UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended January 3, 2020
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number: 0-11634
STAAR SURGICAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
25651 Atlantic Ocean Drive
Lake Forest, California
(Address of Principal Executive Offices)
95-3797439
(I.R.S. Employer
Identification No.)
92630
(Zip Code)
(626) 303-7902
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common
Trading Symbol(s)
STAA
Name of each exchange on which registered
NASDAQ
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☑
☐
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2019,
the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $1,308,394,773 based on the
closing price per share of $29.38 of the registrant’s Common Stock on that date.
The registrant has 44,962,983 shares of common stock, par value $0.01 per share, issued and outstanding as of February 20, 2020.
Portions of the registrant’s definitive proxy statement relating to its 2020 annual meeting of stockholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the close of the registrant’s last fiscal year, are
incorporated by reference into Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
STAAR SURGICAL COMPANY
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Comment Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
SIGNATURES
PAGE
NUMBER
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1
PART I
This Annual Report on Form 10-K contains statements that 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, and the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created therein. These
statements include comments regarding the intent, belief or current expectations of the Company and its management.
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. STAAR Surgical Company cautions investors and prospective investors that any such
forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected in the forward-looking statements. We caution you not to place undue
reliance on these forward-looking statements and to note they speak only as of the date hereof. Factors that could cause
actual results to differ materially from those set forth in the forward-looking statements are included in the risk factors set
forth in Item 1A, “Risk Factors.” We disclaim any intention or obligation to update or revise any financial projections or
forward-looking statements due to new information or other events.
ITEM 1.
Business
STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and delivery
systems used to deliver the lenses into the eye. We are the leading manufacturer of lenses used worldwide in corrective or
“refractive” surgery. We have been dedicated solely to ophthalmic surgery for over 30 years. Our goal is to position our
refractive lenses throughout the world as primary and premium solutions for patients seeking visual freedom from wearing
eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction. We also make lenses
for use in surgery that treats cataracts.
Unless the context indicates otherwise, “we,” “us,” the “Company,” and “STAAR” refer to STAAR Surgical Company
and its consolidated subsidiaries.
A glossary explaining many of the technical terms used in this report begins on page 13. The reader may also find it
helpful to refer to the discussion of the structure and function of the human eye that begins on page 6.
Operations
STAAR has significant operations globally. Activities outside the United States (U.S.) accounted for 95% of our total
sales in fiscal year 2019, primarily due to the pacing of product approvals and commercialization that tend to occur first
outside the United States. STAAR sells its products in more than 75 countries, with direct distribution (i.e., via STAAR
representatives) in Japan, Spain, the U.S., Germany, Canada, the U.K. and Singapore, with a combination of direct
distribution and independent distribution (i.e., via distributors and STAAR representatives) in China, Korea and India, and
with independent distribution in the remainder of the countries where we sell.
STAAR maintains operational and administrative facilities in the U.S., Switzerland, and Japan. Its current global
operations are as follows:
United States. STAAR operates its global administrative offices and principal manufacturing facility in Monrovia,
California. The Monrovia manufacturing facility primarily makes the Visian implantable Collamer lens product
family, including the EVO Visian ICL (collectively referred to as ICLs), preloaded silicone intraocular lenses
(IOLs), and injector systems. We manufacture the raw material for Collamer lenses in our facility in Aliso Viejo,
California. STAAR also operates a Technology Center housing its Research & Development team and labs in
Tustin, California. STAAR’s facility in Lake Forest, California serves as our corporate headquarters. It contains
executive offices and operational facilities we expect to use for future manufacturing of STAAR’s Presbyopia
lenses.
Switzerland. STAAR operates an administrative, distribution and operational facility in Brugg, Switzerland under its
wholly owned subsidiary, STAAR Surgical AG. We are in the process of expanding our manufacturing capabilities
for STAAR’s ICL products in the Nidau, Switzerland facility.
Japan. STAAR operates administrative and distribution facilities in Japan under its wholly owned subsidiary,
STAAR Japan Inc. STAAR Japan’s administrative facility is in Shin-Urayasu and its distribution facility is in
Ichikawa City. STAAR performs final packaging of its silicone preloaded IOL injectors and final inspection of its
acrylic preloaded IOL injectors at the Ichikawa City facility.
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Financial Information about Segments and Geographic Areas
100% of the Company’s sales are generated from the ophthalmic surgical product segment and, therefore, the Company
operates as one operating segment for financial reporting purposes. The Company’s principal products are ICLs used in
refractive surgery and IOLs used in cataract surgery. See Note 17 to the Consolidated Financial Statements for financial
information about product lines and operations in geographic areas.
Principal Products
In designing our products, we seek to delight patients and surgeons by:
Improving patient outcomes;
Minimizing patient risk; and
Simplifying ophthalmic procedures and post-operative care for the surgeon and the patient.
EVO Visian ICL and Visian ICL. Refractive surgery corrects visual disorders that eyeglasses or contact lenses have
traditionally treated (myopia, hyperopia, astigmatism, and presbyopia). The field of refractive surgery includes both lens-
based procedures, using products like our ICL, and laser-based procedures like LASIK. The ICL product line treats a wide
range of refractive errors within commonly known vision disorders such as myopia (nearsightedness), hyperopia
(farsightedness) and astigmatism.
The ICL folds for minimally invasive implantation behind the iris and in front of the natural crystalline lens, using
techniques similar to those used to implant an IOL during cataract surgery, except that the natural lens remains intact in the
eye. Lenses of this type are generically called “phakic IOLs” or “phakic implants” because they work along with the patient’s
natural lens, or phakos, rather than replacing it. The surgeon typically implants the ICL using topical anesthesia on an
outpatient basis. The patient usually experiences immediate vision improvement within a day.
Our ICL is the only posterior chamber phakic IOL (PIOL) approved by the Food and Drug Administration (FDA) for
marketing and sale in the U.S., and we believe it is the world’s largest selling phakic IOL. Our biocompatible Collamer
material belongs to a family of materials known as collagen copolymers. Collagen copolymers are compounds formed by
joining molecules of collagen derived from biological sources with synthetic monomer molecules. The proprietary Collamer
material is exclusive to us. We believe that the biocompatibility of the Collamer material used for the ICL product line is a
significant factor in the ability to place this lens safely in the posterior chamber of the eye.
The ICL has been implanted into more than 1,000,000 eyes worldwide. STAAR began selling the ICL for myopia for
use outside the U.S. in 1997. U.S. sales commenced in 2006. In September 2011, STAAR launched the ICL with
CentraFLOW technology, which uses a port in the center of the ICL optic in markets outside the U.S. The port is of a size
intended to optimize the flow of fluid within the eye without affecting the quality of vision. The central port also eliminates
the need for the surgeon to perform a YAG peripheral iridotomy procedure days before the ICL implant. The CentraFLOW
technology makes the visual outcomes of the ICL available through a simpler and more comfortable surgical implantation
experience. We are authorized to sell the ICL with CentraFLOW technology in the following ex-U.S. regions: the 31
countries that require the European Union CE Mark, China, Canada, Korea, Japan, India, Argentina, Singapore, and several
countries in the Middle East. In December 2015, we received the CE Mark for EVO+, an ICL with CentraFLOW technology
and an expanded optical zone of up to 20%. We believe the expanded optical zone may further improve certain patients’
visual experience, thus making the ICL increasingly desirable for both patients and ophthalmic surgeons. We are authorized
to sell the EVO+ in the following ex-U.S. regions: the 31 countries that require the European Union CE Mark, Korea, Japan,
India, Canada, Hong Kong, Turkey, and several countries in the Middle East. The Hyperopic ICL, which treats far-
sightedness, is sold primarily in countries that require the European Union CE Mark. Typically, ICL surgery is an elective
procedure paid for or financed by the patient.
Globally, the ICL is available for myopia and hyperopia and is available in multiple models, powers and lengths totaling
hundreds of different types of inventoried lenses. This requires us to carry a significant amount of inventory to meet customer
preference for rapid delivery. The Toric ICL (TICL), which also corrects for astigmatism, is available for myopia in the same
powers and lengths and carries additional parameters of cylinder and axis.
According to Market Scope, LLC a publisher of ophthalmic industry data, approximately 4.0 million refractive
procedures, primarily laser vision procedures, were performed worldwide in 2019. The incidence of myopia is growing
globally, with high myopia becoming more common according to recently published articles, affecting nearly 5 billion and 1
billion people, respectively, by 2050 (Global Prevalence of Myopia and High Myopia and Temporal Trends from 2000
through 2050, Ophthalmology, Vol. 123, No. 5, May 2016; Global trends in myopia management attitudes and strategies in
3
clinical practice, Contact Lens and anterior Eye, Vol. 39, 2016). We believe this will result in a significantly increased
number of patients seeking refractive procedures. We believe that over the past decade negative publicity regarding LASIK
has reduced patient interest in the LASIK procedure. The ICL is a lens-based refractive procedure (unlike LASIK) with over
1,000,000 ICLs implanted to date. Surgeons have published over 100 peer-reviewed articles with clinical data regarding the
safety, effectiveness, and visual quality of the ICL. We believe the ICL provides a safe and effective solution for the growing
number of myopic patients who will seek visual freedom from eyeglasses and contact lenses.
We plan to continue to develop and launch innovative products to support clinical needs and to address the increasing
demands of our customers. As part of our sales and marketing efforts, we attend and participate in major ophthalmic
conventions around the world and invest in market development, practice support, healthcare professional training and
patient outreach. We have started working more closely with leading refractive clinics in the area of training, product
awareness and practice development. Our marketing programs seek to position the ICL as a premium and primary option for
appropriate patients at the clinic and via digital and social media.
In September 2018, the FDA granted approval of our PMA Supplement for the Visian Toric ICL for the correction of
myopia with astigmatism for marketing and sale in the United States. In July 2019, we submitted to DEKRA, STAAR’s
European Notified Body, data from our multi-site European pivotal clinical trial for the EVO+ Visian® ICL with Aspheric
(EDOF) Optic (“EDOF Lens”), a lens that is designed to provide correction or reduction of myopia or hyperopia and
presbyopia (the age-related loss of near vision). In August 2019, the FDA notified us that it had determined that STAAR had
provided sufficient data to support initiation of a human clinical study in the United States of the EVO/EVO+ VISIAN®
Implantable Collamer® Lens for Myopia, and EVO/EVO+ VISIAN® Toric Implantable Collamer® Lens for Myopia with
Astigmatism. On January 31, 2020, the first patient was implanted in our U.S. human clinical study for our EVO ICL family
of lenses. In December 2019, DEKRA approved expansion of STAAR’s labeling to include use in pseudophakic eyes (those
eyes with an intraocular lens after cataract surgery) for EVO/EVO+ and VISIAN® Implantable Collamer® Lenses for
myopia and hyperopia, and EVO/EVO+ and VISIAN® Toric Implantable Collamer® Lenses for myopia and hyperopia with
astigmatism.
Sales of ICLs (including EVO+ and TICLs) accounted for approximately 86% of our total sales in fiscal 2019, 82% of
our total sales in fiscal 2018 and 75% of our total sales in fiscal 2017.
Other Products
Intraocular Lenses (IOLs). We produce and market a line of foldable IOLs manufactured from silicone in a three-piece
design with Polyimide loop haptics attached to the optic. STAAR also sells aspheric IOLs made of silicone that use optical
designs that produce a clearer image than traditional spherical lenses, especially in low light. In most of the countries where
STAAR does business, government agencies reimburse most or all of the cost of cataract surgery and IOLs. Government
agencies continue to reduce the reimbursement rates for cataract surgery and IOLs. In response, we continue to assess and
rationalize our low margin IOLs. For example, during the fourth quarter of 2019, we decided to phase out our nanoFLEX
IOL, a single piece aspheric IOL.
In Japan and parts of Europe, we sell a “Preloaded Injector” with a silicone or acrylic IOL packaged and shipped in a
pre-sterilized, disposable injector ready for use in cataract surgery. We believe the Preloaded Injector offers surgeons
improved convenience and reliability. The acrylic lens-based Preloaded Injector uses a lens supplied by a third party. The
supplier also assembles and sells the acrylic Preloaded Injector under its own brand, using injector parts purchased from us.
Sales of IOLs accounted for approximately 11% of our total sales in fiscal 2019, 13% of our total sales in fiscal 2018 and
19% of our total sales in fiscal 2017.
Other Surgical Products. We sell injector parts to our acrylic lens supplier for their preloaded acrylic IOL that they sell
under their own brand. Also, we sell other related instruments and devices that we manufacture, or that are manufactured by
others. Generally, these products have lower overall gross profit margins relative to our ICLs and IOLs. Sales of other
surgical products accounted for approximately 3% of our total sales in fiscal 2019, 5% of our total sales in fiscal 2018 and
6% of our total sales in fiscal 2017.
Sources and Availability of Raw Materials
STAAR uses a wide range of raw materials in the production of its products. STAAR purchases most of the raw
materials and components from external suppliers. Some of our raw materials are single-sourced due to regulatory
constraints, cost effectiveness, availability, quality, and vendor reliability issues. Many of our components are standard parts
or materials and are available from a variety of sources. We do not typically pursue regulatory and quality certification of
multiple sources of supply.
4
Patents, Trademarks, and Licenses
We strive to protect our investment in the research, development, manufacturing, and marketing of our products through
the use of patents, trademarks, licenses, trade secrets, and copyrights. We own or have rights to a number of patents, licenses,
trademarks, copyrights, trade secrets, know-how and other intellectual property related and important to our business. As of
January 3, 2020, we owned approximately 63 United States and foreign patents and had 36 patent applications pending. We
rely more on trade secrets than patents and believe that no particular patent is so important that its loss or expiration would
materially adversely affect our operations as a whole.
