options $ 2,469 $ 2,178 $ 7,206 $ 5,770 Restricted stock 119 77 273 236 Restricted stock units 415 246 1,238 1,661 Performance stock units 54 — 54 — Nonemployee stock options 69 57 194 111 Total stock-based compensation expense $ 3,126 $ 2,558 $ 8,965 $ 7,778 The Company recorded stock-based compensation costs in the following categories (in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Cost of sales $ 30 $ 7 $ 82 $ 43 General and administrative 1,307 1,082 3,601 2,878 Marketing and selling 807 692 2,674 2,553 Research and development 982 777 2,608 2,304 Total stock-based compensation expense, net 3,126 2,558 8,965 7,778 Amounts capitalized as part of inventory 287 258 847 723 Total stock-based compensation expense, gross $ 3,413 $ 2,816 $ 9,812 $ 8,501 Incentive Plan The Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, restricted stock units (“RSUs”) and performance stock units (“PSUs”). Options under the Plan are granted at fair market value on the date of grant, become exercisable generally over a three-year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control and pre-established financial metrics are met (as defined in the Plan). Grants of restricted stock outstanding under the Plan generally vest over periods of one to three years . Grants of RSUs and PSUs outstanding under the Plan generally vest based on service, performance, or a combination of both. On July 30, 2020, stockholders approved a proposal to increase the number of shares under the plan by 2,650,000 shares, for a total of 18,035,000 shares. As of October 2, 2020, there were 3,376,152 shares available for grant under the Plan. Assumptions The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-vesting cancellations and represents the period of time that options granted are expected to be outstanding. The Company has calculated an 6 % 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. 14 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 11 — Stockholders’ Equity (Continued) Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Expected dividend yield 0 % 0 % 0 % 0 % Expected volatility 53 % 53 % 53 % 53 % Risk-free interest rate 0.31 % 1.55 % 0.53 % 2.40 % Expected term (in years) 5.72 5.67 5.72 5.67 Stock Options A summary of stock option activity under the Plan for the nine months ended October 2, 2020 is presented below: Stock Options (in 000’s) Minimum Exercise Price Maximum Exercise Price Outstanding at January 3, 2020 4,326 Granted 616 Exercised ( 1,146 ) Forfeited or expired ( 14 ) Outstanding at October 2, 2020 3,782 $ 5.05 $ 51.42 Exercisable at October 2, 2020 2,594 Restricted Stock, Restricted Stock Units and Performance Stock Units A summary of restricted stock, RSUs and PSUs activity under the Plan for the nine months ended October 2, 2020 is presented below: Restricted Stock (in 000’s) Restricted Stock Units (in 000’s) Performance Stock Units (in 000’s) Unvested at January 3, 2020 11 104 — Granted 11 127 15 Vested ( 11 ) ( 93 ) — Forfeited or expired — ( 1 ) — Unvested at October 2, 2020 11 137 15 Note 12 - Commitments and Contingencies Litigation and Claims On August 19, 2020, a putative federal securities class action, Alwazaan v. STAAR Surgical Co., et al., was filed against the Company and certain of its executives in the U.S. District Court for the Central District of California. On September 1, 2020, a substantially similar federal securities class action, Zhang v. STAAR Surgical Co., et al., was filed against the Company and the same executives in the U.S. District Court for the Central District of California. On September 11, 2020, the court consolidated the two actions under the caption In re STAAR Surgical Co. Securities Litigation . The plaintiffs in the lawsuit allege that the Company made material misstatements regarding its sales in China, its marketing spend, and its R&D expenses. Plaintiffs seek compensatory and punitive damages as well as attorneys’ fees. Although the ultimate outcome of this action cannot be determined with certainty, the Company denies any wrongdoing and will vigorously defend itself against these claims. Employment Agreements The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective March 1, 2015. She and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all its assets, or termination “without cause or for good reason” as defined in the employment agreements. 