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

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

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

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

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

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

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

The registrant has ~~41,164,231~~46,109,765 shares of common stock, par value $0.01 per share, issued and outstanding as of October 30, ~~2017.~~2020.

PART 1I – FINANCIAL INFORMATION

~~ITEM 1. FINANCIAL STATEMENTS~~

ITEM 1.
FINANCIAL STATEMENTS

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

	September 29, 2017			December 30, 2016			October 2, 2020			January 3, 2020
ASSETS

Current assets:
Cash and cash equivalents	$	16,133		$	13,999		$	128,338		$	119,968
Accounts receivable trade, net of allowance for doubtful accounts of $2,255 and $2,056, respectively		16,237			16,344
Accounts receivable trade, net of allowance of doubtful accounts of $131 and $88, respectively								42,063			30,996
Inventories, net		13,274			14,825			18,234			17,142
Insurance receivable (Note 12)		7,000			—
Prepayments, deposits and other current assets		4,936			4,349			7,368			6,560
Total current assets		57,580			49,517			196,003			174,666
Property, plant and equipment, net		10,999			11,790			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		326			473			275			296
Goodwill		1,786			1,786			1,786			1,786
Deferred income taxes		1,043			1,105			5,007			3,750
Other assets		969			772			600			751
Total assets	$	72,703		$	65,443		$	234,698		$	206,865

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Line of credit	$	4,442		$	4,283		$	1,353		$	1,827
Accounts payable		5,734			8,311			7,830			8,050
Obligations under capital leases		1,269			1,198
Litigation settlement obligation (Note 12)		7,000			—
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		7,253			7,275			17,612			17,697
Total current liabilities		25,698			21,067			33,859			34,478
Obligations under capital leases		834			1,339
Deferred income taxes		984			881
Obligations under finance leases								73			366
Obligations under operating leases								5,571			4,086
Asset retirement obligations		203			195			216			211
Deferred rent		184			59
Pension liability		4,138			3,997			8,587			7,840
Total liabilities		32,041			27,538			48,306			46,981

Commitments and contingencies (Note 12)

Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value; 60,000 shares authorized; 41,156 and 40,732 shares issued and outstanding at September 29, 2017 and December 30, 2016, respectively		412			407
Common stock, $0.01 par value; 60,000 shares authorized: 46,072 and 44,822 shares issued and outstanding at October 3, 2020 and January 3, 2020, respectively								461			448
Additional paid-in capital		202,148			197,657			328,074			304,288
Accumulated other comprehensive loss		(788	)		(1,050	)		(2,925	)		(3,048	)
Accumulated deficit		(161,110	)		(159,109	)		(139,218	)		(141,804	)
Total stockholders’ equity		40,662			37,905			186,392			159,884
Total liabilities and stockholders’ equity	$	72,703		$	65,443		$	234,698		$	206,865

See accompanying notes to the condensed consolidated financial statements.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended Nine Months Ended

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

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

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

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

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

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

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

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

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

	Three Months Ended						Nine Months Ended
	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.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME ~~(LOSS)~~

(In thousands)

(Unaudited)

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

	Three Months Ended						Nine Months Ended
	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.

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.

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.

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

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

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

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

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

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

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

	Nine Months Ended
	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.

STAAR SURGICAL COMPANY

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

Note 1 — Basis of Presentation and Significant Accounting Policies

The ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements of the Company present the financial position, results of operations, and cash flows of STAAR Surgical Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in ~~comprehensive financial statements~~the Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The ~~consolidated balance sheet~~Consolidated Balance Sheet as of ~~December 30, 2016~~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 ~~December 30, 2016.~~

January 3, 2020.

The ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements for the three and nine months ended ~~September 29, 2017~~October 2, 2020 and September ~~30, 2016,~~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 ~~September 29, 2017~~October 2, 2020 and September ~~30, 2016,~~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

~~Recently Adopted Accounting Pronouncements~~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 ~~March 31, 2017,~~October 2, 2020, the Company ~~adopted Financial~~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 ~~Standards Board (“FASB”)~~Pronouncements and Recent Accounting Pronouncements Not Yet Adopted

On January 4, 2020 (beginning of fiscal year 2020), the Company adopted Accounting Standards Update (“ASU”) ~~2015-11, “Simplifying the~~2016‑13, “Financial Instruments – Credit Losses (Topic 326): Measurement of ~~Inventory”. ASU 2015-11 requires a company to measure inventory~~Credit Losses on Financial Instruments,” which (i) significantly changes the impairment model for most financial assets that are measured at ~~the lower of~~amortized cost and ~~net realizable value. Net realizable value is defined as~~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 ~~“estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal~~FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2020-02 and ~~transportation”. We adopted this standard as of December 31, 2016 (beginning of FY 2017).~~ASU 2020-03 to clarify and improve ASU 2016-13. The adoption of ASU ~~2015-11~~2016-13 did not have a material ~~effect~~impact on the ~~consolidated financial statements.~~Condensed Consolidated Financial Statements.