Our intellectual property generally relates to the design, production, and manufacture of the Collamer lens material,
ICLs, IOLs, and lens delivery systems for folding intraocular lenses (injectors and cartridges, both stand-alone and
preloaded) used with ICLs and IOLs. We believe it would require extensive time and effort for a competitor to duplicate our
intellectual property and processes to develop a product with comparable capabilities to our ICL product lines.
Worldwide, we sell all of our major products under trademarks we consider to be important to our business. STAAR®,
EVO Visian ICL™, Evolution in Visual Freedom®, Visian®, Collamer®, CentraFLOW®, AquaPORT®, nanoFLEX®
nanoPOINT® and Afinity® are trademarks or registered trademarks of STAAR in the U.S., the European Union, or other
countries. The scope and duration of trademark protection varies widely throughout the world. In some countries, trademark
protection continues only as long as the mark is used. Other countries require registration of trademarks and the payment of
registration fees. Trademark registrations are generally for fixed but renewable terms.
We protect our proprietary technology, in part, through confidentiality and nondisclosure agreements with employees,
consultants, and other parties. Our confidentiality agreements with employees and consultants generally contain standard
provisions requiring those individuals to assign to STAAR, without additional consideration, inventions conceived or reduced
to practice by them while employed or retained by STAAR, subject to customary exceptions. We cannot provide any
assurance that employees and consultants will abide by the confidentiality or other terms of their agreements. Despite
measures taken to protect our intellectual property, unauthorized parties may copy aspects of our products or obtain and use
information that we regard as proprietary.
Seasonality
While certain individual markets may be impacted by seasonal trends on a quarterly basis, in the aggregate, seasonality
does not materially affect our sales.
Working Capital Requirements
There are no special inventory requirements or credit terms extended to customers that have a material adverse effect on
our working capital.
Distribution and Customers
We market our products to a variety of health care providers, including ophthalmic surgeons, vision centers, surgical
centers, hospitals, government facilities, and distributors. The primary user of our products is an ophthalmologist.
We sell our products directly through our own sales representatives in Japan, Spain, the U.S., Germany, Canada, the
U.K. and Singapore. We sell through a combination of our own representatives and independent distributors in China, Korea
and India. We sell through independent distributors in other countries. Our products are sold in more than 75 countries
worldwide. We maintain a global marketing team, as well as regional marketing personnel to support the promotion and sale
of our products. The global marketing department supports selling efforts by developing and providing promotional
materials, speakers’ programs, digital and social media sites, participation in trade shows and technical presentations. Where
we distribute products directly, we rely on local sales representatives to help generate sales by promoting and demonstrating
our products with physicians. In the U.S., we also rely on independent sales representatives to sell our products under the
supervision of directly employed sales managers. Our clinical affairs personnel provide training and educational courses
globally.
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One customer, Shanghai Langsheng, our China distributor who sells in to China and Hong Kong, accounted for more
than 43% of our consolidated net sales during fiscal 2019. Net sales to Shanghai Langsheng during each of the last three
fiscal years were as follows:
Net Sales to Shanghai Langsheng
Fiscal Year
2019
2018
2017
$
$
$
Net Sales
($, in thousands)
Net Sales as Percentage of
Consolidated Net Sales
64,820
46,070
24,473
43.2 %
37.2 %
27.0 %
Backlog
The dollar amount of STAAR’s backlogged orders is not material in relation to total annual sales. We generally keep
sufficient inventory on hand to ship product immediately or shortly after receipt of an order.
Government Contracts
No material portion of our business is subject to renegotiation of profits or termination of any particular contract or
subcontract at the election of the U.S. Government.
Competition
Competition in the ophthalmic surgical product market is intense and is primarily driven by technological innovation and
the regulatory approval required to commercialize products in the key markets around the world. The development of new or
improved products may make existing products less attractive, reduce them to commodity status or even make them obsolete.
To remain competitive, companies such as STAAR must devote continued efforts and significant financial resources to
enhance their existing products and to develop new products.
In the refractive market, our ICL technology competes with other elective surgical procedures such as laser vision
correction (e.g., LASIK) for those consumers who are looking for an alternative to eyeglasses or contact lenses to correct
their vision. In the cataract surgery market, our IOLs primarily compete based on our technology’s quality and value.
We believe our primary competition in selling the ICL to patients seeking surgery to correct refractive conditions lies not
in similar products to the ICL, but in laser surgical procedures. Alcon (formerly a part of Novartis), Johnson & Johnson
(formerly Advanced Medical Optics or AMO), Bausch Health Companies (formerly Valeant, Bausch & Lomb or B+L), and
Carl Zeiss Meditec AG, all market lasers for corneal refractive surgery and promote their sales worldwide.
Phakic implants that compete with the ICL are also available in the marketplace. The two principal types of phakic IOLs
are (1) posterior chamber designs like the ICL, and (2) iris clip anterior chamber PIOLs like the Artisan® and Artiflex®
lenses made by Ophtec. We believe the ICL has compelling clinical advantages over the other lenses, which are reflected in
our strong market share of the global phakic IOL market. The ICL is the only foldable, minimally invasive PIOL approved
for sale in the U.S. In addition, competitors from Asia are beginning to appear in the market with their low-cost version of a
posterior chamber implantable contact lens, increasing the level of competition.
The global cataract market is highly concentrated, with the top five competitors (Alcon, Johnson & Johnson, Hoya,
Bausch Health Companies and Carl Zeiss Meditec) combined accounting for approximately 67% of total market revenue,
according to a 2019 report by Market Scope.
The Human Eye
The following discussion provides background information on the structure, function, and some of the disorders of the
human eye to enhance the reader’s understanding of our products described in this report. The human eye is a specialized
sensory organ capable of receiving visual images and transmitting them to the visual center in the brain. The eye has an
anterior segment and a posterior segment that are separated by the natural crystalline lens.
The anterior segment consists of the cornea, the iris and ciliary body and the trabecular meshwork. It is filled with a
water-based fluid called aqueous humor and is divided, by the iris, into an anterior chamber and a posterior chamber. The
cornea is a clear lens at the front of the eye through which light first passes and is focused towards the back of the eye. The
interior surface of the cornea is lined with a single layer of flat, tile-like endothelial cells, whose function is to maintain the
transparency of the cornea. The iris is a pigmented muscular curtain located behind the cornea which opens and closes to
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regulate the amount of light entering the eye through the pupil, an opening at the center of the iris. The crystalline lens,
located behind the iris, completes the focusing of light and can change shape to focus objects at different distances onto the
retina, located in the back of the eye. The trabecular meshwork, a drainage channel located between the iris and the
surrounding white portion of the eye, maintains a normal pressure in the anterior chamber of the eye by draining excess
aqueous humor.
The posterior segment of the eye that is behind the natural lens is filled with a jelly-like material called the vitreous
humor. The retina is a layer of nerve tissue in the back of the eye consisting of millions of light receptors called rods and
cones, which receive the light image and transmit it to the brain via the optic nerve.
Common visual disorders, disease or trauma can affect the eye. One of the most prevalent ocular disorders is cataracts.
Cataract formation is generally an age-related disorder that involves the hardening and loss of transparency of the natural
crystalline lens, impairing visual acuity.
Refractive disorders, which generally are not age-related, include myopia, hyperopia, and astigmatism. A normal, well-
functioning eye receives images of objects at varying distances from the eye and focuses the images on the retina. Refractive
errors occur when the eye’s natural optical system does not properly focus an image on the retina. Myopia, also known as
nearsightedness, occurs when the eye’s lens focuses images in front of the retina. Hyperopia, or farsightedness, occurs when
the eye’s lens focuses images behind the plane of the retina. Individuals with myopia or hyperopia may also have
astigmatism. Astigmatism is due to an irregular curvature of the cornea or defects in the natural lens that causes light to not
focus at a single depth in the eye resulting in blurred vision. Presbyopia is an age-related refractive disorder that limits a
person’s ability to see in the near and middle distance range as the natural crystalline lens loses its elasticity, reducing the
eye’s ability to accommodate or adjust its focus for varying distances.
Regulatory Matters
Nearly all countries where we sell our products have regulations requiring premarket clearance or approval of medical
devices by governmental or regulatory authorities. Various federal, state, local and foreign laws also apply to our operations,
including, among other things, working conditions, laboratory, clinical, advertising and promotions, and design and
manufacturing practices, and the use and disposal of hazardous or potentially hazardous substances.
The requirements for clearance or approval to market medical products vary widely by country. The requirements range
from minimal requirements to rigorous requirements comparable to those established by the FDA. Obtaining clearance or
approval to distribute medical products is complex, costly, and time-consuming in virtually all the major markets where we
sell medical devices. We cannot give any assurance that any new medical devices we develop will be cleared or approved in
any country where we propose to sell our medical devices or, if approved, whether such approvals will be granted in a timely
or cost-effective manner, be as broad in scope as we seek, or be conditioned on post-market study requirements or restrictive
labeling. We also cannot give any assurance that if our medical devices are approved for sale in a country, subsequent action
will not be taken by the responsible regulatory authorities in the country with respect to our medical devices that might affect
our ability to maintain the required approvals in the country or to continue to sell our medical devices in the country. The
regulatory requirements in our most important current markets, China, Europe, Japan, Korea and the U.S., are discussed
below.
Regulatory Requirements in the United States.
Under the United States Federal Food, Drug & Cosmetic Act, as amended (the Act), the FDA has the authority to
regulate, among other things, the design, development, manufacturing, preclinical and clinical testing, labeling, product
safety, marketing, sales, distribution, premarket clearance and approval, recordkeeping, reporting, advertising, promotion,
post-market surveillance, and import and export of medical devices.
Most of our products are classified as medical devices intended for human use within the meaning of the Act and,
therefore, are subject to FDA regulation.
Each medical device we seek to commercially distribute in the United States must first receive clearance to market under
a notification submitted pursuant to Section 510(k) of the Act, known as the 510(k) premarket notification, or premarket
approval (PMA) from the FDA, unless specifically exempted by the agency or subject to another form of FDA premarket
review. The FDA classifies all medical devices into one of three classes. The FDA establishes procedures for compliance
based upon the device’s classification as Class I (general controls, such as establishment registration and device listing with
FDA, labeling and record-keeping requirements), Class II (performance standards in addition to general controls) or Class III
(premarket approval (PMA) required before commercial marketing). Devices deemed to pose lower risk are categorized as
either Class I (low risk) or II (moderate risk). Manufacturers of Class II devices are generally required to submit to the FDA a
7
510(k) premarket notification requesting clearance of the device for commercial distribution in the United States. Most low
risk (Class I) devices and some Class II devices are exempt from this requirement. The FDA deems Class III devices to pose
the greatest risk and are the most extensively regulated. These devices include life-supporting, life sustaining, or implantable
devices, or devices deemed not substantially equivalent to a previously 510(k) cleared device. The effect of assigning a
device to Class III is to require each manufacturer to submit to the FDA a PMA that includes information on the safety and
effectiveness of the device. The FDA reviews device applications and notifications through its Office of Device Evaluation
(ODE).
510(k) Clearance. Our lens injector systems are Class I devices subject to the 510(k) premarket review and clearance
process. A medical device that is substantially equivalent to either a previously-cleared medical device or a device that was in
commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of a PMA, or is a
device that has been reclassified from Class III to either Class II or I may be eligible for the FDA’s 510(k) premarket
notification process. FDA clearance under Section 510(k) of the Act does not imply that the safety, reliability, and
effectiveness of the medical device has been approved or validated by the FDA. The review period and FDA determination as
to substantial equivalence generally takes from three to twelve months from the date the application is submitted and filed.
However, the process may take significantly longer, and clearance is never assured. Although many 510(k) premarket
notifications are cleared without clinical data, in some cases, the FDA requires significant clinical data to support substantial
equivalence. In reviewing a premarket notification, the FDA may request additional information including clinical data,
which may significantly prolong the review process.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or
that would constitute a major change in its intended use, will require a new 510(k) clearance or could require premarket
approval. The FDA requires each manufacturer to make its own initial determination as to whether a change meets this
threshold. However, the FDA can review any such decision and can disagree with a manufacturer’s determination. If the
FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing or recall the
modified device until 510(k) clearance or a PMA is obtained.
Premarket Approval. Our ICLs and IOLs are Class III devices subject to the PMA approval process and not 510(k)
clearance. The more rigorous PMA process requires us to demonstrate that a new medical device is safe and effective for its
intended use. The FDA may require that a PMA be supported by, among other things, extensive technical, pre-clinical,
clinical testing, manufacturing, and labeling data to demonstrate to the FDA’s satisfaction, the safety and effectiveness of the
device.
After a PMA application is submitted and filed, the FDA begins an in-depth review of the submitted information, which
typically takes between one and three years, but may take significantly longer. During the review period, the FDA may
request additional information or clarification of information already provided. In addition to its own review, the FDA may
organize an independent advisory panel of experts to review the PMA whenever a device is the first of its kind or the FDA
otherwise determines panel review is warranted. The FDA holds panels on a regular basis, but the need to schedule panel
review usually adds some weeks or months to the review process. In addition, the FDA will conduct a pre-approval
inspection of the manufacturing facility to ensure compliance with Quality System Regulation (QSR) which imposes
elaborate design, development, testing, control, validation, documentation, complaint handling, supplier control, and other
quality assurance procedures in the design and manufacturing process. The FDA may approve a PMA application with post-
approval conditions intended to ensure the safety and effectiveness of the device including, among other things, restrictions
on labeling, promotion, sale and distribution and conduct of additional post-approval clinical studies or collection of long-
term follow-up from patients in the clinical study that supported approval. Failure to comply with the conditions of approval
can result in materially adverse enforcement action, including the loss or withdrawal of the approval.