15 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 13 — Basic and Diluted Net Income Per Share The following table sets forth the computation of basic and diluted net income per share (in thousands except per share amounts): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Numerator: Net income $ 3,892 $ 2,388 $ 2,586 $ 7,669 Denominator: Weighted average common shares: Common shares outstanding 45,914 44,573 45,405 44,436 Less: Unvested restricted stock ( 11 ) ( 10 ) ( 11 ) ( 10 ) Denominator for basic calculation 45,903 44,563 45,394 44,426 Weighted average effects of potentially diluted common stock: Stock options 2,208 2,194 2,124 2,260 Unvested restricted stock — 2 5 6 Restricted stock units 68 98 66 156 Performance stock units 1 — — — Denominator for diluted calculation 48,180 46,857 47,589 46,848 Net income per share: Basic $ 0.08 $ 0.05 $ 0.06 $ 0.17 Diluted $ 0.08 $ 0.05 $ 0.05 $ 0.16 The following table sets forth (in thousands) the weighted average number of options to purchase shares of common stock, restricted stock, RSUs and PSUs with either exercise prices or unrecognized compensation cost per share greater than the average market price per share of the Company’s common stock, which were not included in the calculation of diluted per share amounts because the effects would be anti-dilutive. Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Stock options 12 1,836 896 1,446 Restricted stock, restricted stock units and performance stock units 8 — 13 — Total 20 1,836 909 1,446 16 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 14 — Disaggregation of Sales, Geographic Sales and Product Sales In the following tables, sales are disaggregated by category, sales by geographic market and sales by product data. The following breaks down sales into the following categories (in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Non-consignment sales $ 42,535 $ 34,696 $ 96,381 $ 98,518 Consignment sales 4,546 4,359 21,081 12,784 Total net sales $ 47,081 $ 39,055 $ 117,462 $ 111,302 The Company markets and sells its products in over 75 countries and conducts its manufacturing in the United States. Other than China and Japan, the Company does not conduct business in any country in which its sales exceed 10 % of worldwide consolidated net sales. Sales are attributed to countries based on location of customers. The composition of the Company’s net sales to unaffiliated customers was as follows (in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Domestic $ 1,477 $ 1,783 $ 4,098 $ 5,849 Foreign: China 23,301 18,361 53,619 49,526 Japan 9,208 7,345 24,973 19,139 Other (1) 13,095 11,566 34,772 36,788 Total foreign sales 45,604 37,272 113,364 105,453 Total net sales $ 47,081 $ 39,055 $ 117,462 $ 111,302 (1) No other location individually exceeds 10 % of the total sales. 100 % of the Company’s sales are generated from the ophthalmic surgical product segment and the chief operating decision maker makes operating decisions and allocates resources based upon the consolidated operating results, and therefore the Company operates as one operating segment for financial reporting purposes. The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery and intraocular lenses (“IOLs”) used in cataract surgery. The composition of the Company’s net sales by product line was as follows (in thousands): Three Months Ended Nine Months Ended October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 ICLs $ 41,493 $ 33,815 $ 101,561 $ 96,033 Other product sales IOLs 3,325 4,093 9,880 11,984 Other surgical products 2,263 1,147 6,021 3,285 Total other product sales 5,588 5,240 15,901 15,269 Total net sales $ 47,081 $ 39,055 $ 117,462 $ 111,302 One customer, the Company’s distributor in China, accounted for 49 % and 46 % of net sales for the three and nine months ended October 2, 2020, respectively, and the same customer, accounted for 47 % and 44 % of net sales for the three and nine months ended September 27, 2019, respectively. As of October 2, 2020 and January 3, 2020, respectively, one customer, the Company’s distributor in China, accounted for 59 % and 43 % of consolidated trade receivables. 17 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note 15 — COVID-19 and CARES Act Developments In December 2019, COVID-19 surfaced and in March 2020, the World Health Organization declared a pandemic related to the rapid spread of COVID-19 around the world. The impact of the COVID-19 outbreak on the businesses and the economy in the U.S. and the rest of the world is, and is expected to continue to be, uncertain and may be significant. Accordingly, the Company cannot predict the extent to which its financial condition and results of operation will be affected. On March 17, 2020, the Company suspended most of its production and non-essential business locations where employees can work from home. A very limited number of manufacturing personnel remained at work for critical late staged processes, until the end of March 2020. Manufacturing resumed on April 27, 2020. The Company’s revenues have been adversely impacted, as customers in China were not able to carry out procedures during the month of February and the Company experienced a substantial slowdown in sales beginning March 20, 2020 in global geographies characterized as “hot spots” for the COVID-19 virus, including parts of Europe, North America, the Middle East and India. In certain of these markets, sales have paused as elective surgeries are discouraged to support COVID-19 related needs. The Company expects decreases in sales in certain geographies to continue through the remainder of 2020 and into 2021 as different geographies resume business activities on differing timelines. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company did not apply for or require financing available under the CARES Act and does not expect to do so given the strength of our balance sheet. The Company will continue to monitor the impact that the CARES Act may have on its business, financial condition, results of operations, or liquidity. 18 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can recognize forward-looking statements by the use of words like “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “should,” “forecast” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements about any of the following: any projections of or guidance as to earnings, revenue, sales, profit margins, expense rate, cash, effective tax rate, capital expense or any other financial items; the expected impact of the COVID-19 pandemic and related public health measures (including but not limited to their impact on sales, operations or clinical trials globally), the plans, strategies, and objectives of management for future operations or prospects for achieving such plans; statements regarding new, existing, or improved products, including but not limited to, expectations for success of new, existing, and improved products in the U.S. or international markets or government approval of a new or improved products (including the EVO family of lenses in the U.S. and the EVO Viva family of lenses for presbyopia internationally ); commercialization of new or improved products; future economic conditions or size of market opportunities; expected costs of operations; statements of belief, including as to achieving 2020 business plans; expected regulatory activities and approvals, product launches, and any statements of assumptions underlying any of the foregoing. Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and we can give no assurance that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, risks and uncertainties related to the COVID-19 pandemic and related public health measures, and those described in in our Annual Report on Form 10-K in “Item 1A. Risk Factors” filed on February 26, 2020, as well as the updated risk factor disclosed in our Quarterly Report on Form 10-Q in “Item 1A. Risk Factors” filed on May 16, 2020. We undertake no obligation to update these forward-looking statements after the date of this report to reflect future events or circumstances or to reflect actual outcomes. The following discussion should be read in conjunction with the audited consolidated financial statements of STAAR, including the related notes, provided in this report. Overview STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and companion delivery systems used to deliver the lenses into the eye. We are the world’s leading manufacturer of intraocular lenses for patients seeking refractive vision correction, and we also make lenses for use in surgery to treat cataracts. All the lenses we make are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally invasive surgery. Refractive surgery is performed to treat the type of visual disorders that have traditionally been corrected using eyeglasses or contact lenses. We refer to our lenses used in refractive surgery as “implantable Collamer® lenses” or “ICLs.” The field of refractive surgery includes both lens-based procedures, using products like our ICL family of products, and laser-based procedures like LASIK. Successful refractive surgery can correct common vision disorders such as myopia, hyperopia, and astigmatism. Cataract surgery is a common outpatient procedure where the eye’s natural lens that has become cloudy with age is removed and replaced with an artificial lens called an intraocular lens (IOL) to restore the patient’s vision. STAAR employs a commercialization strategy that strives for sustainable profitable growth. Our goal is to position our refractive lenses throughout the world as primary and premium solutions for patients seeking visual freedom from wearing eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction. We position our IOL lenses used in surgery that treats cataracts based on quality and value. Recent Developments For the third quarter of 2020 STAAR’s net sales increased 21% over the prior year driven by 25% global ICL unit growth as markets more fully reopened following COVID-19 related shutdowns. Notable markets for ICL unit growth in the third quarter of 2020 included China, Japan, South