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

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

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

STAAR SURGICAL COMPANY

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

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

~~The following table provides a reconciliation of cash, cash equivalents,~~Recently Adopted Accounting Pronouncements and ~~restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in 000’s):~~

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

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

Recent Accounting Pronouncements Not Yet Adopted (Continued)

~~In May 2017,~~On January 4, 2020 (beginning of fiscal year 2020), the ~~FASB issued~~Company adopted ASU ~~2017-09 “Scope of Modification Accounting,~~2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which ~~amends the scope of modification accounting~~modifies certain disclosures requirements for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, the ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017, and thereafter. Early adoption is permitted, including adoption in any interim period. We will adopt this standard as of December 30, 2017 (beginning of FY 2018) and do not expect thefair value measurements. The adoption of ~~the standard will~~ASU 2018-13 did not have a material impact on ~~our consolidated financial statements.~~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 ~~March 2017,~~December 2019, the FASB issued ASU 2017-07, “Compensation-Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The standard requires that an employer report the service cost component in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of operating profit. The standard is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Prior periods are required to be recast. We will adopt this standard as of December 30, 2017 (beginning of FY 2018) and are currently evaluating the impact ASU 2017-07 may have on our consolidated financial statements.

~~In October 2016, the FASB issued ASU 2016-16,~~2019-12, “Income Taxes (Topic 740): ~~Intra-Entity Transfers of Assets Other Than Inventory”, which~~Simplifying the Accounting for Income Taxes.” ASU 2019-12 removes the ~~prohibition~~following exceptions: exception to the incremental approach for intra period tax allocation; exception to accounting for basis differences when there are ownership changes in ~~ASC 740 against the immediate recognition of the current~~foreign investments; and ~~deferred income~~exception to interim period tax ~~effects of intra-entity transfers of assets other than inventory. The~~accounting for year to date losses that exceed anticipated losses. ASU ~~is effective~~2019-12 also improves financial reporting for ~~public companies for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. The ASU should be applied~~franchise taxes that are partially based on income; transactions with a ~~modified retrospective basis, recognizing the effects~~government that result in retained earnings as of the beginning of the year of adoption. We will adopt this standard as of December 30, 2017 (beginning of FY 2018) and are currently evaluating the impact ASU 2016-16 may have on our consolidated financial statements.

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

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which clarifies how companies present and classify certain cash receipts and cash paymentsstep up in the ~~statement~~tax basis of ~~cash flows.~~goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. ASU ~~2016-15~~2019-12 is effective for fiscal years beginning after December 15, ~~2017 (beginning of FY 2018)~~2020 and ~~early adoption is permitted. The Company is currently evaluating the impact ASU 2016-15 may have on its consolidated financial statements.~~

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires lessees to recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim ~~reporting~~ periods within ~~that reporting period.~~those fiscal years. Early adoption is permitted. The Company ~~is gathering data to evaluate the impact the adoption~~will adopt this standard as of ~~ASU 2016-02 may have on its consolidated financial statements and expects to complete the evaluation by the third quarter~~January 2, 2021 (beginning of ~~2018.~~

~~STAAR SURGICAL COMPANY~~

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

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The revised revenue standard is effective for public entities for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).

In August 2015, ASU 2014-09 was amended by ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which defers the effective date of ASU 2014-09 by onefiscal year for all entities and permits early adoption on a limited basis. ASU 2014-09 was subsequently amended by four additional pronouncements: (i) ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;” (ii) ASU No. 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”; (iii) ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”; and (iv) ASU No. 2016-20, “Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements to Topic 606”.

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

Condensed Consolidated Financial Statements.

Note 2 — Inventories

Inventories, net are stated at the lower of cost and net realizable value, determined on a first-in, first-out basis and consisted of the following (in thousands):

September 29, December 30,
2017 2016
Raw materials and purchased parts $ 2,330 $ 2,264
Work-in-process 2,363 1,924
Finished goods 11,059 14,268
15,752 18,456
Less: inventory reserves 2,478 3,631
$ 13,274 $ 14,825

~~STAAR SURGICAL COMPANY~~

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

	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

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

⁽¹⁾~~No individual item in “Other~~

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

STAAR SURGICAL COMPANY

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

Note 4 — Property, Plant and Equipment

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

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

During the third quarter of 2017, the Company disposed of approximately $1.6 million of assets which were no longer in service and fully depreciated except for an asset disposal loss of approximately $21,000 which was included in the statement of operations.

	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~~–Intangible Assets

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

September 29, 2017 December 30, 2016

Gross
Carrying
Amount

Accumulated
Amortization
Net
Gross
Carrying
Amount

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

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):

	September 29, 2017		December 30, 2016		October 2, 2020		January 3, 2020
Accrued salaries and wages	$	3,080	$	2,334	$	5,194	$	4,400
Accrued bonuses		1,680		1,414		1,000		4,184
Accrued insurance						96		1,346
Income taxes payable						3,898		2,710
Accrued consumption tax		304		424		1,228		1,164
Accrued insurance		197		501
Accrued income taxes		371		1,095
Accrued professional fees for clinical trials						1,554		567
Marketing obligations						1,197		633
Other⁽¹⁾		1,621		1,507		3,445		2,693
	$	7,253	$	7,275
Total other current liabilities					$	17,612	$	17,697

⁽¹⁾	No individual item in “Other” ~~above~~ 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 ~~total other current liabilities~~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.

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 0 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		0		0		22		679

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

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 0 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.

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						Three Months Ended						Nine Months Ended
	September 29, 2017			September 30, 2016			September 29, 2017			September 30, 2016			October 2, 2020			September 27, 2019			October 2, 2020			September 27, 2019
Service cost(1)	$	126		$	155		$	380		$	466		$	320		$	240		$	959		$	720
Interest cost(2)		15			19			43			54			12			20			34			60
Expected return on plan assets(2)		(25	)		(24	)		(71	)		(69	)		(47	)		(36	)		(136	)		(103	)
Net amortization of transitional obligation (a)		3			3			9			10
Actuarial loss recognized in current period (a)		17			24			51			70
Total	$	136		$	177		$	412		$	531
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).