If a manufacturer plans to make significant modifications to the manufacturing process, labeling, or design of an
approved PMA device, the manufacturer must submit an application called a “PMA Supplement” regarding the change. The
FDA generally reviews PMA Supplements on a 180-day agency timetable, which may be extended if significant questions
arise in review of the supplement. A manufacturer may implement limited changes prior to the FDA’s review of a PMA
Supplement. The FDA designates some PMA Supplements as “panel-track” supplements, which means that the agency
believes review by an advisory panel may be warranted. Designation as a panel-track supplement does not necessarily mean
that panel review will occur.
Clinical or Market Trials. A clinical trial is typically required to support a PMA application and is sometimes required
for a 510(k) premarket notification. Clinical trials conducted to support premarket clearance or approval generally require
submission of an application for an Investigational Device Exemption (IDE) to the FDA. Appropriate data must support the
IDE application, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the
investigational protocol is scientifically sound. The IDE application must be approved by the FDA for a specified number of
patients, unless the product is deemed eligible for more abbreviated IDE requirements. Clinical trials for a significant risk
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device may begin once the FDA approves the IDE application. All FDA-regulated clinical studies, whether significant or
non-significant risk, must be approved and overseen by the appropriate institutional review boards (IRBs) at the clinical trial
sites, and informed consent of the patients participating in the clinical trial must be obtained. After a trial begins, the FDA
may place it on hold or terminate it, if, among other reasons, it concludes that the clinical subjects are exposed to an
unacceptable health risk. Any trials we conduct in the United States must be conducted in accordance with FDA regulations
as well as other federal regulations and state laws concerning human subject protection and privacy. Moreover, the results of
a clinical trial may not be sufficient to obtain clearance or approval of the product.
Oversight of compliance with quality, medical device reporting, clinical study, and other regulations. Both before and
after we receive premarket clearance or approval and release a product commercially, we have ongoing responsibilities under
FDA regulations. The FDA reviews design and manufacturing practices, labeling and record keeping, product complaints and
manufacturer’s required reports of adverse experiences, product corrections and removals, and other information to identify
potential problems with marketed medical devices. We are also subject to periodic inspection by the FDA for compliance
with the FDA’s QSR and other requirements, such as requirements for advertising and promotion. The Good Manufacturing
Practice (GMP) regulations for medical devices embodied in the QSR govern the methods used in, and the facilities and
controls used for, the design, manufacture, packaging, labeling, and servicing of all finished medical devices intended for
human use.
The FDA’s Bioresearch Monitoring Program (BIMO), reviews our activities as a sponsor of clinical research. BIMO
conducts facilities inspections as part of a program designed to ensure that data and information contained in requests for
IDEs, PMA applications and 510(k) submissions are scientifically valid, reliable, and accurate. Another objective of the
program is to ensure that human subjects are protected from undue hazard or risk during scientific investigations.
If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our
medical devices are ineffective or pose an unreasonable health risk, the FDA could require us to notify health professionals
and others that the devices present unreasonable risk or substantial harm to public health, order a recall, repair, replacement,
or refund of the devices, detain, or seize adulterated or misbranded medical devices, or ban the medical devices. The FDA
may also issue warning letters or untitled letters, refuse our request for 510(k) clearance or PMA approval, revoke existing
510(k) clearances or PMA approvals previously granted, impose operating restrictions, enjoin, and restrain certain violations
of applicable law pertaining to medical devices and assess civil or criminal penalties against our officers, employees, or us.
The FDA may also recommend prosecution to the Department of Justice. In the case of devices subject to pending premarket
clearance or approval applications, FDA has broad authority to halt the review of applications and require significant
additional data analyses, audits, and other corrective actions where clinical data contained in an application are deemed to be
actually or potentially unreliable, inaccurate, or not in compliance with clinical study or good clinical practice requirements.
For example, on May 27, 2014, we received a warning letter from the FDA (2014 Warning Letter) citing alleged
violations of current good manufacturing practice (cGMP) regulations that were identified by the FDA during an inspection
of our manufacturing facility in Monrovia, California between February 10, 2014, and March 21, 2014. On November 14,
2014 and continuing through February 4, 2015, the FDA again inspected our Monrovia facility. On February 4, 2015, at the
conclusion of the inspection, the FDA issued an FDA-483 with ten inspectional observations (2015 FDA-483). STAAR
responded to the 2014 Warning Letter and the 2015 FDA-483 and implemented its corrective action plans relating to the
2014 Warning Letter and the 2015 FDA-483. On April 30, 2018 continuing through May 18, 2018 FDA again inspected our
Monrovia facility, and on June 19, 2018, we received a close-out letter from the FDA lifting the 2014 Warning Letter.
Healthcare Fraud and Abuse Laws and Regulations.
Even though we do not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party
payers, certain federal, state and international healthcare laws and regulations pertaining to fraud and abuse and patients’
rights are applicable to our business. We are subject to healthcare fraud and abuse and patient privacy regulation by the
federal government, the states and the international jurisdictions in which we conduct our business. The regulations that may
affect our ability to operate include, without limitation:
the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully
offering, soliciting, receiving, or providing remuneration, directly or indirectly, to induce either the referral of an
individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be
made under federal healthcare programs such as the Medicare and Medicaid programs;
the federal False Claims Act, which prohibits, among other things, individuals, or entities from knowingly
presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the
federal government, and which may apply to entities that provide coding and billing advice to customers;
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federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false
statements relating to healthcare matters;
the federal physician sunshine requirements under the Patient Protection and Affordable Care Act of 2010, which
requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for
Medicare & Medicaid Services information related to payments and other transfers of value relating to certain drugs,
devices, biologics, and medical supplies to physicians, other healthcare providers, and teaching hospitals, and
ownership and investment interests held by physicians and other healthcare providers and their immediate family
members;
the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information
Technology for Economic and Clinical Health Act of 2009, which governs the conduct of certain electronic
healthcare transactions and protects the security and privacy of protected health information; and
state and international law equivalents of each of the above federal laws, such as anti-kickback and false claims laws
which may apply to items or services reimbursed by any third-party payer, including commercial insurers; state laws
that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable
compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to
healthcare providers and other potential referral sources; state and international laws that require device
manufacturers to report information related to payments and other transfers of value to physicians and other
healthcare providers or marketing expenditures; and state and international laws governing the privacy and security
of health information in certain circumstances, which may differ from each other and may not have the same effect,
thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is
possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent
health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things,
amends the intent requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity
no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Patient Protection
Affordable Care Act provides that the government may assert that a claim including items or services resulting from a
violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Regulatory Requirements Outside the United States.
CE Marking. In the European Economic Area (EEA), which is comprised of the 27 Member States of the European
Union plus Norway, Iceland, and Liechtenstein, medical devices must comply with the essential requirements of the EU
Medical Devices Directive (Council Directive 93/42/EEC). Compliance with the essential requirements of the EU Medical
Device Directive is a prerequisite to be able to affix a Conformité Européenne Mark (CE Mark), without which medical
devices cannot be marketed or sold in the EEA. To demonstrate compliance with the essential requirements, medical device
manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its
classification.
The method of assessing conformity varies depending on the class of the product, but normally involves a combination
of self-assessment by the manufacturer and a third-party assessment by a “Notified Body.” Notified Bodies are a group of
private quality-monitoring organizations that are accredited to review medical devices and to monitor quality systems and
adverse event reporting. The independent Notified Bodies perform, on a privatized basis, functions similar to the FDA in the
U.S. and the Pharmaceuticals and Medical Devices Agency (PMDA) in Japan. Our facilities in the United States and
Switzerland are subject to regular inspection by a designated Notified Body. Other countries, such as Switzerland, have
voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices, and a
number of countries outside of Europe permit importation of devices bearing the CE Mark.
The European Union regulatory bodies finalized a new Medical Device Regulation (MDR) in 2017, which replaced the
existing Directives and provided three years for transition and compliance. The MDR will change several aspects of the
existing regulatory framework, such as updating clinical data requirements and introducing new ones, such as Unique Device
Identification (UDI). We and the Notified Bodies who will oversee compliance to the new MDR face uncertainties and
increased costs as the MDR is rolled out and enforced by the European Commission and EEA Competent Authorities,
creating risks in several areas, including the CE Marking process and data transparency, in the upcoming years. The exit of
the UK from the European Union (BREXIT) has resulted in the requirement to re-certify our preloaded acrylic IOL under a
non-UK Notified Body, and to separately register our CE Marked products for sale in the UK.
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We have affixed the CE Mark to all our principal products sold in CE Mark jurisdictions including ICLs, IOLs and
injector systems. In July 2017, our Notified Body in the European Union, DEKRA, re-certified the CE Marking for all our
currently certified and commercially available medical devices. In March 2018, DEKRA performed audits of our US and
Swiss facilities certifying them to EN ISO 13485:2016 as well as to the “Medical Device Single Audit Program” (MDSAP).
MDSAP provides for a single audit recognized by Australia, Brazil, Canada, Japan and the United States demonstrating
routine compliance with QSR/GMP requirements. DEKRA performed an unannounced audit in December 2018, and
completed surveillance audits by July 2019 reconfirming our compliance to EN ISO 13485:2016 and MDSAP.
Medical Device Regulation in Japan. The Japanese Ministry of Health, Labor, and Welfare (MHLW) regulates the sale
of medical devices under Japan’s Pharmaceutical Affairs Law (PAL). The Pharmaceuticals and Medical Devices Agency
(PMDA), a quasi-governmental organization, performs many of the medical device review functions for MHLW. Medical
devices generally must undergo thorough safety examinations and demonstrate medical efficacy before the MHLW grants
shonin (premarket device approval) or ninsho (certification). Manufacturers and resellers (referred to as Marketing
Authorization Holders or MAHs) must also satisfy certain requirements before the MHLW grants a business license, or
kyoka. Requirements for manufacturers and MAHs include compliance with Japanese regulations covering GQP (good
quality control practice) and GVP (good vigilance practice), which largely include conformity to the ISO 13485 standard and
are similar to good manufacturing practice and post-market surveillance requirements in the United States, as well as the
assignment of internal supervisors over marketing, quality assurance, and safety control.
Approval for a new medical device that lacks a substantial equivalent in the Japanese market will generally require the
submission of clinical trial data. Only a licensed MAH can apply for premarket device approval in Japan, and in most cases,
the clinical trial data must include data gathered from Japanese subjects. For example, STAAR Japan conducted a separate
clinical trial in Japan for the shonin application for the ICL. Also, approval for a new medical device will require the
manufacturer to undertake to reexamine the safety and efficacy of the device with a review of post-market data gathered
within a certain period - normally four years - after approval. The specific post-market reexamination requirement for a
medical device is announced at the time of approval.
STAAR Japan currently holds shonin approval for the ICL products, preloaded injectors, and their associated lenses, and
kyoka licensing as a manufacturer and MAH of medical devices. The sponsor of a clinical trial submitted to the MHLW must
strictly follow Good Clinical Practice (GCP) standards, and must follow the trial with standard Good Post-Market Study
Practice (GPSP) reporting and a follow-up program. MHLW and PMDA also assess the quality management systems of
manufacturers and the conformity of products to the requirements of PAL. STAAR is subject to inspection for compliance by
these agencies. A company’s failure to comply with PAL can result in severe penalties, including revocation or suspension of
a company’s business license and possible criminal sanctions. If the PMDA were to conclude that we are not in compliance
with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk,
they could take a variety of regulatory or legal actions, similar to the FDA, which could have a material and negative impact
on the Company.
Medical Device Regulation in China and Korea. Sales of our products in China and Korea, as in other countries, are also
subject to regulatory requirements. In China, medical devices such as our ICLs require testing by a government recognized
laboratory qualified as a medical device testing center in accordance with Chinese standards. Results from the testing center,
together with registration documents, are submitted to the Center for Medical Device Evaluation (CMDE) of the Chinese
FDA (CFDA) for technical evaluation and if accepted, then approval and registration by CFDA. In China, we obtain
registration of our products from CFDA ourselves. In Korea, medical devices such as our ICLs and IOLs require registration
and approval from the Korean Ministry of Food and Drug Safety (MFDS) prior to commercialization. Typically, the MFDS
requires similar documentation as required to obtain a CE Mark. Our distributor in Korea is contractually required to obtain,
with our assistance, the necessary health registrations, governmental approvals, or clearances to import, market and sell our
products. In Korea, we provide our distributor with information and data to obtain appropriate registrations and approvals,
and the distributor in each country obtains such registrations. If the CFDA or MFDS were to conclude that we are not in
compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable
health risk, they could take a variety of regulatory or legal actions in their respective countries, similar to the FDA, which
could have a material and negative impact on the Company. In January 2018, the MFDS audited our facilities then concluded
we met the regulatory requirements and were in compliance with the current Korean quality system standards, and therefore
would recommend renewal of our medical device license.
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Third Party Coverage and Reimbursement.
Health care providers generally rely on third-party payers, including governmental payers such as Medicare and
Medicaid, private insurance plans and workers’ compensation plans, to cover and reimburse the cost of medical devices and
related services. These third-party payers may deny coverage or reimbursement for a medical device if they determine that
the product or procedure using the product was not medically appropriate or necessary and are increasingly challenging the
price of medical devices and services.
Our ICL products generally are not covered by third-party payers, and patients incur out-of-pocket costs for these
products and related procedures using our products. Our IOL products used in cataract procedures generally are covered by
third-party payers, including Medicare, in whole or in part depending upon a variety of factors, including the specific product
used and geographic location where the procedure using the covered product is performed. The market for some of our IOL
products therefore is influenced by third-party payers’ policies.
In the United States, the Centers for Medicare & Medicaid Services (CMS), the agency responsible for administering the
Medicare program, sets coverage and reimbursement policies for the Medicare program. CMS may modify its coverage and
reimbursement policies related to IOLs, including our IOLs, as well as cataract procedures using IOLs, at any time. Since the
enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act, or collectively, the Health Care Reform Law, there have been an increasing number of legislative initiatives in the
United States to contain health care coverage and reimbursement by governmental and other payers. These laws, as well as
future laws that may be enacted, may result in additional reductions in Medicare and other health care funding, which could
have a material adverse effect on our customers and thus, our financial operations.