Korea, Spain, Germany, European distributor markets, and rest of APAC. India and the Middle East were the two markets that remained most challenged by COVID-19 during the third quarter. During the third quarter we completed patient enrollment in our U.S. EVO clinical trial and by October 30, 2020 all primary patients in the trial were implanted with the lens. Primary study analysis will be conducted when 300 primary eyes complete six months of follow-up, which is anticipated early in the second quarter of 2021 with submission of the study results to the FDA shortly thereafter. Considering the subsequent six-month patient follow-up and time to prepare our data submission to the FDA, we believe we are on track for potential marketing approval and commercialization of EVO in the U.S. in the second half of 2021. Also, on November 4, 2020, we announced the first EVO Viva lens patient who was implanted in Belgium. We are embarking upon the phased rollout of that presbyopia-correcting lens in Europe. 19 While COVID-19 hotspots and government public health mandates may reoccur moving forward, we anticipate less business interruption and continued interest in our EVO ICL lens-based refractive solutions in the fourth quarter of 2020. We also continue to believe that we will achieve a 20% share of the refractive procedure market in China by the end of the year. Assuming significant COVID-19 hotspots and government public health mandates do not reoccur and global economic improvement progresses, our outlook for the fourth quarter of 2020 currently anticipates re venue in the range of $42 to $44 million with the caveat of increased spending to support a developing strong outlook for 2021. Critical Accounting Policies This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our unaudited Condensed Consolidated Financial Statements provided in this report, which we have prepared in accordance with U.S. generally accepted accounting principles. Preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates. An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Management believes that there have been no significant changes during the nine months ended October 2, 2020 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January 3, 2020. Results of Operations The following table shows the percentage of our total sales represented by certain items reflected in our Condensed Consolidated Statements of Operations for the periods indicated. Percentage of Net Sales for Three Months Percentage of Net Sales for Nine Months October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 25.9 % 25.6 % 28.4 % 25.3 % Gross profit 74.1 % 74.4 % 71.6 % 74.7 % General and administrative 18.2 % 18.2 % 20.8 % 19.3 % Selling and marketing 26.9 % 31.9 % 29.0 % 30.8 % Research and development 18.6 % 15.8 % 19.5 % 16.1 % Total selling, general and administrative 63.7 % 65.9 % 69.3 % 66.2 % Operating income 10.4 % 8.5 % 2.3 % 8.5 % Total other income (expense), net 1.1 % (0.5 )% 0.7 % 0.5 % Income before income taxes 11.5 % 8.0 % 3.0 % 9.0 % Provision for income taxes 3.2 % 1.9 % 0.8 % 2.1 % Net income 8.3 % 6.1 % 2.2 % 6.9 % 20 Net Sales Three Months Ended Percentage Change Nine Months Ended Percentage Change October 2, 2020 September 27, 2019 2020 vs. 2019 October 2, 2020 September 27, 2019 2020 vs. 2019 ICLs $ 41,493 $ 33,815 22.7 % $ 101,561 $ 96,033 5.8 % Other product sales IOLs 3,325 4,093 (18.8 )% 9,880 11,984 (17.6 )% Other surgical products 2,263 1,147 97.3 % 6,021 3,285 83.3 % Total other product sales 5,588 5,240 6.6 % 15,901 15,269 4.1 % Net sales $ 47,081 $ 39,055 20.6 % $ 117,462 $ 111,302 5.5 % Net sales for the three months ended October 2, 2020 were $47.1 million, an increase of 21% from $39.1 million reported during the same period of 2019. The increase in net sales was due to increased ICL sales of $7.7 million and other product sales of $0.3 million. Changes in foreign currency favorably impacted net sales by $0.4 million. Net sales for the nine months ended October 2, 2020 were $117.5 million, an increase of 6% from $111.3 million reported during the same period of 2019. The increase in net sales was due to increased ICL sales of $5.5 million and other product sales of $0.6 million. Changes in foreign currency favorably impacted net sales by $0.5 million. Total ICL sales for the three months ended October 2, 2020 were $41.5 million, an increase of 23% from $33.8 million reported for the same period of 2019, with unit increase of 25%. The APAC region sales increased by 29%, with unit growth up 31% due to unit growth in Japan up 67%, other APAC Distributors up 67%, China up 33%, and Korea up 21%. The Europe, Middle East, Africa and Latin America region sales increased 7% with unit decrease of 2% due to a decrease in units in the Middle East and Africa of 54%, offset by unit growth in the