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

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

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

The ~~following table sets forth the computation of basic and diluted net income (loss) per share~~Company’s contributions to its Swiss pension plan are as follows (in ~~thousands except per share amounts)~~thousands):

Three Months Ended Nine Months Ended

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

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

	Three Months Ended				Nine Months Ended
	October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019
Employer contribution	$	189	$	141	$	519	$	404

The following table sets forth the weighted average number of options to purchase shares of common stock and restricted stock and units, which were not included in the calculation of diluted per share amounts because the effects would be anti-dilutive (in thousands).13

Three Months Ended Nine Months Ended

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

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

STAAR SURGICAL COMPANY

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

~~Note 9 — Geographic and Product Data~~

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

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

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

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

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

Note 10 11 — Stockholders’ Equity

Stock-Based Compensation

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

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016		October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019
Employee stock options	$	443	$	208	$	1,204	$	5,257	$	2,469	$	2,178	$	7,206	$	5,770
Restricted stock		50		32		136		259		119		77		273		236
Restricted stock units		314		146		845		2,569		415		246		1,238		1,661
Performance stock units										54		—		54		—
Nonemployee stock options		—		—		—		58		69		57		194		111
Total	$	807	$	386	$	2,185	$	8,143
Total stock-based compensation expense									$	3,126	$	2,558	$	8,965	$	7,778

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

Three Months Ended Nine Months Ended

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

Cost of sales $ 2 $ — $ 6 $ 560
General and administrative 377 248 1,035 3,936
Marketing and selling 214 72 558 1,544
Research and development 214 66 586 2,103
Total stock compensation expense 807 386 2,185 8,143
Amounts capitalized as part of inventory 107 39 269 227
Total $ 914 $ 425 $ 2,454 $ 8,370

~~STAAR SURGICAL COMPANY~~

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

	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

~~Stock Option~~Incentive Plan

~~Our~~The Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, restricted stock units (“RSUs”), and performance ~~contingent~~ stock ~~units.~~units (“PSUs”). Options under the ~~plan~~Plan are granted at fair market value on the date of grant, become exercisable generally over a three-year period, or as determined by ~~our~~the Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting ~~under certain circumstances in the event of~~if there is a change in control and pre-established financial metrics are met (as defined in the Plan). ~~Pursuant to the Plan, options for 3,826,956 shares were~~Grants of restricted stock outstanding ~~at September 29, 2017 with exercise prices ranging between $0.95 and $17.62 per share. Restricted stock grants~~ under the Plan generally vest over ~~a period between~~periods of one to ~~four~~three years. ~~There were 20,833~~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 ~~restricted stock and 438,039 RSUs outstanding at September 29, 2017.~~18,035,000 shares. As of ~~September 29, 2017,~~October 2, 2020, there were ~~1,273,420~~3,376,152 shares ~~authorized and~~ available for ~~grants~~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 ~~11.3%~~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.

Three Months Ended Nine Months Ended

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

Expected dividend yield 0 % 0 % 0 % 0 %
Expected volatility 57 % 57 % 57 % 57 %
Risk-free interest rate 1.83 % 1.19 % 1.95 % 1.34 %
Expected term (in years) 5.67 5.57 5.67 5.57

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

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

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

Restricted
Shares
(000’s)

RSUs
(000’s)

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

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

~~Note 11 — Income Taxes~~Stock Options

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

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

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

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

~~All earnings from~~

Restricted Stock, Restricted Stock Units and Performance Stock Units

A summary of restricted stock, RSUs and PSUs activity under the ~~Company’s subsidiaries are not considered to be permanently reinvested. Accordingly,~~Plan for the Company provides withholding and U.S. taxes on all unremitted foreign earnings. The Company reduced its deferred tax liability in 2016 related to withholding taxes from unremitted foreign earnings by the accumulated deficit of one of its foreign subsidiaries dissolved as of April 1, 2016.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