In international markets, reimbursement and healthcare payment systems vary significantly by country, and many
countries have instituted cost containment initiatives similar to those in the United States. There can be no assurance that
third-party coverage and reimbursement will be available or adequate, or that such policies or any future legislation or
regulation will not adversely affect the demand for our IOLs or our ability to sell these products at prices we consider
adequate.
Research and Development
We focus on furthering technological advancements in the ophthalmic products industry through the development of
innovative premium ophthalmic products (lenses and companion delivery systems), materials and designs. We maintain
active internal research and development programs. To achieve our business objectives, we will continue our investment in
research and development.
During 2020, we intend to continue our focus on research and development in the following areas:
Development of presbyopia-correcting ophthalmic lenses, including models that correct sphere and cylinder,
including clinical trials of the same;
Development of preloaded injector systems for ophthalmic lenses; and
Development of a new generation of ophthalmic lenses and materials.
Environmental Matters
We are subject to federal, state, local and foreign environmental laws, and regulations. We believe that our operations
comply in all material respects with applicable environmental laws and regulations in each country where we do business.
We do not expect compliance with these laws to affect materially our capital expenditures, earnings, or competitive position.
We have no plans to invest in material capital expenditures for environmental control facilities for the remainder of our
current fiscal year or for the next fiscal year. We are not aware of any pending actions, litigation or significant financial
obligations arising from current or past environmental practices that are likely to have a material adverse impact on our
financial position. However, environmental problems relating to our properties could develop in the future, and such
problems could require significant expenditures. In addition, we cannot predict changes in environmental legislation or
regulations that may be adopted or enacted in the future and that may adversely affect us.
Employees
As of January 3, 2020, we had approximately 550 full-time equivalent employees.
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Code of Ethics
STAAR has adopted a revised Code of Business Conduct and Ethics that applies to all its directors, officers, and
employees. The Code of Business Conduct and Ethics is posted on our website, www.staar.com — Investor Information:
Corporate Governance.
Additional Information
We make available free of charge through our website, www.staar.com, our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to any reports filed or furnished pursuant to Section
13(a) of the Securities Exchange Act of 1934, as soon as reasonably practicable, after those reports are filed with or furnished
to the Securities and Exchange Commission (“SEC”).
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding STAAR and other issuers that file electronically with the SEC at http://www.sec.gov.
Glossary
The following glossary is intended to help the reader understand some of the terms used in this Report.
acrylic – a broadly used family of plastics. Acrylic materials used in IOLs have been both water repelling (hydrophobic)
and water-absorbing (hydrophilic). The most popular IOLs in the U.S., Europe and Japan are made of a flexible, water-
repellent acrylic material.
aspheric – aspheric lenses are lenses that are designed in a shape that creates a more clearly focused image than
traditional spheric lenses. By reducing spherical aberrations, IOLs that feature aspheric optics generally deliver better night
vision and contrast sensitivity than spheric IOLs.
collagen copolymer - compounds formed by joining molecules of collagen derived from biological sources with
synthetic monomer molecules. STAAR’s Collamer® is a collagen copolymer engineered specifically for use in implantable
lenses.
contrast sensitivity - the ability to visually distinguish an object from its background.
crystalline lens – the natural lens that is present in the eye at birth, which is a clear structure, located behind the iris that
changes shape to focus light onto the retina.
excimer laser – a specialized ultraviolet laser used in ophthalmology to cut or shape eye tissue. The excimer laser is used
during LASIK and PRK surgery.
foldable IOL – an intraocular lens made of flexible material, which can be inserted with an injector system through a
small incision in minimally invasive cataract surgery.
haptic – the part of an IOL that contacts the structures of the eye and holds the IOL in place. IOLs in which the haptic is
also a part of the optic material is called a single-piece IOL, while IOLs in which the haptics are attached to the optic is called
a three-piece IOL.
hyperopia – the refractive disorder commonly known as farsightedness, which occurs when the eye’s lens focuses
images behind the plane of the retina rather than on the retinal surface. An adult with moderate to high hyperopia cannot see
close objects without eyeglasses or contact lenses. Because presbyopia often results in the need for reading glasses, it is
sometimes confused with farsightedness.
intraocular – within the eye.
injector or injector system – a device in the form of a syringe that is used to deliver a foldable IOL into the eye through a
slender nozzle in minimally invasive cataract surgery.
iridotomy – a small hole created in the iris, usually made with a YAG laser. Prior to implantation of some ICL models a
YAG peripheral iridotomy is made in an unobtrusive area at the periphery of the iris to ensure continued fluid flow in the eye
after implantation. The ICL with CentraFLOW technology, marketed with the brand names EVO and EVO+, have a central
port for fluid flow, which eliminates the need for an iridotomy or iridectomy.
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LASIK – an acronym for laser-assisted in-situ keratomileusis, a surgical operation that reshapes the cornea to correct
nearsightedness, farsightedness, or astigmatism. LASIK involves first the cutting of a hinged flap to separate the surface layer
of the cornea, using a microkeratome (a special blade) or a laser. An excimer laser is then used to ablate tissue and reshape
the inner cornea, after which the flap is returned to position.
myopia – the refractive disorder also known as nearsightedness, which occurs when the eye’s lens focuses images in
front of the retina rather than on the retinal surface. A person with myopia cannot clearly see distant objects without
eyeglasses or contact lenses.
ophthalmologist – a surgeon who specializes in the diseases and disorders of the eye and the related visual pathway.
ophthalmic – of or related to the eye.
optic – the central part of an IOL or ICL, the part that functions as a lens and focuses images on the retina.
PRK – an acronym for photorefractive keratectomy, the first type of laser surgical operation to correct nearsightedness,
farsightedness, or astigmatism.
preloaded injector - an IOL packaged and shipped in a pre-sterilized, disposable injector. This differs from the
conventional method of packaging IOLs, which requires the surgeon or an assistant to manually load each lens into an
injector before surgery.
presbyopia – an age-related condition in which the crystalline lens loses its ability to focus on both near and far objects.
People who have had normal vision will typically begin to need eyeglasses for reading or other close tasks at some point after
age 40 due to presbyopia.
QSR - the FDA’s Quality System Regulation, or current Good Manufacturing Practice (cGMP) regulation, includes
requirements related to the methods used in, and the facilities and controls used for, designing, manufacturing, packaging,
labeling, storing, installing, and servicing of medical devices intended for human use. The regulation sets forth the
framework for medical device manufacturers to follow in achieving quality requirements, including requirements related to
complaint handling and control of purchased or supplied services, components, and materials bearing on the quality of
medical devices.
RLE – refractive lens exchange, a refractive surgical procedure in which the natural crystalline lens is removed and
replaced with an IOL (essentially the same as cataract surgery but performed primarily to address refractive issues not to
remove a cataract).
refractive market – as used in this report “refractive market” means the overall market volume for refractive surgical
procedures of all kinds, including LASIK, PRK, RLE, the ICL product family and other phakic IOLs. As used in this report,
the term does not include sales of non-surgical products like eyeglasses and contact lenses.
silicone – a type of plastic often used in implantable devices that is inert, generally flexible and water-repelling.
single-piece IOL – in a single piece IOL the haptics and the optic are fashioned from a single piece of lens material.
spheric lenses – a spheric lens has surfaces that are shaped like sections of a sphere.
three-piece IOL – a three-piece IOL has a central, disk-shaped optic and two spring-like haptics attached at either side.
The haptics are positioned against structures of the eye to hold the IOL in place.
toric – refers to the shape of a lens designed to correct astigmatism, which has greater refractive power in some sections
of the lens than others.
YAG – an acronym for yttrium-aluminum-garnet, a mineral crystal. Lasers using neodymium-doped yttrium aluminum
garnet crystals (Nd:YAG) generate a high-energy beam that can be used in a number of ophthalmic procedures, including
creating iridotomies before implantation of some models of the ICL.
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ITEM 1A. Risk Factors
Investment in our securities involves a high degree of risk. Investors should carefully consider the following risk factors,
in addition to other information contained in this report before making a decision to invest in our common stock. These risks
are not the only ones we face. These risks and uncertainties, as well as other risks that we cannot foresee at this time, have the
potential to affect our business, financial condition, results of operations, cash flows, strategies and prospects in a material
and adverse manner. The trading price of our common stock could decline due to any of these risks, and investors may lose
all or part of their investment. This Annual Report on Form 10-K contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those anticipated or implied in these forward-looking statements
because of factors beyond our control, including the risks faced by us described below.
We may not be able to continue our growth and profitability trajectory.
Risks Related to Our Business
In 2019 our revenue grew by 21% and we achieved $0.30 diluted earnings per share. While we plan to continue sales
growth and remain profitable, there can be no guarantee that we will achieve our growth and profitability plans in 2020.
While we achieved profitability in the past two years, we reported losses in three of the past five years. Our profitability is
challenged by the competitive nature of our industry and the other risks to our business detailed herein.
Compliance issues may adversely impact our operations.
Quality system and other deficiencies observed by the FDA at certain of our facilities in the past resulted in delays in
product approvals. We plan to remain in compliance with regulatory requirements established by applicable global
regulatory agencies, however, there can be no guaranty that we will do so. If we cannot maintain compliance with a particular
jurisdiction’s regulatory requirements, it could adversely impact our financial performance/have a material adverse effect on
our ongoing business and operations. We expect to continue to devote resources and attention to our quality systems and
compliance and other regulatory requirements as part of the ordinary course of business. We cannot ensure that our efforts
will be successful and failure to achieve or maintain compliance may materially and adversely impact our business and
operations.
We rely and depend on independent distributors in international markets.
Except for the U.S., Japan, Spain, Germany, Canada, the U.K. and Singapore, we sell our products through independent
distributors who generally control the importation and marketing of our product within their territories. We generally grant
exclusive rights to these distributors and rely on them to understand local market conditions, to diligently sell our products
and to comply with local laws and regulations. Our agreements with distributors and local laws can make it difficult for us to
quickly change from a distributor who we feel is underperforming. If we do terminate an independent distributor, we may
lose customers who have been dealing with that distributor, and may be required to compensate the distributor for
termination. Because these distributors are independent, it may be difficult for us to detect failures in our distributors’
performance or compliance. Actions by independent distributors could result in declining sales in that territory, harm to the
reputation of our company or our products, or legal liability. For example, if Shanghai Langsheng, which accounted for more
than 43% of our fiscal 2019 consolidated net sales, ceased to serve as our distributor, or significantly underperformed our
expectations, we may experience a substantial reduction in sales.
Unfavorable economic conditions or negative publicity concerning complications of laser eye surgery, or medical
devices in general, could hurt sales of our refractive products.
Approximately eighty-six percent (86%) of our revenue was derived from ICL lenses used in refractive procedures.
Refractive surgery is an elective procedure generally not covered by health insurance. Patients must pay for the procedure,
frequently through installment financing arrangements with third parties. They can defer the choice to have refractive surgery
if they lack the disposable income to pay for it or do not feel their income is secure. Economic stagnation, lack of consumer
confidence or new recessions in any of our larger markets could slow ICL sales growth or, if severe, cause declines in sales.
Because the ICL is our best selling and highest gross margin product, restricted growth or a decline in its sales could
materially harm our business.
We believe that negative publicity in the past regarding the potential complications of refractive surgery and potential
patient dissatisfaction, in particular because of LASIK and other corneal laser-based procedures, decreased patient interest in
LASIK as well as all other refractive procedures. Depending on the nature and severity of any future negative publicity about
refractive surgery, the growth of ICL sales could be limited or sales could decline due to decreased patient interest in all
refractive surgery. Recent negative publicity regarding alleged harm to patients caused by LASIK may decrease patient
interest in undergoing a medical procedure involving a medical device such as our ICL.
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Disruptions in our supply chain or failure to adequately forecast product demand could result in significant delays or
lost sales.
The loss of a material supplier could significantly disrupt our business. In some cases, we obtain components used in
certain of our products from single sources. If we experience difficulties acquiring sufficient quantities of required materials
or products from our existing suppliers, or if our suppliers are found to be non-compliant with the FDA’s QSR, other
applicable laws, or STAAR’s requirements, then qualifying and obtaining the required regulatory approvals to use alternative
suppliers may be a lengthy and uncertain process during which production could be delayed and we could lose sales.
Our sources of supply for raw materials may be threatened by shortages and other market forces, by natural disasters, by
the supplier’s failure to maintain adequate quality or a recall initiated by the supplier. Even when substitute suppliers are
available, the need to verify the substitute supplier’s regulatory compliance and the quality standards of the replacement
material could significantly delay production and materially reduce our sales.
In particular, we manufacture the proprietary collagen-containing raw material used in our ICLs internally. If the supply
of these collagen-containing raw materials is disrupted, it could result in our inability to manufacture those products and
would have a material adverse effect on STAAR. The loss of our external supply source for silicone material, polymer for
injectors or acrylic lenses could also cause us material harm.
Further, any failure by us to forecast demand for or to maintain an adequate supply of, raw material and finished product
could result in an interruption in the supply of certain products and a decline in the sales of that product. For example, in
2019 our ICL sales grew 28%. If our suppliers or we are unable or our suppliers are unwilling to meet our increased
manufacturing requirements, we may not be able to produce enough materials or products in a timely manner, which could
cause a decline in our sales.
Because our business is global our sales and profits may fluctuate or decline in response to changes in foreign
currency exchange rates and/or other international risks (including tariffs).