UK up 44%, Spain up 24%, Distributor Operations up 17%, Germany up 13% and Latin America up 12%. The North America region sales decreased 3%, with unit decrease of 1%, due to a decrease in units of 8% in the U.S., offset by unit growth in Canada of 31%. ICL sales represented 88.1% and 86.6% of our total sales for the three months ended October 2, 2020 and September 27, 2019, respectively. Total ICL sales for the nine months ended October 2, 2020 were $101.6 million, a 6% increase from $96.0 million reported for the same period of 2019, with unit growth up 10%. The APAC region sales increased by 13%, with unit growth up 17% due to unit growth in Japan up 62%, Korea up 17%, China up 16% and other APAC Distributors up 30%. The Europe, Middle East, Africa and Latin America region sales decreased 9% and units decreased 12%. The North America region sales and units decreased 22%. The decrease in both these regions were impacted by the COVID-19 pandemic in the first half of 2020; most markets started to reopen in mid-May/early June. ICL sales represented 86.5% and 86.3% of our total sales for the nine months ended October 2, 2020 and September 27, 2019, respectively. Other product sales, including IOLs were $5.6 million for the three months ended October 2, 2020, an increase of 7% from $5.2 million reported for the same period of 2019. Other product sales were $15.9 million for the nine months ended October 2, 2020, an increase of 4% from $15.3 million reported for the same period of 2019. The increase in both periods was due to increased preloaded injector part sales to a third-party manufacturer for product they sell to their customers, offset by decreased IOL sales. Other product sales represented 11.9% and 13.4% of our total sales for the three months ended October 2, 2020 and September 27, 2019, respectively, and represented 13.5% and 13.7% of our total sales for the nine months ended October 2, 2020 and September 27, 2019, respectively . Gross Profit Three Months Ended Percentage Change Nine Months Ended Percentage Change October 2, 2020 September 27, 2019 2020 vs. 2019 October 2, 2020 September 27, 2019 2020 vs. 2019 Gross profit $ 34,871 $ 29,051 20.0 % $ 84,061 $ 83,130 1.1 % Gross margin 74.1 % 74.4 % 71.6 % 74.7 % Gross profit for the three months ended October 2, 2020 was $34.9 million, a 20.0% increase compared to the $29.1 million reported for the same period of 2019. Gross profit margin decreased to 74.1% of revenue for the three months ended October 2, 2020 compared to 74.4% of revenue for the three months ended September 27, 2019, due to geographic sales mix, period costs associated with the manufacturing expansion projects, and increased mix of injector part sales which carry a lower margin. 21 Gross profit for the nine months ended October 2, 2020 was $ 84.1 million, a 1.1 % in crease compared to the $ 83.1 million reported for the same period of 2019. Gross profit margin decreased to 71. 6 % of revenue for the nine months ended October 2, 2020 compared to 74.7 % of revenue for the three months ended September 27, 2019 , due primarily to geographic sales mix, $ 1.2 million in expenses related to the COVID-19 manufacturing pause from March 17 through April 27 , 2020, period costs associated with the manufacturing expansion projects and increased mix of injector part sales which carry a lower margin. General and Administrative Expense Three Months Ended Percentage Change Nine Months Ended Percentage Change October 2, 2020 September 27, 2019 2020 vs. 2019 October 2, 2020 September 27, 2019 2020 vs. 2019 General and administrative expense $ 8,589 $ 7,098 21.0 % $ 24,406 $ 21,443 13.8 % Percentage of sales 18.2 % 18.2 % 20.8 % 19.3 % General and administrative expenses for the three months ended October 2, 2020 were $8.6 million, a 21.0% increase compared to the $7.1 million reported for the same period of 2019, due to increased salary-related expenses, variable compensation and facility costs. General and administrative expenses for the nine months ended October 2, 2020 were $24.4 million, a 13.8% increase compared to the $21.4 million reported for the same period of 2019, due to increased salary-related expenses, variable compensation, tax consulting, facility costs and corporate insurance, partially offset by decreased travel expenses. Selling and Marketing Expense Three Months Ended Percentage Change Nine Months Ended Percentage Change October 2, 2020 September 27, 2019 2020 vs. 2019 October 2, 2020 September 27, 2019 2020 vs. 2019 Selling and marketing expense $ 12,649 $ 12,463 1.5 % $ 34,003 $ 34,288 (0.8 )% Percentage of sales 26.9 % 31.9 % 29.0 % 30.8 % Selling and marketing expenses for the three months ended October 2, 2020 were $12.6 million, a 1.5% increase compared to the $12.5 million reported for the same period of 2019, due to increased