~~Lines of Credit~~

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

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

~~Covenant Compliance~~

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

~~STAAR SURGICAL COMPANY~~

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

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

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

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

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

Litigation and Claims

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

~~Stockholder Securities Litigation: Todd Action~~

On ~~July 8, 2014,~~ August 19, 2020, a putative federal securities class action, ~~lawsuit~~Alwazaan v. STAAR Surgical Co., et al., was filed ~~by Edward Todd~~ against ~~STAAR~~the Company and ~~three officers~~certain of its executives in the U.S. District Court for the Central District of California. ~~The plaintiff claims that STAAR made misleading statements to and omitted material information from our investors between February 27, 2013 and~~On September 29, 2014 about alleged regulatory violations at STAAR’s Monrovia manufacturing facility. On October 20, 2014, plaintiff amended its complaint, dismissed two Company officers, added one other officer, reduced the alleged Class Period to November 1, 2013 through September 29, 2014, and demanded compensatory damages and attorneys’ fees. On January 5, 2017, the court granted plaintiff’s Motion for Class Certification. On June 20, 2017, plaintiff sought preliminary approval of2020, a ~~proposed~~substantially similar federal securities class action, ~~settlement in~~Zhang v. STAAR Surgical Co., et al., was filed against the amount of $7,000,000. The settlement documents filed by the plaintiff included a “Stipulation and Agreement of Settlement” that provided, among other things, that the $7,000,000 settlement amount “shall be wired on behalf of all Defendants and Released Persons out of insurance proceeds from STAAR’s Insurance Policies into the Settlement Escrow Account.” The Company determined it was probable the insurance carriers would satisfy their obligation. On July 10, 2017, the court granted the plaintiff’s application for preliminary approval of the class action settlement. On or about July 28, 2017, the Company’s insurance carriers directly funded the entire settlement amount to the court-authorized escrow account. On October 23, 2017, the court granted plaintiff’s application for final approval of the class action settlement in the amount of $7,000,000. A third-party claims administrator will administer and oversee distribution of the settlement funds to qualified class members, pursuant to the process approved by the court. The Company recorded the liability associated with the settlement and the corresponding insurance receivable of $7,000,000 as of September 29, 2017. These entries did not have any impact on the statement of operations or cash flows for the nine months ended September 29, 2017. As of October 23, 2017, the Company, upon the Court’s final approval, relieved both the payable and the receivable off of its consolidated balance sheet.

~~Stockholder Derivative Litigation: Forestal Action~~

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

~~STAAR SURGICAL COMPANY~~

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

Employment Agreements

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

STAAR SURGICAL COMPANY

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

Note 13 — ~~Reclassifications~~Basic and Diluted Net Income Per Share

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

	Three Months Ended						Nine Months Ended
	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

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 ~~reclassified inventory reserves from Changes~~markets and sells its products in ~~Working Capital - Inventory~~over 75 countries and conducts its manufacturing in the ~~Statement~~United States. Other than China and Japan, the Company does not conduct business in any country in which its sales exceed 10% of ~~Cash Flows~~worldwide consolidated net sales. Sales are attributed to ~~the non-cash section~~countries based on location of customers. The composition of the ~~Statement~~Company’s net sales to unaffiliated customers 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 1 operating segment for ~~both~~financial reporting purposes. The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery and intraocular lenses (“IOLs”) used in cataract surgery. The composition of the Company’s net sales by product line 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 ~~29, 2017~~27, 2019, respectively. As of October 2, 2020 and ~~September 30, 2016.~~January 3, 2020, respectively, one customer, the Company’s distributor in China, accounted for 59% and 43% of consolidated trade receivables.

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 ~~also reclassified $65,000 from Cash Proceeds from Sale~~expects decreases in sales in certain geographies to continue through the remainder of ~~Property~~2020 and ~~Equipment~~into 2021 as different geographies resume business activities on differing timelines.

The CARES Act, among other things, includes provisions relating to ~~Loss~~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 ~~Disposal~~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 ~~Property and Equipment for~~our balance sheet. The Company will continue to monitor the ~~nine months ended September 30, 2016.~~impact that the CARES Act may have on its business, financial condition, results of operations, or liquidity.

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 ~~Toric ICL~~EVO family of lenses in the U.S. and the EVO Viva family of lenses for presbyopia internationally); commercialization of new or improved products; ~~the nature, timing and likelihood of resolving issues cited in the FDA’s 2014 Warning Letter or 2015 FDA-483;~~ future economic conditions or size of market opportunities; expected costs of ~~quality system and completion of FDA remediation efforts;~~operations; statements of belief, including as to achieving ~~2017~~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 ~~March 2, 2017.~~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 ~~unaudited~~audited consolidated financial statements of STAAR, including the related notes, provided in this report.

Overview

STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and companion delivery systems used to deliver the lenses into the eye. We ~~believe we~~ are the world’s leading manufacturer of intraocular lenses for patients seeking refractive vision correction, and we also make lenses for use in surgery to treat cataracts. All the lenses we make are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally invasive surgery. Refractive surgery is performed to treat the type of visual disorders that have traditionally been corrected using eyeglasses or contact lenses. We refer to our lenses used in refractive surgery as “implantable Collamer® lenses” or ~~“ICLs,~~“ICLs.” ~~which includes the EVO Visian ICL™ product line.~~ The field of refractive surgery includes both lens-based procedures, using products like our ICL family of products, and laser-based procedures like LASIK. Successful refractive surgery can correct common vision disorders such as myopia, hyperopia, and astigmatism. Cataract surgery is a common outpatient procedure where the eye’s natural lens that has become cloudy with age is removed and replaced with an artificial lens called an intraocular lens (IOL) to restore the patient’s vision. STAAR employs a commercialization strategy that strives for sustainable profitable growth. Our goal is to position our refractive lenses throughout the world as primary and premium solutions for patients seeking visual freedom from wearing ~~glasses~~eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction. We position our IOL lenses used in ~~cataract~~ surgery ~~in standard~~that treats cataracts based on quality and ~~premium value segments.~~value.