Activities outside the U.S. accounted for approximately 95% of our total sales during 2019. Foreign currency
fluctuations could result in volatility of our revenue. The results of operations and the financial position of our Japanese
subsidiary are reported in Japanese yen and then translated into U.S. dollars at the applicable exchange rates for inclusion in
our consolidated financial statements, exposing us to translation risk. In addition, we are exposed to transaction risk because
we incur some of our sales and expenses in currencies other than the U.S. dollar. Our most significant currency exposures are
to the Japanese yen, the euro, and the Swiss franc, and the exchange rates between these currencies and the U.S. dollar may
fluctuate substantially. We do not actively hedge our exposure to currency rate fluctuations. The strengthening of the U.S.
dollar would likely negatively impact our results. We price some of our products in U.S. dollars, and thus changes in
exchange rates can make our products more expensive in some offshore markets and reduce our sales. Inflation in emerging
markets could also make our products more expensive and increase the credit risks to which we are exposed. Future foreign
currency fluctuations could favorably or unfavorably impact and increase the volatility of our revenue, profitability, and stock
price.
Economic, social, and political conditions, laws, practices, and local customs vary widely among the countries in which
we sell our products. Our operations outside of the U.S. face a number of risks and potential costs, including, enjoying less
stringent protection of intellectual property, and facing economic, political, and social uncertainty in some countries,
especially in emerging markets. For example, sales in certain Asian and developing markets may result in lower margins and
higher exposure to intellectual property infringement or counterfeits. Further, trade disputes between the United States and its
significant trading partners may adversely affect our sales, including as a result of the imposition of tariffs or other barriers or
restrictions on trade, or increase our costs. The institution of trade tariffs both globally and between the U.S. and China
specifically could negatively impact the overall economic condition in our markets, including China, which could have a
negative effect on our sales. Also, we are exposed to credit and collectability risk on our trade receivables with customers in
certain international markets. There can be no assurance we can effectively limit our credit risk and avoid losses and our
ability to transfer foreign earnings to the U.S. may be subject to taxes or restricted or result in incurring substantial costs.
Our continued success as a global company depends, in part, on our ability to develop and implement policies and strategies
that are effective in anticipating and managing these and other risks in the countries where we do business. These and other
risks may have a material adverse effect on our operations in any particular country and on our business, financial condition
and results of operations as a whole.
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We may not be able to fully use our recorded tax loss carryforwards.
We have accumulated approximately $129.0 million of U.S. federal tax net operating loss carryforwards as of
January 3, 2020, which can be used to offset taxable income in future years if our U.S. operations become profitable. If
unused, the pre-2018 tax loss carryforwards will begin to expire between 2020 and 2037. Recently enacted legislation
commonly known as the Tax Cuts and Jobs Act of 2017, or the Tax Act, subjects a U.S. shareholder to tax on Global
Intangible Low Tax Income (GILTI) earned by certain foreign subsidiaries. At this time, our U.S. operations are not
profitable, however, recognizing GILTI may offset federal net operating loss carryforwards, as it did for fiscal years 2019 and
2018. Our ability to utilize any future net operating losses may also be limited by the Tax Act. Under the Tax Act, the
amount of post-2017 net operating losses we are permitted to deduct in any taxable year is limited to 80% of our taxable
income in such year. The unused net operating losses, pre-2018 tax year can still offset 100% of taxable income. In addition,
the Tax Act generally eliminates the ability to carry back any net operating loss to prior taxable years, while allowing post-
2017 unused net operating losses to be carried forward indefinitely. Due to these changes under the Tax Act, we may not be
able to realize a tax benefit from the use of our net operating losses, whether or not we generate profits in future years.
Moreover, if we were to experience a significant change in ownership, Internal Revenue Code Section 382 may restrict the
future utilization of our tax loss carryforwards even if our U.S. operations generate significant profits.
We are vulnerable to any loss of use of our principal manufacturing facility.
We manufacture most of our products at a single facility in Monrovia, California. All or a portion of the Monrovia
facility could suffer catastrophic loss due to fire, flood, earthquake, terrorism or other natural or man-made disasters,
including manufacturing challenges such as equipment failure. Developing additional manufacturing sites may require
significant expense for personnel and equipment and a long period to obtain regulatory approvals. Our California and
Japanese facilities are in areas where earthquakes could cause catastrophic loss.
In our major markets, regulatory approval to manufacture materials and sell our products is generally limited to the
current manufacturing site, and changing the site requires applications to and approval from regulatory bodies prior to
commercialization. To satisfy our own quality standards as well as regulations, we must follow strict protocols to confirm
that products and materials made at a new site are equivalent to those made at the currently approved site. For example, we
have commenced activities to resume manufacturing ICLs at our Swiss facility, but there can be no guaranty whether or when
that facility will be prepared and approved by regulators for manufacturing. Even minor changes in equipment, supplies or
processes require validation. Unanticipated delays with a transferred process or difficulties in manufacturing a transferred
material could interrupt our supply of products. Any sustained interruption in supply could cause us to lose market share and
harm our business, financial condition and results of operations.
If any or a portion of our facilities were to experience a catastrophic loss, or if one of our facilities is found not to be in
compliance with regulatory requirements, it could disrupt our operations, delay production and shipments, delay or reduce
sales and revenue and result in large expenses to repair or replace the facility, as well as lost customers or sales. Our
insurance for property damage and business interruption may not cover any particular loss, or, if covered, be sufficient. We
do not carry insurance or reserve funds for interruptions or potential losses arising from earthquakes or terrorism.
Public health crises, political crises, and other catastrophic events or other events outside of our control may impact
our business.
In 2019, we generated approximately 95% of our total sales outside the U.S. A natural disaster (such as tsunami, power
shortage, or flood), public health crisis (such as a pandemic or epidemic), political crisis (such as terrorism, war, political
instability or other conflict), or other events outside of our control that may occur anywhere around the world, may adversely
impact our business and operating results. Moreover, these types of events could negatively impact surgeon or patient
spending in the impacted region(s) or depending upon the severity, globally, which could adversely impact our operating
results. For example, in December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, resulting in
temporary hospital and clinic closures and a decrease in consumer traffic in China, our largest single market. At this point,
the extent to which the coronavirus may impact our full year 2020 results is uncertain. We monitor such events and take
actions that we deem reasonable given the circumstances. In the future other types of crises, may create an environment of
business uncertainty around the world, which may hinder sales and/or supplies of our products nationally and internationally
We depend on key employees.
We depend on the continued service of our senior management and other key employees. The loss of a key employee
could hurt our business. It could be particularly detrimental if any key employee or employees went to work for a competitor.
Also, our future success depends on our ability to identify, attract, train, motivate and retain other highly skilled personnel.
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Failure to do so may adversely affect our results. We do not maintain insurance policies to cover the cost of replacing the
services of any of our key employees who may unexpectedly die or become disabled.
We compete with much larger companies and low-cost Asian manufacturers.
Our primary competitors, including Alcon (formally Novartis), Johnson & Johnson (formerly Abbott Medical Optics, or
AMO) and Bausch Health Companies (formerly Valeant or Bausch & Lomb), have much greater financial, technical,
marketing and distribution resources and brand name recognition than we do and some of them have large international
markets for a full suite of ophthalmic products. Their greater resources for research, development and marketing, and their
greater capacity to offer comprehensive products and equipment to providers, makes for intense competition. Over the past
several years, we have lost market share in IOL sales to some of our competitors. In addition, competitors from Asia are
beginning to appear in some markets with their low-cost version of an implantable contact lens, which competes with our
ICL. With our increased commercial success with the ICL, additional companies may seek to enter the refractive phakic
intraocular lens market.
Non-compliance with anti-corruption laws could lead to penalties or harm our reputation.
We are subject to anti-corruption laws in the jurisdictions in which we operate, including the U.S. Foreign Corrupt
Practices Act (FCPA). Any failure to comply with these laws, even if inadvertent, could result in significant penalties or
otherwise harm our reputation, business, financial condition and results of operations. Our reliance on foreign subsidiaries
and independent distributors requires vigilance in maintaining our policy against participation in corrupt activity. In many of
our markets outside the U.S., doctors and hospital administrators may be deemed government officials. Despite precautions
we may take, non-compliance may occur that could harm our reputation and financial results. Other U.S. companies in the
medical device and pharmaceutical field have faced criminal penalties under the FCPA for allowing their agents to deviate
from appropriate practices in doing business with such individuals.
We could experience losses due to product liability claims.
We have been subject to product liability claims in the past and may experience such claims in the future. Product
liability claims against us may not be covered, may exceed the coverage limits of our insurance policies or cause us to record
a loss in excess of our deductible. A product liability claim that exceeds our insurance coverage could materially harm our
business, financial condition, and results of operations. Even if an insurance policy covers a product liability loss, we must
generally pay for losses until they reach the level of the policy’s stated deductible or retention amount after which the insurer
begins paying. The payment of retentions or deductibles for a significant number of claims could have a material adverse
effect on our business, financial condition, and results of operations.
Any product liability claim would divert managerial and financial resources and could harm our reputation with
customers. We cannot assure investors that we will not have product liability claims in the future or that such claims would
not have a material adverse effect on our business.
Our defined benefit pension plans are currently underfunded and we may be subject to significant increases in
pension benefit obligations under those pension plans.
We sponsor two defined benefit pension plans through our wholly owned Swiss and Japanese subsidiaries, which we
refer to as the “Swiss Plan” and the “Japan Plan”, respectively. Both plans are underfunded and may require significant cash
payments.
We determine our pension benefit obligations and funding status using many assumptions. If the investment performance
does not meet our expectations, or if other actuarial assumptions are modified, or not realized, we may be required to
contribute more than we currently expect and increase our future pension benefit obligations to be funded from our
operations.
Our pension plans taken together are underfunded by approximately $7.8 million ($1.7 million for the Japan Plan and
$6.1 million for the Swiss Plan) as of January 3, 2020.
If our cash flow from operations is insufficient to fund our worldwide pension obligations, as well as other cash
requirements, we may be materially and adversely harmed and have to seek additional capital.
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Our activities involve hazardous materials, emissions, and use of an irradiator and may subject us to environmental
liability.
Our manufacturing, research and development activities involve the use of hazardous materials and equipment and use of
an irradiator. Federal, state and local laws and regulations govern the use, manufacturing, storage, handling and disposal of
these materials and certain waste products in the places where we have operations. We cannot eliminate the risk of accidental
contamination or injury from these materials and equipment. Remedial environmental actions could require us to incur
substantial unexpected costs, which could materially and adversely affect our financial condition and results of operations. If
we were involved in an environmental accident or found to be in substantial non-compliance with applicable environmental
laws, it could harm our reputation, and we could be held liable for damages or penalized with fines.
Data corruption, cyber-based attacks or network security breaches and/or noncompliance with data protection
regulations could negatively impact our operations.
We depend on information technology networks and our information technology infrastructure for electronic
communications among our locations around the world and between our personnel and our subsidiaries, customers, and
suppliers. The integrity and protection of our customer, vendor, supplier, employee, and other Company data, is an important
part of our business. Addressing applicable security and privacy regulations may increase our operating costs or adversely
affect our business operations.
Unauthorized parties may also gain access to our systems or facilities, and may, among other things, prevent access to
our systems. Security breaches could disrupt our operations, and result in lost or misappropriated information. Despite the
security measures we have in place, our facilities and systems, and those of our suppliers, distributors and customers with
whom we do business, may be vulnerable to security breaches, cyber-attacks, or other similar events. Any security breach of
Company information could have a material adverse effect on our business, results of operations and financial condition.
Also, certain of our information technology systems are not redundant, and our disaster recovery planning is not sufficient for
every eventuality. Despite any precautions we may take, such events could harm our reputation and financial results. For
example, while we maintain cyber insurance, it may be insufficient to address any potential loss incurred.
We are subject to various data protection regulations in different jurisdictions, including the General Data Protection
Regulation (Regulation (EU) 2016/679) (GDPR) and the California Consumer Privacy Act. We have made and continue to
engage in compliance efforts to satisfy these regulations, however, we may be unsuccessful in complying with applicable
requirements, and may be at risk of enforcement actions and/or subject to fines, including those imposed by a data protection
authority. As a result, we may incur substantial expense in complying with data protection regulations, exposure resulting
from a data breach, ransomware or non-compliance and may be distracted from other aspects of our business.
The increased use of social media platforms and mobile technologies presents additional risks and challenges.
New technologies are increasingly used to communicate about our products and the health conditions they are intended
to treat. The use of these media poses risks to our business and requires specific attention and monitoring. For example,
patients, competitors, or others may use these channels to comment on the safety or effectiveness of a product and to report
an alleged adverse event. Negative posts or comments about us or our business on any social networking web site could harm
our reputation. In addition, our employees may use social media tools and mobile technologies inappropriately, which may
give rise to liability, or which could lead to the exposure of sensitive information. In either case, such uses of social media
and mobile technologies could have a material adverse effect on our business, financial condition, and results of operations.
Acquisitions of technologies, products, and businesses could disrupt our operations, involve increased expenses and
present risks not contemplated at the time of the transactions.
We may consider and, as appropriate, make acquisitions of technologies, products, and businesses that we believe are
complementary to our business. Acquisitions typically entail many risks and could result in difficulties in integrating the
operations, personnel, technologies, and products acquired, and mitigating the risk of unknown liabilities some of which may
result in significant payments or charges to earnings.
If we are unable to successfully integrate our acquisitions with our existing business, we may not obtain the advantages
that the acquisitions were intended to create, which may materially adversely affect our business, and our ability to develop
and introduce new products. Actual costs and sales synergies, if achieved at all, may be lower than we expect and may take
longer to achieve than we anticipate. Acquisitions may also divert management’s attention from our core business.
Furthermore, the products of companies we acquire may overlap with our products or those of our customers, creating
conflicts with existing relationships or with other commitments that are detrimental to the integrated businesses.
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If we are not able to manage growth successfully, this could adversely affect our business, financial condition, and
results of operations.