salary-related expenses, advertising and promotional activities and variable compensation, offset by decreased trade show and travel expenses. Marketing and selling expenses for the nine months ended October 2, 2020 were $34.0 million, an 0.8% decrease compared to the $34.3 million reported for the same period of 2019, due to decreased trade show and travel expenses, offset by increased advertising and promotional activities, salary-related expenses and variable compensation. Research and Development Expense Three Months Ended Percentage Change Nine Months Ended Percentage Change October 2, 2020 September 27, 2019 2020 vs. 2019 October 2, 2020 September 27, 2019 2020 vs. 2019 Research and development expense $ 8,751 $ 6,156 42.2 % $ 22,960 $ 17,889 28.3 % Percentage of sales 18.6 % 15.8 % 19.5 % 16.1 % Research and development expenses for the three months ended October 2, 2020 were $8.8 million, a 42.2% increase compared to the $6.2 million reported for the same period of 2019, primarily due to increased clinical expenses associated with our EVO clinical trial in the U.S., variable compensation and salary-related expenses. Research and development expenses for the nine months ended October 2, 2020 were $23.0 million, a 28.3% increase compared to the $17.9 million reported for the same period of 2019, primarily due to increased clinical expenses associated with our EVO clinical trial in the U.S., and increased salary-related expenses, partially offset by travel expense. 22 Other Income (Expense) , Net Three Months Ended Percentage Change Nine Months Ended Percentage Change October 2, 2020 September 27, 2019 2020 vs. 2019 October 2, 2020 September 27, 2019 2020 vs. 2019 Other income (expense), net $ 499 $ (186 ) —* $ 781 $ 539 44.9 % Percentage of sales 1.1 % (0.5 )% 0.7 % 0.5 % * Denotes change is greater than + 100%. Other income, net for the three months ended October 2, 2020 was $0.5 million, compared to other expense, net of $0.2 million reported for the same period of 2019. The change in other income (expense), net for the three months was due increased foreign exchange gains (primarily euro), partially offset by a decrease interest income, net, as a result of lower interest rates. Other income, net for the nine months ended October 2, 2020 was $0.8 million, a 44.9% increase compared to $0.5 million reported for the same period of 2019. The increase in other income, net for the nine months was due to increased foreign exchange gains (primarily the euro), offset by decreases in interest income, as a result of lower interest rates, and royalty income, which was impacted by COVID-19 pandemic. Income Taxes Three Months Ended Percentage Change Nine Months Ended Percentage Change October 2, 2020 September 27, 2019 2020 vs. 2019 October 2, 2020 September 27, 2019 2020 vs. 2019 Income tax provision (benefit) $ 1,489 $ 760 95.9 % $ 887 $ 2,380 (62.7 )% We recorded income taxes of $1.5 million for the three months ended October 2, 2020 due to pre-tax income generated in certain foreign jurisdictions, partially offset by a reversal of $0.2 million of our U.S. valuation allowance, as a result of an increase in foreign income and changes in the usage and release of our deferred tax assets. We recorded income taxes of $0.8 million for the three months ended September 27, 2019 due to pre-tax income generated in certain foreign jurisdictions and withholding taxes on foreign operations. We recorded income taxes of $0.9 million for the nine months ended October 2, 2020 due to income tax expense from profits generated by our foreign operations, partially offset by the release of our U.S. valuation allowances. We recorded income taxes of $2.4 million for the nine months ended September 27, 2019 primarily due to pre-tax income generated in certain foreign jurisdictions and withholding taxes on foreign operations. In the fourth quarter of fiscal year 2019, we reversed all previously recorded withholding taxes recorded for 2019, at which time we formed STAAR Surgical UK Limited as a holding company for our foreign operations. Based on the current tax treaties between the U.S., United Kingdom and Switzerland, we will no longer accrue for Switzerland withholding taxes on foreign earnings after fiscal 2018 (see also Note 10 in our fiscal 2019 Form 10-K for more information). We have no unrecognized tax benefits pertaining to any uncertain tax positions as of any period presented. ASC 740 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset may not be realizable. As further described in Notes 1 and 10 of our fiscal 2019 Form 10-K, under the “incremental cash tax savings approach,” we recorded a valuation release of $3.0 million and $0.4 million against federal and certain states deferred tax assets, respectively. During the nine months ended October 2, 2020 , we revised our global forecasts as a result of COVID-19, and due to changes in the usage and release of certain deferred tax assets, we released an additional $1.2 million of valuation allowance. As of October 2, 2020 , we released approximately $4.6 million of valuation allowance on our deferred tax assets in the U.S. jurisdiction utilizing the incremental cash tax savings approach. 