~~STAAR has significant operations globally. Activities outside~~Recent Developments

For the ~~United States (“U.S.”) accounted~~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 ~~92% of our total sales~~ICL unit growth in the third quarter of ~~2017, primarily due to the pacing of product approvals and commercialization that tend to occur first outside the U.S. STAAR sells its products in more than 60 countries, with direct distribution in~~2020 included China, Japan, ~~North America,~~South Korea, Spain, Germany, ~~Singapore,~~European distributor markets, and rest of APAC. India and the ~~U.K., and independent distribution in~~Middle East were the ~~remainder of the world. STAAR maintains operational and administrative facilities in the U.S., Switzerland and Japan.~~

~~Recent Developments and Strategic Priorities for 2017~~

Intwo markets that remained most challenged by COVID-19 during the third ~~quarter of 2017, quarterly net sales increased 17% from prior year quarter to $23.5 million. Worldwide ICL sales increased 22% and units increased 18% from prior year~~ quarter. In the quarter, ICL sales grew 256% in Canada, 32% in Japan and 69% in China. In regional markets, compared to the prior year quarter, ICL sales increased 10% in North America, 6% in Europe, Middle East and Africa, and 35% in Asia Pacific, in spite of planned challenges in Korea. Global Toric ICL shipments continue to account for a growing percentage of the ICL product mix. For the third quarter of 2017, injector part sales were significantly higher than prior year third quarter. We continue to recover from challenges with one of the materials used in our silicone IOL preloaded injectors. During the third quarter ~~of 2017,~~ we ~~continued to enter into new strategic business agreements with customers, and renew or extend existing agreements.~~

~~With the discontinuation of~~completed patient enrollment in our U.S. ~~silicone IOL~~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.

While COVID-19 hotspots and government public health mandates may reoccur moving forward, we anticipate less business interruption and ~~sales impacted by the materials challenge~~continued interest in our ~~silicone IOL preloaded injectors, we expect that IOL sales will decrease~~EVO ICL lens-based refractive solutions in the fourth quarter of ~~2017 compared~~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 ~~2016. We expect sales of injector parts to continue to increase compared to prior year~~2020 currently anticipates revenue in the ~~fourth quarter~~range of ~~2017. In September, our Notified Body in the European Union, DEKRA, approved an expanded age range for our EVO Visian ICL for myopia from adults aged 21~~$42 to ~~45 years old to adults aged 21 to 60 years old. Our first-in-man clinical trial for the next generation ICL with EDOF continued in the third quarter and the results continue to be positive.~~

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

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

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

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

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

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

~~We continue to expect double-digit ICL unit growth in 2017 driven primarily by increasing market acceptance of the EVO Visian ICL in established markets~~$44 million with the ~~exception~~caveat of ~~the U.S. and Korea. We continue~~increased spending to ~~anticipate gross profit as~~support a ~~percentage of sales~~developing strong outlook for full year 2017 to be higher than 2016. We continue to expect operating expenses for 2017 will be below operating expenses in 2016. Finally, we will continue to evaluate opportunities to acquire new product lines, technologies, and companies.

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 ~~September 29, 2017~~ 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 ~~December 30, 2016.~~

January 3, 2020.

Results of Operations

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

Percentage of Net Sales
for Three Months Percentage of Net Sales
for Nine Months
September 29,
2017 September 30,
2016 September 29,
2017 September 30,
2016
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 28.2 25.8 28.7 29.5
Gross profit 71.8 74.2 71.3 70.5

General and administrative 21.1 24.9 22.9 30.5
Marketing and selling 27.4 35.7 30.8 36.5
Research and development 18.9 22.2 21.2 26.6
67.4 82.8 74.9 93.6
Operating income (loss) 4.4 (8.6 ) (3.6 ) (23.1 )
Other income (expense), net 2.3 0.2 1.6 0.5
Income (loss) before provision for income taxes 6.7 (8.4 ) (2.0 ) (22.6 )
Provision (benefit) for income taxes 1.7 0.4 1.1 (2.8 )
Net income (loss) 5.0 % (8.8 )% (3.1 )% (19.8 )%

	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	%

Net Sales

Three Months Ended Percentage Change Nine Months Ended Percentage Change

September 29,
2017

September 30,
2016

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

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

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

	Three Months Ended				Percentage Change			Nine Months Ended				Percentage Change
	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 ~~September 29, 2017~~October 2, 2020 were ~~$23.5~~$47.1 million, an increase of ~~17% compared with $20.1~~21% from $39.1 million reported during the same period of ~~2016. Total~~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 ~~September 29, 2017~~October 2, 2020 were ~~$65.8~~$117.5 million, an increase of ~~9.1% compared with $60.3~~6% from $111.3 million reported during the same period of ~~2016.~~2019. The ~~effect of exchange rate changes had an unfavorable impact on~~increase in net sales was due to increased ICL sales of ~~$0.3~~$5.5 million and ~~$0.4 million, respectively, during the three and nine months ended September 29, 2017.~~

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 ~~September 29, 2017~~October 2, 2020 were ~~$18.1~~$41.5 million, an increase of ~~22% compared with $14.8~~23% from $33.8 million reported ~~during~~for the same period of ~~2016. North America ICL sales were $1.6 million during the third quarter, an~~2019, with unit increase of ~~10% in both~~25%. The APAC region sales ~~and units compared~~increased by 29%, with unit growth up 31% due to the prior year period. The increase in North America ICL sales was driven by a 256% increase in Canada sales as a result of the successful commercialization of the EVO Toric ICL which was introduced late in the third quarter of 2016. APAC ICL sales were $11.0 million during the third quarter of 2017, an increase of 35% compared to the prior year period, which was comprised of a 34% increase in units and a 1% increase in average selling prices, driven by strong double-digitunit growth in Japan up 67%, other APAC Distributors up 67%, China ~~Japan,~~up 33%, and ~~APAC distributor markets. EMEA ICL~~Korea up 21%. The Europe, Middle East, Africa and Latin America region sales ~~were $5.4 million during the third quarter, an increase~~increased 7% with unit decrease of ~~6% compared~~2% due to ~~the prior year period, which was comprised of an 8%~~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 ~~15% increase~~decrease in ~~average selling prices.~~