If we continue to experience rapid growth, this places a significant strain on financial, operational, and managerial
resources. We must continue to implement and enhance our managerial, operational and financial systems, expand our
operations, and continue to recruit and train qualified personnel. There can be no assurance that our strategic and operational
planning will allow us to adequately manage anticipated growth. In addition, the expense associated with increased
manufacturing and sales/marketing to meet increased demand may exceed our expectations. Any inability to successfully
manage growth could materially and adversely affect our business, financial condition, and results of operation.
Risks Related to the Ophthalmic Products Industry
Unless we keep pace with advances in our industry and persuade physicians to adopt our new products, our sales will
not grow and may decline.
Our future growth depends, in part, on our ability to timely develop products to treat diseases and disorders of the eye
that are more effective, safer, or incorporate emerging technologies better than our competitors’ products, and are accepted
by physicians and patients. Sales of our existing products may decline rapidly if one of our competitors introduces a superior
product, or if we announce a new product of our own. If we focus on research and development or technologies that do not
lead to better products, more effective or advanced products could surpass our current and planned products. In addition, such
product development efforts could require a significant investment of resources. If we are able to develop new products, we
must manufacture these products economically and market them successfully by demonstrating to enough eye-care
professionals the overall benefits of using them. If we do not timely develop new products that meet market demand or if
there is insufficient demand for our new products, our sales and results of operations could be harmed. For example, it is
uncertain whether physicians in countries that recognize the CE Mark will adopt the EVO Visian ICL for use in
pseudophakic eyes (those eyes with an intraocular lens after cataract surgery), which or Notified Body approved for
marketing and sale in December 2019.
Resources devoted to research and development may not yield new products that achieve regulatory approval or
commercial success.
Development of new implantable technology, from discovery through testing and registration to initial product launch, is
expensive and time-consuming. Because of the complexities and uncertainties of ophthalmic research and development,
products we are developing, including those currently in development, may not complete the development process or obtain
the regulatory approvals required for us to successfully market the products. Our new products, including those currently
under development, may fail to become commercially successful.
We may be required to conduct extensive clinical trials to demonstrate safety and efficacy of new or enhanced
products, such clinical trials are expensive, complex, can take years to complete, and have highly uncertain outcomes.
In order to further advance the development of, and ultimately receive regulatory approval to manufacture and sell, our
new products or product enhancements, we may be required to conduct extensive clinical trials to demonstrate their safety
and efficacy to the satisfaction of the FDA or regulatory authorities in other countries. Clinical trials are expensive, complex,
can take many years to complete, and have highly uncertain outcomes. Delays, setbacks, or failures can occur at any time, or
in any phase of the clinical trials, and can result from concerns about safety, a lack of demonstrated efficacy, or poor study or
trial design. For example, we cannot ensure that our on-going clinical trial of the EVO Visian ICL with EDOF optic will
succeed in obtaining a claim for correcting early presbyopia by our Notified Body. Nor can we ensure that our on-going
clinical trial of EVO Visian ICL will succeed in obtaining approval for correcting myopia or astigmatism by the FDA. The
commencement and completion of clinical trials may be delayed or prevented by many factors, including, but not limited to:
an inability to reach agreement with regulatory authorities regarding the scope or extent of a proposed clinical trial;
an inability to timely identify and reach agreement on acceptable terms with prospective clinical trial sites and
entities involved in the conduct of our clinical trials;
failure by third-party clinical trial managers to comply with applicable regulations or protocols;
flaws in the design of the clinical trials;
slower than expected rates of patient recruitment and enrollment;
periodic amendments to clinical trial protocols to address certain variables which arise during the course of a trial;
lack of effectiveness of our products; or
unforeseen safety issues.
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We are subject to extensive government regulation worldwide, which increases our costs and could prevent us from
selling our products.
We are regulated by regional, national, state and local agencies in the U.S. as well as governmental authorities in those
international countries in which we manufacture or distribute products, such as in Europe and Asia. These regulations may
govern the research, development, manufacturing, and commercial activities relating to medical devices, including their
design, pre-clinical and clinical testing, clearance or approval, production, labeling, sale, distribution, import, export, post-
market surveillance, advertising, dissemination of information and promotion. Failure to receive necessary approvals in
foreign jurisdictions on a timely basis, or at all, could harm our business and operating results. In addition, regulations and
requirements for approvals can vary in each international country, which can significantly increase the costs to sell our
products in these international countries.
Complying with government regulation substantially increases the cost of developing, manufacturing and selling our
products.
Competing in the ophthalmic products industry requires us to introduce new or improved products and processes
continuously, and to submit these to the FDA and other regulatory bodies for clearance or approval. Obtaining clearance or
approval can be a long and expensive process, and clearance or approval is never certain. For example, the FDA or another
country’s regulatory agency, could require us to conduct an additional clinical trial prior to granting clearance or approval of
a product and such clinical trial could take a long time and have substantial expense. Furthermore, there is no assurance that
clearance or approval will be granted.
If a regulatory authority delays or does not grant approval of a potentially significant product, the potential sales of the
product and its value to us can be substantially reduced. Even if the FDA or another regulatory agency clears or approves a
product, the clearance or approval may limit the indicated patient populations or uses of the product, or may otherwise limit
our ability to promote, sell and distribute the product, or may require expensive post-marketing studies or surveillance. If we
cannot obtain timely regulatory clearance or approval of our new products, or if the clearance or approval is too narrow, we
will not be able to successfully market these products, which would eliminate or reduce our potential sales and earnings.
In addition, the FDA and other regulatory authorities may change their clearance and approval policies, adopt additional
regulations, or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our
products under development, cause the loss of previously received approvals or clearances or impact our ability to modify
our currently cleared products on a timely basis. Also, we expect to incur additional costs complying with the European
Union’s new Medical Device Regulation (MDR).
We depend on proprietary technology but our intellectual property protections may be limited.
While we rely on various intellectual property laws, contractual provisions and confidentiality procedures and copyright
laws to protect the proprietary aspects of our technology, we rely more on trade secrets and know-how, which may not
prevent third parties from using publicly available information to access our technology. With respect to our patents, any of
them may be challenged, invalidated, circumvented or rendered unenforceable. Any of our pending patent applications may
fail to result in an issued patent or fail to provide meaningful protection against competitors or competitive technology.
Litigation may be necessary to enforce our intellectual property rights, and to protect or determine the validity and scope of
our proprietary rights. We also challenge others’ patents or patent applications from time to time. Any litigation could result
in substantial expense, may reduce our profits, and may not adequately protect our intellectual property rights. In addition, we
may be exposed to future litigation by third parties based on claims that our products infringe their intellectual property
rights. This risk is exacerbated by the fact that the validity and breadth of claims covered by patents in our industry may
involve complex legal issues that are open to dispute. Any litigation or claims against or instituted by us, whether or not
successful, could result in substantial costs, divert resources and the efforts of our personnel away from daily operations,
harm our reputation, result in the impairment of our intellectual property rights, limit our ability to pursue future products
and/or otherwise materially adversely impact our business.
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We may not successfully replace our existing products, including those that lose or have lost patent protection.
As our existing patents expire, many of which already expired over the past several years, our competitors may introduce
products using the same technology. Because of this possible increase in competition, we may lose sales and/or may need to
reduce our prices to maintain sales of our products, which would make them less profitable. If we fail to develop and
successfully launch new products and/or obtain new patents, our sales and profits with respect to our products could decline
significantly. We may not be able to develop and successfully launch more advanced replacement products.
While we will continue developing intellectual property protections for our future products, third parties may pursue
blocking patents that limit our ability to manufacture such products.
We plan to continue relying on our intellectual property rights to protect products and technology that we may develop
or employ in the future, but third parties may develop and obtain patents covering such products or technology. In such event,
we may need to obtain licenses for such patents. However, we may not be able to obtain licenses on reasonable terms, if at
all, which could limit our ability to manufacture our future products and operate our business.
Laws pertaining to healthcare fraud and abuse could materially adversely affect our business, financial condition,
and results of operations.
We are subject to various federal, state, local and international laws targeting fraud and abuse in the healthcare industry,
including anti-kickback and false claims laws. Violations of these laws are punishable by criminal or civil sanctions,
including substantial fines, imprisonment, and exclusion from participation in healthcare programs such as Medicare and
Medicaid, and health programs outside the United States. These laws and regulations are wide ranging and subject to
changing interpretation and application, which could restrict our sales or marketing practices. Furthermore, because many of
our customers, particularly IOL customers, rely on reimbursement from Medicare, Medicaid, and other governmental
programs to cover a substantial portion of their expenditures, our exclusion from such programs because of a violation of
these laws could have a material adverse effect on our business, results of operations, financial condition, and cash flow.
If we recall a product, the cost and damage to our reputation could harm our business.
We have voluntarily recalled our products in the past and recalls could take place again. We may also be subject to
recalls initiated by manufacturers of products we distribute. We cannot eliminate the risk of a material recall in the future.
Recalls can result in lost sales of the recalled products themselves, and can result in further lost sales while replacement
products are manufactured, especially if the replacements must be redesigned or approved by regulatory authorities prior to
distribution. If recalled products have already been implanted, we may bear some or all of the cost of corrective surgery.
Recalls may also damage our professional reputation and the reputation of our products. The inconvenience caused by recalls
and related interruptions in supply, the underlying causal issues, and the damage to our reputation, could cause professionals
to discontinue using our products.
Companies are required to maintain certain records of actions, even if they determine such actions are not reportable to
the FDA or other regulatory bodies. If we determine that certain actions do not require notification of the FDA or others, the
FDA or other regulatory bodies may disagree with our determinations and require us to report those actions as recalls. In
addition, the FDA or other regulatory bodies could take enforcement action for failing to report the recalls when they were
conducted or failing to timely report or initiate a reportable product action. Moreover, depending on the corrective action we
take to redress a product’s deficiencies or defects, the FDA or other regulatory bodies may require, or we may decide, that we
will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device.
Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner.
Changes in FDA or international regulations related to product approval, including those that apply retroactively,
could make us less competitive and harm our business.
FDA and foreign regulations depend heavily on administrative interpretation, and we cannot assure investors that future
interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect us.
Additionally, any changes, whether in interpretation or substance, in existing regulations or policies, or any future adoption
of new regulations or policies by relevant regulatory bodies, could rescind, prevent or delay approval of our products, which
could materially impact our competitive position, business, and financial results. Further, we or our distributors have obtained
regulatory approvals outside the United States for many of our products. We or our distributors may be unable to maintain
regulatory qualifications, clearances or approvals in these countries or obtain qualifications, clearances, or approvals in other
countries. If we are not successful in doing so, our business and financial condition will be harmed.
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If our products, or malfunction of our products, cause or contribute to a death or a serious injury, we will be subject
to medical device reporting regulations, which can result in voluntary corrective actions, agency enforcement actions and
harm to our results.
Under the FDA regulations, we are required to report to the FDA any incident in which our product may have caused or
contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would
likely cause or contribute to death or serious injury. In addition, all manufacturers placing medical devices in international
markets, such as European Union and Asian markets, are legally bound to report any serious or potentially serious incidents
involving devices they produce or sell to the relevant authority in whose jurisdiction the incident occurred. In the future, we
may experience events that would require reporting to the FDA pursuant to the Medical Device Reporting (MDR) regulations
or to other regulatory bodies pursuant to international regulations. Any adverse event involving our products could result in
future voluntary corrective actions, such as product actions or customer notifications, or agency actions, such as inspection,
mandatory recall, or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending
ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business,
and may harm our reputation and financial results.
The decision to file an MDR involves a judgment by us as the manufacturer. We have made decisions that certain types
of events are not reportable under the MDR and similar regulations; however, there can be no assurance that the FDA or
other regulatory bodies will agree with our decisions. If we fail to report MDRs to the FDA or other regulatory bodies within
the required timeframes, or at all, or if the FDA or others disagree with any of our determinations regarding the reportability
of certain events, the FDA or other regulatory bodies could take enforcement actions against us, which could have an adverse
impact on our reputation and financial results.
If we modify our products, we may have to obtain new marketing clearances or approvals, or may have to cease
marketing or recall the modified products until clearances or approvals are obtained.
Any modification to a 510(k) cleared device that could significantly affect its safety or effectiveness, including any
significant change in design or manufacture, or that would constitute a major change in its intended use, requires a new
510(k) clearance or, possibly, approval of a PMA. The FDA requires every manufacturer to make this determination in the
first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding
whether new clearances or approvals are necessary. We have modified some of our 510(k) cleared and PMA approved
products, and have determined based on our review of the applicable FDA guidance that in certain instances new 510(k)
clearances or premarket approvals are not required. If the FDA disagrees with our determination and requires us to submit
new 510(k) notifications or PMAs for modifications to our previously cleared products for which we have concluded that
new clearances or approvals are unnecessary, we may be required to cease marketing and/or to recall the modified product
until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.
Regulatory agencies in other countries similarly require approval or clearance prior to our marketing or selling products
in those countries. We rely on our distributors to obtain regulatory clearances or approvals of our products in certain
countries outside of the United States. If we or our distributors are unable to obtain additional clearances or approvals needed
to market existing or new products in the United States or elsewhere or obtain these clearances or approvals in a timely
fashion or at all, or if our existing clearances or approvals are revoked or restricted, our revenues and profitability may
decline.
Investigations and allegations, whether or not they lead to enforcement action or litigation, can materially harm our
business and our reputation.
Our failure to comply with the requirements of the FDA or other regulators can result in civil and criminal fines, the
recall of products, the total or partial suspension of manufacturing or distribution, seizure of products, injunctions, lawsuits,
failure to obtain approval of pending product applications, withdrawal of existing product approvals, exclusion from
participation in government healthcare programs and other sanctions. Any threatened or actual government enforcement
action can also generate adverse publicity and require us to divert substantial resources from more productive uses in our
business. Enforcement actions could affect our ability to distribute our products commercially and could materially harm our
business.