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. We considered the projected future income, tax planning strategies and all other available evidence both positive and negative, as well as results of recent operations in making this assessment. In applying the incremental cash tax savings approach, we will continue to maintain a valuation allowance on the balance of the Company’s net U.S. deferred tax assets of $35.7 million. Liquidity and Capital Resources We believe that current cash, cash equivalents and future cash flow from operating activities will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the financial statements included in this quarterly report. Although we have experienced some delays in payments on accounts receivable as a result of the COVID-19 pandemic in the first half of 2020, this has improved during the third quarter of 2020 as our customers resume elective refractive surgery. However, at this time we are 23 unaware of any impairment of assets resulting from the COVID - 19 pandemic. The Company did not apply for or require financing available under the Coronavirus Aid, Relief, and Economic Security “CARES” Act and does not expect to do so given the strength of our balance sheet. Our financial condition at October 2, 2020 and January 3, 2020 included the following (in millions): October 2, 2020 January 3, 2020 2020 vs. 2019 Cash and cash equivalents $ 128.3 $ 120.0 $ 8.3 Current assets $ 196.0 $ 174.7 $ 21.3 Current liabilities 33.9 34.5 (0.6 ) Working capital $ 162.1 $ 140.2 $ 21.9 We invest the net proceeds in short-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. Additionally, at October 2, 2020, we have a line of credit with a Japanese lender, in the amount of $1.3 million, with $3.4 million of availability and a line of credit with a Swiss lender, in the amount of $1.1 million, which is fully available for borrowing. Net cash provided by operating activities was $1.4 million for the nine months ended October 2, 2020 compared to net cash provided by operating activities of $16.0 million for the nine months ended September 27, 2019. Net cash provided by operating activities for the nine months ended October 2, 2020, consisted of $12.6 in non-cash items and $2.6 million in net income, offset by $13.8 million in working-capital changes. The decrease in net cash provided by operating activities during the nine months ended October 2, 2020 was due to decreases in net working capital of $9.1 million, net income of $5.1 million and non-cash items of $0.4 million. Net cash used in investing activities was $6.3 million and $7.2 million for the nine months ended October 2, 2020 and September 27, 2019, respectively, and relate primarily to the acquisition of property, plant, and equipment. Net cash provided by financing activities was $13.0 million for the nine months ended October 2, 2020 compared to net cash used in financing activities of $0.7 million for the nine months ended September 27, 2019. Net cash provided by financing activities for the nine months ended October 2, 2020 consisted of $14.0 million of proceeds from the exercise of stock options, partially offset by $0.5 million repayment on the Japan line of credit and $0.5 million repayment of finance lease obligations. Credit Facilities and Commitments Lines of Credit and Leases See Notes 7 and 8 of the accompanying Condensed Consolidated Financial Statements. Covenant Compliance The Company is in compliance with the covenants of its credit facilities as of October 2, 2020. Employment Agreements The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective March 1, 2015. She and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all of its assets, or termination “without cause or for good reason” as defined in the employment agreements. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, as that term is defined in the rules of the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the nine months ended October 2, 2020, there have been no material changes in the Company’s qualitative and quantitative market risk since the disclosure in the Company’s Annual Report on Form 10-K for the year ended January 3, 2020. 