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 ~~September 29, 2017~~October 2, 2020 were ~~$49.7~~$101.6 million, a ~~15%~~6% increase ~~compared with $43.4~~from $96.0 million reported ~~during~~for the same period of ~~2016. Total ICL units~~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 ~~average selling prices~~other APAC Distributors up 30%. The Europe, Middle East, Africa and Latin America region sales decreased 1%9% and units decreased 12%. ~~EMEA~~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 ~~$16.3~~$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 ~~September 29, 2017, a 5%~~October 2, 2020, an increase ~~compared to $15.5~~of 4% from $15.3 million reported ~~in the same period in 2016 which was comprised of a 2% increase in units and a 3% increase in average selling prices. APAC ICL sales were $28.2 million~~ for ~~the nine months ended September 29, 2017, a 21% increase compared to $23.2 million reported during~~ the same period of ~~2016.~~2019. The increase in both periods was ~~comprised of 25% increase in units and~~due to increased preloaded injector part sales to a ~~3% decrease in average selling prices. The increase was driven by a 49% increase in China sales, partially~~third-party manufacturer for product they sell to their customers, offset by ~~lower~~decreased IOL sales. Other product sales ~~in India~~represented 11.9% and ~~Korea. North America ICL sales were $5.1 million during the nine months ended September 29, 2017, an 11% increase in sales and units compared to the same period in 2016.~~

~~Total IOL~~13.4% of our total sales for the three months ended October 2, 2020 and September ~~29, 2017 were $3.9 million, a decrease~~27, 2019, respectively, and represented 13.5% and 13.7% of ~~16% compared with $4.6 million reported during the same period of 2016. Total IOL~~our total sales for the nine months ended October 2, 2020 and September 29, 2017 were $12.9 million, a 13% decrease compared with $14.8 million reported during the same period in 2016. The decline for both the three and nine-month periods was due to the discontinuance of the silicone IOL product line in the U.S. during 2016 and due to production issues with one of the materials used in our silicone IOL preloaded injectors which has resulted in lower than planned IOL sales in Japan.27, 2019, respectively.

Gross Profit

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

~~Gross Profit~~

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

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

	Three Months Ended						Percentage Change			Nine Months Ended						Percentage Change
	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 ~~September 29, 2017~~October 2, 2020 was ~~$16.8~~$34.9 million, ~~or 71.8%~~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 ~~with $14.9 million, or 74.2%~~to 74.4% of revenue ~~in the prior year period. The decrease in gross margin~~ for the ~~quarter is~~three months ended September 27, 2019, due to ~~unfavorable product mix due to increased sales of low margin injector parts, increased inventory provisions due to timing, and an increase in ICL unit costs, partially offset by an increased~~geographic sales mix, period costs associated with the manufacturing expansion projects, and increased mix of ~~Toric ICLs.~~injector part sales which carry a lower margin.

Gross profit for the nine months ended ~~September 29, 2017~~October 2, 2020 was ~~$46.9~~$84.1 million, ~~or 71.3%~~a 1.1% increase 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 ~~with $42.5 million, or 70.5%~~to 74.7% of revenue ~~in the prior year period. The increase in gross margin~~ for the ~~first nine~~three months ~~of 2017 is~~ended September 27, 2019, due primarily to ~~an increased~~geographic sales mix, ~~of Toric ICLs, the cost of sales~~$1.2 million in expenses related to the ~~$0.6~~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, ~~non-cash charge related~~a 21.0% increase compared to the ~~immediate vesting~~$7.1 million reported for the same period of all unvested equity awards as a result of the triggering of the “Change of Control” provision of the Company’s equity incentive plan recorded in the first nine months of 2016 which was not repeated in 2017, and lower inventory provisions, partially offset by unfavorable product mix2019, due to increased ~~sales of low margin injector parts,~~salary-related expenses, variable compensation and ~~lower average selling prices.~~

~~General and Administrative~~

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

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

facility costs. General and administrative expenses for the nine months ended ~~September 29, 2017~~October 2, 2020 were ~~$15.1~~$24.4 million, a ~~decrease of 18% when~~13.8% increase compared ~~with $18.4~~to the $21.4 million reported for the same period ~~last year. The decrease was primarily~~of 2019, due to ~~lower stock based~~increased salary-related expenses, variable compensation, expenses due to the $2.9 million non-cash charge related to the immediate vesting of all unvested equity awards as a result of the triggering of the “Change of Control” provision of the Company’s equity incentive plan recorded during the first nine months of 2016 which were not repeated in the first nine months of 2017. Generaltax consulting, facility costs and ~~administrative expenses for the first nine months of 2017 were also lower due to~~corporate insurance, partially offset by decreased ~~compensation~~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	%