In addition, negative publicity about investigations or allegations of misconduct, even without a finding of misconduct,
could harm our reputation with healthcare professionals and also with the market for our common stock. Responding to
investigations or conducting internal investigations can be costly, time-consuming, and disruptive to our business.
23
The market price of our common stock is likely to be volatile.
Risks Related to Ownership of Our Common Stock
The market price for our common stock has fluctuated widely. The closing price of our common stock ranged from
$23.08 to $40.78 per share during the year ended January 3, 2020. Our stock price could continue to experience significant
fluctuations in response to factors such as market perceptions, quarterly variations in operating results, operating results that
vary from the expectations of securities analysts and investors, changes in financial estimates, changes in the business and
market valuations of competitors, announcements by us or our competitors of a material nature, additions or departures of
key personnel, future sales of our common stock and stock volume fluctuations. Also, general political and economic
conditions such as a recession or interest rate fluctuations may adversely affect the market price of our common stock.
Because we do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if
it appreciates in value.
We have not paid any cash dividends on our common stock since our inception. We currently expect to retain any
earnings for use to further develop our business, and do not expect to declare cash dividends on our common stock in the
foreseeable future. The declaration and payment of any such dividends in the future depends upon our earnings, financial
condition, capital needs, and other factors deemed relevant by our Board of Directors, and may be restricted by future
agreements with lenders. As a result, the success of an investment in our common stock will depend entirely upon any future
appreciation. There is no guarantee that our common stock will appreciate in value or even maintain the price at which
stockholders purchase their shares.
Our Certificate of Incorporation and Bylaws, anti-takeover provisions of Delaware law, and contractual provisions
could delay or prevent an acquisition or sale of our company.
Our Certificate of Incorporation empowers our Board of Directors to issue one or more series of preferred stock, and to
determine the rights of each such series as provided in our Certificate of Incorporation. These provisions give our Board of
Directors the ability to deter, discourage or make more difficult a change in control of our company, even if such a change in
control could be deemed in the interest of our stockholders or if such a change in control would provide our stockholders
with a substantial premium for their shares over the then-prevailing market price for our common stock. Our Certificate of
Incorporation and Bylaws contain other provisions that could have an anti-takeover effect, including the following:
stockholders cannot act by written consent;
stockholders cannot fill vacancies on our Board of Directors;
certain provisions, including those related to changing the number of directors, limiting our stockholders’ ability to
fill vacancies on our Board of Directors, prohibiting stockholder action by written consent, and amending such
provisions, cannot be altered, amended or repealed, and provisions inconsistent therewith cannot be adopted,
without the affirmative vote of holders of at least two-thirds in voting power of our outstanding shares of common
stock entitled to vote thereon; and
stockholders must give advance notice to nominate directors or propose other business.
In addition, we are generally subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which regulates corporate acquisitions. These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control transaction. They could also have the effect of discouraging tender offers for our
common stock or prevent changes in our management.
Ownership of our common stock is concentrated among a few investors, which may affect the ability of a third party
to acquire control of us. Substantial sales by such investors could cause our common stock price to decline.
Our largest investor beneficially owns approximately 24% of our outstanding common stock, and our largest five
investors beneficially own approximately 51% of our outstanding common stock. Three of our current five directors were
recommended by our investors. The sale of a substantial number of shares of our common stock by any or all of our largest
investors or our other stockholders within a short period of time could cause our common stock price to decline, make it more
difficult for us to raise funds through future offerings of our common stock or acquire other businesses using our common
stock as consideration.
In addition, having such a concentration of ownership may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from seeking to acquire, a majority of our outstanding common stock or control of
our Board of Directors, including through a proxy solicitation.
24
Future sales of our common stock could reduce our stock price.
We could issue additional shares of common or preferred stock to raise additional capital or for other corporate purposes
without stockholder approval. In addition, we could designate and sell a class of preferred stock with preferential rights over
our common stock with respect to dividends or other distributions. Also, we have filed a universal shelf registration statement
with the Securities and Exchange Commission. The shelf registration statement is available to cover the future public
offering and sale of up to approximately $127,000,000 in equity or debt securities or any combination of such securities.
Sales of our common or preferred stock under the shelf registration or in other transactions could dilute the interest of
existing stockholders and reduce the market price of our common stock. Even in the absence of such sales, the perception
among investors that additional sales of equity securities may take place could reduce the market price of our common stock.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2.
Properties
Our operations are conducted in leased facilities throughout the world. Our global administrative offices, principal
manufacturing, warehouse and distribution, are in Monrovia, California. STAAR Surgical AG maintains administrative
offices, manufacturing capabilities, warehouse and distribution facilities in Nidau and Brügg, Switzerland. Our facility in
Lake Forest, California serves as our corporate headquarters and is expected to handle manufacturing of the EVO Visian ICL
with EDOF to correct or reduce presbyopia after the product’s approval and the facility’s approval. The Company leases a
research and development facility in Tustin, California and a facility in Aliso Viejo, California for raw material production
and research and development activities. STAAR Japan maintains executive offices in Shin-Urayasu, Japan and a final
packaging and inspection and distribution facility in Ichikawa City, Japan. We believe our operating facilities in the U.S.,
Switzerland and Japan are suitable and adequate for our current requirements. The Company could increase capacity as
needed.
ITEM 3.
Legal Proceedings
Certain of the legal proceedings in which we are involved are discussed under “Litigation and Claims” in Note 13,
“Commitments and Contingencies,” to our Consolidated Financial Statements in this Annual Report on Form 10-K, and are
hereby incorporated by reference.
ITEM 4. Mine Safety Disclosures
None.
25
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
PART II
Securities
Market Information
Our common stock is traded on the Nasdaq Global Market (NASDAQ) under the symbol “STAA.”
Holders
As of February 20, 2020, there were approximately 306 record holders of our Common Stock.
Dividends
We have not paid any cash dividends on our Common Stock since our inception. We currently expect to retain any
earnings for use to further develop our business and not to declare cash dividends on our Common Stock in the foreseeable
future. The declaration and payment of any such dividends in the future depends upon the Company’s earnings, financial
condition, capital needs, and other factors deemed relevant by the Board of Directors and may be restricted by future
agreements with lenders.
Stock Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the Exchange Act), or incorporated by reference into any filing of STAAR Surgical Company under the Securities Act
of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
The following graph shows a comparison from January 2, 2015 to January 3, 2020 of the total performance of the
following:
STAAR Surgical Company;
the Nasdaq Stock Market;
a peer group we have selected consisting of five companies within our industry or closely related industries: Anika
Therapeutics (ANIK); Cutera Inc. (CUTR); Integra LifeSciences Holdings Corp. (IART); Iridex Corp. (IRIX); and
Merit Medical Systems, Inc. (MMSI). Cynosure Inc. (CYNO), Volcano Corporation (VOLC), Synergetics USA Inc.
(SURG) and Syneron Medical Ltd. (ELOS) were previously included in the peer group, but were acquired and are
no longer independent public companies. In 2018, we revised our peer group, based on data and advice provided by
the Radford Group, to increase the number of companies in our peer group (in response to the limited number of
companies still operating as independent public companies from our original peer group), and to better reflect our
current company profile and market capitalization. The chart below shows our performance compared to both the
prior peer group and the new peer group. The new peer group consists of the following 16 companies:
Angio Dynamics (ANGO)
Anika Therapeutics (ANIK)
AtriCure (ATRC)
Atrion (ATRI)
AxoGen (AXGN)
Cardiovascular Systems (CSII)
CryoLife (CRY)
Glaukos (GKOS)
Inogen (INGN)
LeMaitre Vascular (LMAT)
Merit Medical Systems (MMSI)
Nevro (NVRO)
Penumbra (PEN)
Surmodics (SRDX)
Tactile Systems Technology (TCMD)
Tandem Diabetes Care (TNDM)
26
Returns in the graph below reflect historical results; we do not intend to suggest they predict future performance. The data
assumes $100 was invested on January 2, 2015 in STAAR common stock and in each of the composite indices, and that dividends
(if any) were reinvested. We have never paid dividends on our common stock and have no present plans to do so.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
January 3, 2020
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
1/2/2015
1/1/2016
12/30/2016
12/29/2017
12/28/2018
1/03/2020
STAAR Surgical Company
NASDAQ Stock Market (US and Foreign Companies)
New Peer Group
Old Peer Group
Prepared by Zacks Investment Research, Inc. Used with Permission. All rights reserved.
Total Returns Index for Fiscal Years:
STAAR Surgical Company
The Nasdaq Stock Market (US and Foreign
Companies)
Old Peer Group
New Peer Group
Notes:
2014
100.00
2015
2016
2017
2018
2019
79.07 120.16 171.65 346.19 380.74
100.00 107.17 116.61 150.85 145.30 199.85
100.00 116.88 152.98 202.94 190.73 200.67
100.00 107.63 136.03 174.91 203.76 236.95
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. These indexes are reweighted daily, using the market capitalization from the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on January 2, 2015.
27
ITEM 6.
Selected Financial Data
The following table sets forth selected consolidated financial data with respect to the five most recent fiscal years ended
January 3, 2020, December 28, 2018, December 29, 2017, December 30, 2016 and January 1, 2016. The selected
Consolidated Statement of Operations data set forth below for each of the three most recent fiscal years, and the selected
Consolidated Balance Sheet data set forth below at January 3, 2020 and December 28, 2018 are derived from our
Consolidated Financial Statements, which have been audited by BDO USA, LLP, our independent registered public
accounting firm, as indicated in their report included in this Annual Report. The selected Consolidated Statement of
Operations data set forth below for each of the two fiscal years in the periods ended December 30, 2016 and January 1, 2016
and the Consolidated Balance Sheet data set forth below at December 29, 2017, December 30, 2016 and January 1, 2016 are
derived from audited Consolidated Financial Statements of the Company not included in this Annual Report. The selected
consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company, and
the Notes thereto, included in this Annual Report, and “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Statement of Operations
Net sales
Cost of sales
Gross profit
General and administrative
Marketing and selling
Research and development
Operating income (loss)
Total other income (expense), net
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Net income (loss) per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Balance Sheet Data
Working capital
Total assets
Long-term obligations
Stockholders’ equity
January 3,
2020(2)
December 30,
December 29,
December 28,
2016(1)
2017(1)
2018(1)
(In thousands except per share data)
January 1,
2016(1)
$ 150,185 $
38,231
111,954
29,313
45,491
25,298
11,852
1,174
13,026
(1,022 )
14,048 $
$
123,954 $
32,444
91,510
24,287
38,600
22,028
6,595
44
6,639
1,671
4,968 $
90,611 $
26,331
64,280
19,465
28,402
20,044
(3,631 )
1,335
(2,296 )
(157 )
(2,139 ) $
82,432 $
24,063
58,369
21,671
28,685
20,668
(12,655 )
211
(12,444 )
(315 )
(12,129 ) $
77,123
24,400
52,723
18,840
23,970
15,250
(5,337 )
(268 )
(5,605 )
928
(6,533 )
$
$
0.32 $
0.30 $
0.12 $
0.11 $
(0.05 ) $
(0.05 ) $
(0.30 ) $
(0.30 ) $
(0.17 )
(0.17 )
44,493
46,895
42,587
45,257
41,004
41,004
40,329
40,329
39,260
39,260
$ 140,188 $
206,865
12,503
159,884
123,844 $
167,339
7,185
132,426
34,802 $
67,932
5,908
42,936
28,450 $
65,443
6,471
37,905
31,117
62,382
6,019
38,846
(1) The Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” in fiscal 2018 using the
modified retrospective method. As such, fiscal 2015 through 2017 are presented under the previous revenue recognition
standard, i.e. ASC 605.
(2) The Company adopted ASU 2016-02, “Leases (Topic 842)” in fiscal 2019 using the modified retrospective method. As
such fiscal 2015 through 2018 are presented under the previous lease accounting standard, i.e. ASC 840.
28
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The matters addressed in this Item 7 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 guidance as to earnings, revenue, sales, profit margins, expense rate, cash, effective tax rate, capital expense or any
other financial items; the plans, strategies, and objectives of management for future operations or prospects for achieving
such plans; statements regarding new, existing, or improved products, including but not limited to, expectations for success
of new, existing, and improved products in the U.S. or international markets or government approval of a new or improved
products (including the EVO family of lenses in the U.S. and the EDOF ICL for presbyopia internationally);
commercialization of new or improved products; future economic conditions or size of market opportunities; expected costs
of operations; statements of belief, including as to achieving 2020 business plans; expected regulatory activities and
approvals, product launches, and any statements of assumptions underlying any of the foregoing.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements
are inherently subject to risks and we can give no assurance that our expectations will prove to be correct. Actual results
could differ from those described in this report because of numerous factors, many of which are beyond our control. These
factors include, without limitation, those described in this Annual Report in “Item 1A. Risk Factors.” We undertake no
obligation to update these forward-looking statements after the date of this report to reflect future events or circumstances or
to reflect actual outcomes.
The following discussion should be read in conjunction with the audited consolidated financial statements of STAAR,
including the related notes, provided in this report.
Overview
STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and companion
delivery systems used to deliver the lenses into the eye. We are the world’s leading manufacturer of intraocular lenses for
patients seeking lens-based refractive vision correction, and we also make lenses for use in surgery to treat cataracts. All the
lenses we make are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally
invasive surgery. Refractive surgery is performed to treat the type of visual disorders that have traditionally been corrected
using eyeglasses or contact lenses. We refer to our lenses used in refractive surgery as “implantable Collamer® lenses” or
“ICLs.” The field of refractive surgery includes both lens-based procedures, using products like our ICL family of products,
and laser-based procedures like LASIK. Successful refractive surgery can correct common vision disorders such as myopia,
hyperopia, and astigmatism. Cataract surgery is a common outpatient procedure where the eye’s natural lens that has become
cloudy with age is removed and replaced with an artificial lens called an intraocular lens (IOL) to restore the patient’s vision.