24 ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company. Based on that evaluation, our CEO and CFO concluded, as of the end of the period covered by this quarterly report on Form 10-Q, that our disclosure controls and procedures were effective. For purposes of this statement, the term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management, including the CEO and the CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud or material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, our internal control system can provide only reasonable assurance of achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and can provide only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting during the quarter ended October 2, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 19, 2020, a putative federal securities class action, Alwazaan v. STAAR Surgical Co., et al., was filed against the Company and certain of its executives in the U.S. District Court for the Central District of California. On September 1, 2020, a substantially similar federal securities class action, Zhang v. STAAR Surgical Co., et al., was filed against the Company and the same executives in the U.S. District Court for the Central District of California. On September 11, 2020, the court consolidated the two actions under the caption In re STAAR Surgical Co. Securities Litigation . The plaintiffs in the lawsuit allege that the Company made material misstatements regarding its sales in China, its marketing spend, and its R&D expenses. Plaintiffs seek compensatory and punitive damages as well as attorneys’ fees. Although the ultimate outcome of this action cannot be determined with certainty, the Company denies any wrongdoing and will vigorously defend itself against these claims. 25 ITEM 1A. RIS K FACTORS Our short and long-term success is subject to many factors that are beyond our control. Investors and prospective investors should consider carefully information contained in this report and the risks and uncertainties described in “Part I—Item 1A—Risk Factors” of the Company’s Form 10-K for the fiscal year ended January 3, 2020 and in “Part II—Item 1A—Risk Factors” of the Company’s Form 10-Q for the three months ended April 3, 2020. Such risks and uncertainties could materially adversely affect our business, financial condition or operating results. ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. ITEM 5. OTHER INFORMATION On or about October 30, 2020, STAAR Surgical Company entered into a lease amendment (the “Lease Amendment”) with 2000 Gold L.P. (its Landlord), exercising its renewal option of a total of approximately 45,000 square feet of leased, industrial use real property located at 1911 Walker Avenue and 1900 Myrtle Avenue, Monrovia, California (“Premises”). The Lease Amendment expires October 31, 2023. The Company has conducted office and manufacturing related operations at the Premises since 2012. ITEM 6. EXHIBITS 3.1 Amended and Restated Certificate of Incorporation.(1) 3.2 Amended and Restated Bylaws.(2) 4.1 Form of Certificate for Common Stock, par value $0.01 per share.(3) †4.2 Amended and Restated Omnibus Equity Incentive Plan.(4) 10.39 Lease agreement entered into on September 14, 2020 between STAAR Surgical Company and Calderari & Schwab.(5) 10.40 First Amendment to Lease Agreement dated October 1, 2020 between STAAR Surgical Company and Pacific Equity Partners, LLC.(6) 10.41 First Amendment to Lease Agreement dated October 30, 2020 between STAAR Surgical Company and 2000 Gold L.P.* 31.1 Certifications Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certifications Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1 Certification Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 101 Financial statements from the quarterly report on Form 10-Q of STAAR Surgical Company for the quarter ended October 2, 2020 formatted in Inline Extensible Business Reporting Language (iXBRL), are filed herewith and include: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.* 104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2020, has been formatted in Inline XBRL with applicable taxonomy extension information contained in Exhibit 101. (1) Incorporated by reference to Appendix 2 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, 2018 (2) Incorporated by reference to Appendix 3 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, 2018. 26 (3) Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form 8 ‑A/A as filed with the Commission on April 18, 2003. (4) Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q, for the period ended July 3, 2020, as filed with the Commission on August 5, 2020. (5) Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on September 14, 2020. (6) Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on October 8, 2020. * Filed herewith. ** Furnished herewith. † Management contract or compensatory plan. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STAAR SURGICAL COMPANY Dated: November 4, 2020 By: /s/ PATRICK F. WILLIAMS Patrick F. Williams Chief Financial Officer (on behalf of the Registrant and as its principal financial officer) 28