~~Marketing~~Selling and ~~Selling~~

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

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

~~Marketing and selling~~marketing expenses for the three months ended ~~September 29, 2017~~October 2, 2020 were ~~$6.4~~$12.6 million, a ~~decrease of 10% when~~1.5% increase compared ~~with $7.1~~to the $12.5 million reported for the same period ~~last year. The decrease was~~of 2019, due to ~~the timing of the ESCRS which was held in the third quarter of 2016~~increased salary-related expenses, advertising and ~~will be held in the fourth quarter of 2017, partially~~promotional activities and variable compensation, offset by ~~increased sales rep expenses in China. The Company expects fourth quarter 2017 expenses will be higher for this reason.~~

decreased trade show and travel expenses. Marketing and selling expenses for the nine months ended ~~September 29, 2017~~October 2, 2020 were ~~$20.3~~$34.0 million, aan 0.8% decrease ~~of 8% when~~ compared ~~with $22.0~~to the $34.3 million reported for the same period ~~last year. The decrease is~~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 ~~lower stock based compensation~~increased clinical expenses due to the $1.5 million non-cash charge related to the immediate vesting of all unvested equity awards as a result of the triggering of the “Change of Control” provision of the Company’s equity incentive plan recorded during the first nine months of 2016 which was not repeatedassociated with our EVO clinical trial in the ~~first nine months of 2017~~U.S., variable compensation and ~~due to lower overall headcount and promotional costs in Japan.~~

~~Research and Development~~

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

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

salary-related expenses. Research and development expenses for the nine months ended ~~September 29, 2017~~October 2, 2020 were ~~$13.9~~$23.0 million, a ~~13.1% decrease~~28.3% increase compared to ~~$16.0~~the $17.9 million reported for the same ~~prior year period. The decrease is~~period of 2019, primarily due to ~~lower stock based compensation~~increased clinical expenses associated with our EVO clinical trial in the U.S., and increased salary-related expenses, partially offset by travel expense.

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 ~~to the $1.9 million non-cash charge related to the immediate vesting of all unvested equity awards~~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 ~~triggering of the “Change of Control” provision of the Company’s equity incentive plan recorded during the first~~ nine months ~~of 2016 which~~ended October 2, 2020 was ~~not repeated in the first nine months of 2017.~~

~~Research and development expense consists primarily of compensation and related costs for personnel responsible~~$0.8 million, a 44.9% increase compared to $0.5 million reported for the ~~research and development~~same period of ~~new and existing products and the regulatory and clinical activities required to acquire and maintain product approvals globally. These costs are expensed as incurred.~~

~~Other Income, Net~~

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

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

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

2019. The ~~change~~increase in other income, net for the ~~three and~~ nine months ~~ended September 29, 2017 is primarily~~was due to increased foreign ~~currency transaction gains.~~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

~~Income Taxes~~

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

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

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

~~The provision for~~ We recorded income taxes ~~is determined using an estimated annual effective tax rate. We recorded an income tax provision~~ of ~~$0.4~~$1.5 million ~~and $0.7 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 29, 2017. The income tax provision for the three and nine months ended September 29, 2017 is~~October 2, 2020 due ~~primarily~~ to pre-tax income generated in certain ~~higher rate~~ foreign ~~jurisdictions. The~~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 ~~benefit~~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 ~~30, 2016 was~~27, 2019 primarily due to ~~net operating losses from~~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, primarily due to~~operations. Based on the ~~acceleration of stock compensation,~~current tax treaties between the U.S., United Kingdom and ~~tax benefits related to the dissolution of one of~~Switzerland, we will no longer accrue for Switzerland withholding taxes on foreign earnings after fiscal 2018 (see also Note 10 in our ~~foreign subsidiaries.~~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 have historically financed our operations primarily through operating cash flows, the issuance of common stock and proceeds from stock option exercises, borrowings under lines of credit and by relying on equipment and other commercial financing. During 2017, and for the foreseeable future, we will be highly dependent on our operating cash flows to supplement our current liquidity and funding of our operations. We may in the future supplement our working capital.

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

~~We believe our~~that current cash, ~~balances coupled with~~cash equivalents and future cash flow from operating activities will be sufficient to meet our anticipated cash needs, including working capital ~~requirements~~needs, capital expenditures and contractual obligations for at least 12 months from the ~~foreseeable future. Our need~~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

unaware of any impairment of assets resulting from the COVID-19 pandemic. The Company did not apply for ~~working capital, and the terms on which~~or require financing ~~may be~~ available ~~will depend in part on our degree of success in maintaining positive cash flow through the strategies described above~~ under the ~~caption “~~~~Recent Developments~~Coronavirus Aid, Relief, and ~~Strategic Priorities for 2017~~.”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):

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

	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

AsWe invest the net proceeds in short-term interest-bearing obligations, investment-grade instruments, certificates of ~~September 29, 2017 and December 30, 2016, respectively, STAAR had $16.3~~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, ~~and $14.1~~with $3.4 million of ~~cash, cash equivalents~~availability and ~~restricted cash.~~

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 ~~$1.8~~$1.4 million ~~and $0.9~~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 ~~29, 2017 and September 30, 2016, respectively. The net~~27, 2019. Net cash provided by operating activities for the nine months ended ~~September 29, 2017, resulted from a net loss~~October 2, 2020, consisted of ~~$2.0 million, offset by $6.4 million~~$12.6 in non-cash items and ~~decreased~~$2.6 million in net income, offset by ~~a $2.7~~$13.8 million ~~increase~~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.~~

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 ~~$1.0~~$6.3 million and $7.2 million for the nine months ended October 2, 2020 and September ~~29, 2017, compared to $2.7 million in net cash used in investing activities for the nine months ended September 30, 2016. Net cash used in investing activities for both periods was due~~27, 2019, respectively, and relate primarily to the acquisition of property, plant, and equipment.

Net cash provided by financing activities was ~~$1.1~~$13.0 million ~~and $1.9~~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 ~~29, 2017 and September 30, 2016, respectively.~~27, 2019. Net cash provided by financing activities ~~during~~for the ~~first~~ nine months ended October 2, 2020 consisted of ~~2017 resulted primarily~~$14.0 million of proceeds from the ~~proceeds from vested restricted stock and exercises~~exercise of stock options, ~~and proceeds from sale-leaseback transactions,~~ partially offset by ~~purchase~~$0.5 million repayment on the Japan line of ~~employee common stock for taxes withheld~~credit and ~~the~~$0.5 million repayment of ~~capital~~finance lease obligations.

Credit Facilities and Commitments

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

Leases

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

Covenant Compliance

The Company is in compliance with the covenants of its credit facilities as of ~~September 29, 2017.~~October 2, 2020.

Employment Agreements

Off-Balance Sheet Arrangements

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the nine months ended ~~September 29, 2017,~~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 ~~December 30, 2016.~~January 3, 2020.

ITEM 4.

~~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 ~~September 29, 2017~~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

~~From time to time,~~On August 19, 2020, a putative federal securities class action, Alwazaan v. STAAR Surgical Co., et al., was filed against the Company ~~is involved in various legal proceedings~~ and ~~other matters arising~~certain of its executives in the ~~normal course~~U.S. District Court for the Central District of ~~business. Certain legal proceedings~~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 ~~which we are currently involved are discussed~~the U.S. District Court for the Central District of California. On September 11, 2020, the court consolidated the two actions under ~~“Litigation~~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 ~~Claims” in Note 12, “Commitments~~its R&D expenses. Plaintiffs seek compensatory and ~~Contingencies,” to our Condensed Consolidated Financial Statements provided in~~punitive damages as well as attorneys’ fees. Although the ultimate outcome of this ~~report,~~action cannot be determined with certainty, the Company denies any wrongdoing and ~~such discussions are hereby incorporated by reference.~~will vigorously defend itself against these claims.

ITEM 1A.

RISK 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 ~~December 30, 2016.~~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

~~Effective August 10, 2017, we~~On or about October 30, 2020, STAAR Surgical Company entered into a ~~standard commercial~~ lease ~~extending to~~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, ~~2020~~2023. The Company has conducted office and manufacturing related operations at the ~~term of our lease regarding a portion of our corporate headquarters located in Monrovia, California.~~

Premises since 2012.

ITEM 6.

EXHIBITS

3.1

~~ITEM 6.~~

~~EXHIBITS~~

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

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

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

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

10.39	Lease agreement entered into on September 14, 2020 between STAAR Surgical Company and Calderari & Schwab.(5)

~~10.45~~ 10.40	~~Letter of the~~First Amendment to Lease Agreement dated October 1, 2020 between STAAR Surgical Company ~~dated September 27, 2017 to Deborah Andrews, Vice President of Finance, Chief Financial Officer, regarding compensation.(5)~~and Pacific Equity Partners, LLC.(6)

~~10.46~~ 10.41	First Amendment to Lease Agreement dated ~~August 10, 2017 by and~~October 30, 2020 between ~~the~~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 ~~September 29, 2017,~~October 2, 2020 formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL), are filed herewith and include: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of ~~Operations,~~Income, (iii) the Condensed Consolidated Statements of Comprehensive ~~Loss,~~Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and ~~(v)~~(vi) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.*

~~(1)~~	~~Incorporated by reference to~~
104	The cover page from the Company’s ~~Current~~Quarterly Report on Form ~~8-K as filed~~10-Q for the quarter ended October 2, 2020, has been formatted in Inline XBRL with ~~the Commission on June 11, 2014.~~applicable taxonomy extension information contained in Exhibit 101.

~~(2)~~

(1)

Incorporated by reference to Appendix 12 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on ~~May 2, 2016.~~April 13, 2018

~~(3)~~

(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.

(3)	Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form ~~8-A/~~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 ~~June 30, 2017,~~July 3, 2020, as filed with the Commission on August ~~2, 2017.~~5, 2020.

(5)	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on September ~~28, 2017.~~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.

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

~~Date:~~ Dated:		November ~~8, 2017~~4, 2020	By: ~~/s/ DEBORAH J. ANDREWS~~		/s/ PATRICK F. WILLIAMS
	~~Deborah J. Andrews~~				Patrick F. Williams

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

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

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


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

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

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

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

ITEM 2.	~~Item 2.~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	15 19

ITEM 3.	~~Item 3.~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	~~Quantitative and Qualitative Disclosures About Market Risk.~~	20 24

ITEM 4.	~~Item 4.~~CONTROLS AND PROCEDURES	~~Controls and Procedures.~~	21 25

PART II – OTHER INFORMATION			25

ITEM 1.	~~Item 1.~~LEGAL PROCEEDINGS	~~Legal Proceedings.~~	21 25

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

ITEM 4.	~~Item 4.~~MINE SAFETY DISCLOSURES	~~Mine Safety Disclosures.~~	21 26

ITEM 5.	~~Item 5.~~OTHER INFORMATION	~~Other Information.~~	21 26

ITEM 6.	~~Item 6.~~EXHIBITS	~~Exhibits.~~	22 26

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

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

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

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

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

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