STAAR employs a commercialization strategy that strives for increased share of the refractive market and sustainable
profitable growth. Our goal is to position our refractive lenses throughout the world as primary and premium solutions for
patients seeking visual freedom from wearing eyeglasses or contact lenses while achieving excellent visual acuity through
refractive vision correction. We position our IOL lenses used in surgery that treats cataracts based on quality and value.
See Item 1. “Business,” for a discussion of:
Operations
Principal Products
Distribution and Customers
Competition
Regulatory Matters
Research and Development
Strategic Priorities for 2020
For 2020 we intend to continue achieving and strengthening our 2019 strategic priorities, which are as follows:
Position EVO Implantable Lenses as a Special and Transformational Pathway to Visual Freedom;
Execute Go-to-Market Strategy to Significantly Expand Market Share Globally;
Innovate and Develop a Pipeline of Next Generation Premium Collamer-Based Intraocular Lenses;
29
Support the Transformation of the Refractive Surgery Paradigm to Lens-Based through Clinical Validation and
Medical Affairs Excellence;
Continue our Focus on and Commitment to STAAR’s Culture of Quality; and
Deliver Shareholder Value.
To realize these priorities, we are planning to:
Continue to invest in manufacturing and facilities expansion that include, among other things: (i) increasing
manufacturing capacity at our Monrovia, California facility for our myopia ICLs; (ii) reopening and expanding
our manufacturing and distribution facilities in Switzerland; (iii) preparing for the validation of our Lake Forest,
California facility for the manufacturing of our ICL with EDOF for presbyopia lenses, which we expect to be
approved for sale initially in CE Mark countries;
Continue market share gains in all global markets, including China. We will continue to focus on increasing
consideration and usage of low and mid-diopter ICLs;
Continue to increase investment in Direct-to-Consumer marketing and patient education in targeted markets;
and
Continue to strengthen existing and finalize new strategic agreements and alliances with global partners.
We believe that if we accomplish our plans, we will achieve the following target results for 2020:
ICL unit growth percentage target increase of 30% or above compared with 2019 ICL unit growth;
Overall revenue growth percentage target an increase in the range of 16% to 20% over 2019 (despite an
expected overall sales decline in our Other Products segment of approximately $3.0 million, including an
approximately $2.3 million reduction in IOLs and $0.50 million reduction in sales of low margin injector parts);
GAAP Net Income is anticipated as similar to 2019, excluding the tax benefit in 2019 of $0.07 earnings per
share; and
Positive full year cash flow and cash balance increase.
Finally, we will continue to evaluate opportunities to acquire new product lines, technologies, and companies.
We continue to assess and manage through the potential impact of the coronavirus, which remains uncertain at this time
and may adversely affect our financial results. For example, our customers in China have experienced a mandated pause in
procedures during the month of February and our ICL unit volume will be impacted in the first quarter of fiscal 2020. We
currently expect a potential $5 million to $7 million delay in sales orders. We understand that our customers in China are
hopeful to resume robust clinical activities, including implantation of the EVO ICL family of lenses, in March. Excluding
any potential full year impact from the coronavirus, at this time we are maintaining our full year sales outlook.
Results of Operations
The following table sets forth the percentage of total sales represented by certain items reflected in the Company’s
Consolidated Statement of Operations for the period indicated.
Net sales
Cost of sales
Gross profit
General and administrative
Marketing and selling
Research and development
Total selling, general and administrative
Operating income (loss)
Total other income, net
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Percentage of Net Sales
2018
2017
2019
100.0 %
25.5 %
74.5 %
19.5 %
30.3 %
16.8 %
66.6 %
7.9 %
0.8 %
8.7 %
(0.7 )%
9.4 %
100.0 %
26.2 %
73.8 %
19.6 %
31.1 %
17.8 %
68.5 %
5.3 %
0.0 %
5.3 %
1.3 %
4.0 %
100.0 %
29.1 %
70.9 %
21.5 %
31.3 %
22.1 %
74.9 %
(4.0 )%
1.5 %
(2.5 )%
(0.2 )%
(2.3 )%
30
Net Sales
The following table presents our net sales, by product for the fiscal years presented (dollars in thousands):
ICLs
Other product sales
IOLs
Other surgical products
Total other product sales
Net sales
2019
2018
2017
% of
Total
Sales
86.1 % $ 129,322
% of
Total
Sales
81.5 % $ 101,082
% of
Total
Sales
75.4 % $ 68,325
3.4 %
10.5 % 15,689
5,174
13.9 % 20,863
100.0 % $ 150,185
5.4 %
13.1 % 16,193
6,679
18.5 % 22,872
100.0 % $ 123,954
5.6 %
19.0 % 17,258
5,028
24.6 % 22,286
100.0 % $ 90,611
Net sales for 2019 were $150.2 million, a 21% increase over the $124.0 million reported in fiscal 2018. The increase in
net sales was due to an increase in ICL sales of $28.2 million, partially offset by a decrease in other product sales of $2.0
million. Changes in foreign currency unfavorably impacted net sales by $1.3 million.
Net sales for 2018 were $124.0 million, a 37% increase over the $90.6 million reported in fiscal 2017. The increase in
net sales was due to increases in ICL sales of $32.8 million and other product sales of $0.6 million. Changes in foreign
currency favorably impacted net sales by $0.2 million.
Total ICL sales for 2019 were $129.3 million, a 28% increase from $101.1 million reported for fiscal 2018, with unit
growth up 33.4%. The sales increase was driven by the APAC region, which grew 40% with unit growth of 44%, primarily
due to sales growth in Japan up 67%, China up 41%, Korea up 26%, other APAC Distributors up 16% and India up 12%.
The Europe, Middle East, Africa and Latin America region, grew 2% with unit growth of 7%, primarily due to increased
sales in UK up 19%, Germany up 9% and Spain up 7%, partially offset by decrease sales in the Middle East of 9% and Latin
America of 8%. The North America region grew 18%, with unit growth of 4%, primarily due to growth in the U.S., as a
result of sales of the Toric ICL in 2019, partially offset by decreased sales in Canada. Changes in foreign currency
unfavorably impacted ICL sales by $1.3 million. ICL sales represented 86.1% of our total sales for fiscal year 2019.
Total ICL sales for 2018 were $101.1 million, a 48% increase from $68.3 million reported for fiscal 2017, with unit
growth up 54%. The sales increase was driven by the APAC region, which grew 73% with unit growth of 82%, primarily due
to sales growth in China up 91%, Japan up 90%, and Korea up 37%. The Europe, Middle East, Africa and Latin America
region, grew 20% with unit growth of 12%, due to increased sales in Middle East up 39%, Germany up 31%, Latin America
up 14%, Spain up 13%, Distributor Operations up 8% and the U.K. up 6%. The North America region grew 4%, with unit
growth of 6%, primarily due to growth in Canada. In November 2018, the U.S. started to sell Toric ICLs. Changes in foreign
currency favorably impacted ICL sales by $0.1 million. ICL sales represented 81.5% of our total sales for fiscal year 2018.
Other product sales, including IOLs were $20.9 million for fiscal 2019, a decrease of 8.8% from $22.9 million reported
in fiscal 2018. The decrease is due to the decreases in preloaded injector part sales to a third-party manufacturer for product
they sell to their customers and in IOL sales. Other product sales represented 13.9% of our total sales for fiscal year 2019.
Other product sales, including IOLs were $22.9 million for fiscal 2018, an increase of 2.6% from $22.3 million reported
in fiscal 2017. The increase is due to an increase in preloaded injector part sales to a third-party manufacturer for product
they sell to their customers, offset by a decrease in IOL sales. Changes in foreign currency favorably impacted other product
sales by $0.1 million. Other product sales represented 18.5% of our total sales for fiscal year 2018.
Gross Profit
The following table presents our gross profit and gross profit margin for the fiscal years presented (dollars in thousands):
2019
2018
2017
Percentage Change
2018 vs.
2017
2019 vs.
2018
Gross profit
Gross margin
$ 111,954 $ 91,510 $ 64,280
70.9 %
74.5 %
73.8 %
22.3 %
42.4 %
31
Gross profit for 2019 was $112.0 million, a 22.3% increase compared to the $91.5 million reported for 2018. Gross
profit margin increased to 74.5% of revenue for 2019 compared to 73.8% of revenue for 2018, due to favorable product mix
resulting from increased sales of ICLs, partially offset by period costs associated with the project to resume manufacturing in
Switzerland. The gross margin impact of lower average selling prices was more than offset by the favorable impact of
improved product mix.
Gross profit for 2018 was $91.5 million, a 42.4% increase compared to the $64.3 million reported for 2017. Gross profit
margin increased to 73.8% of revenue for 2018 compared to 70.9% of revenue for 2017, due to favorable product mix, lower
unit costs as a result of significantly increased production volumes, to support the 47.9% growth in ICL sales, resulting in
better overhead absorption, and lower inventory provisions and freight costs, partially offset by the effect of lower average
selling prices.
General and Administrative Expense
The following table presents our general and administrative expense for the fiscal years presented (dollars in thousands):
2019
2018
2017
Percentage Change
2018 vs.
2017
2019 vs.
2018
General and administrative expense
Percentage of sales
$ 29,313 $ 24,287 $ 19,465
21.5 %
19.5 %
19.6 %
20.7 %
24.8 %
General and administrative expenses for 2019 were $29.3 million, an increase of 20.7% when compared with $24.3
million reported for 2018. The increase in general and administrative expenses was due to an increase in headcount and
salary-related expenses including stock-based compensation, increased facility costs and professional fees.
General and administrative expenses for 2018 were $24.3 million, an increase of 24.8% when compared with $19.5
million reported for 2017. The increase in general and administrative expenses was due to an increase in headcount and
salary-related expenses including stock-based compensation, and increased facility costs.
Marketing and Selling Expense
The following table presents our marketing and selling expense for the fiscal years presented (dollars in thousands):
2019
2018
2017
Percentage Change
2018 vs.
2017
2019 vs.
2018
Marketing and selling expense
Percentage of sales
$ 45,491 $ 38,600 $ 28,402
31.3 %
30.3 %
31.1 %
17.9 %
35.9 %
Marketing and selling expenses for 2019 were $45.5 million, an increase of 17.9% when compared with $38.6 million
for 2018. The increase in marketing and selling expenses was due to an increase in headcount and salary-related expenses
including stock-based compensation and continuing investments in digital, consumer, and strategic marketing, and travel
expenses.
Marketing and selling expenses for 2018 were $38.6 million, an increase of 35.9% when compared with $28.4 million
for 2017. The increase in marketing and selling expenses was due to an increase in headcount and salary-related expenses
including stock-based compensation and investments in digital, consumer, and strategic marketing and commercial
infrastructure.
Research and Development Expense
The following table presents our research and development expense for the fiscal years presented (dollars in thousands):
2019
2018
2017
Percentage Change
2018 vs.
2017
2019 vs.
2018
Research and development expense
Percentage of sales
$ 25,298 $ 22,028 $ 20,044
22.1 %
17.8 %
16.8 %
14.8 %
9.9 %
32
Research and development expenses for 2019 were $25.2 million, an increase of 14.8% compared to $22.0 million for
2018. The increase was due to an increase in headcount and salary-related expenses including stock-based compensation,
increased clinical expenses associated with our EDOF clinical trial in Europe and EVO clinical trial in the U.S.
Research and development expenses for 2018 were $22.0 million, an increase of 9.9% compared to $20.0 million for
2017. The increase was due to an increase in headcount and salary-related expenses including stock-based compensation,
increased clinical expenses associated with our clinical trial for the next generation ICL with an EDOF optic, and an increase
in medical affairs expenses.
Research and development expense consist primarily of compensation and related costs for personnel responsible for the
research and development of new and existing products, the regulatory and clinical activities required to acquire and maintain
product approvals globally and medical affairs expenses. These costs are expensed as incurred.
Other Income (Expense), Net
The following table presents our other income (expense), net for the fiscal years presented (dollars in thousands):
Other income, net
Percentage of sales
$
* Denotes change is greater than +100%.
2019
1,174
2018
$
0.8 %
44 $
0.0 %
Percentage Change
2017
1,335
2019 vs.
2018
2018 vs.
2017
—*
(96.7 )%
1.5 %
Other income for 2019, 2018 and 2017 was $1.2 million, $0.0 million, and $1.3 million, respectively. The increase in
2019 is mainly due to an increase in interest income earned on cash and cash equivalents and a decrease in foreign exchange
losses (primarily euro). The decrease in 2018 was mainly due to losses on foreign currency transactions compared to gains in
2017, partially offset by a net increase in interest income due to higher cash balances.
Other income, net generally relates to interest income earned on cash and cash equivalents, interest expense on notes
payable and finance lease obligations, gains or losses on foreign currency transactions, and royalty income. The table below
summarizes the year over year changes in other income, net (in thousands).
Interest income, net
Foreign exchange
Royalty income
Other
Net change in other income (expense), net
Provision (Benefit) for Income Taxes
Favorable (Unfavorable)
2019 vs. 2018
2018 vs. 2017
$
$
823 $
319
(82 )
70
1,130 $
277
(1,655 )
52
35
(1,291 )
The following table presents our provision (benefit) for income taxes for the fiscal years presented (in thousands):
2019
2018
2017
Percentage Change
2018 vs.
2017
2019 vs.
2018
Provision (benefit) for income taxes
$
(1,022 ) $
1,671 $
(157 )
—*
—*
* Denotes change is greater than +100%.
We recorded an income tax benefit for 2019 due to a release of the federal and certain state valuation allowances, offset
by the income tax expense from profits generated in our Swiss and Japan operations. We recorded income taxes for 2018 as
a result of income tax expense generated primarily from profits in our Swiss and Japan operations and U.S. withholding taxes
on those profits. We recorded a benefit from income taxes for 2017 due primarily to a U.S. income tax benefit related to the
refund of a portion of our alternative minimum tax (AMT) carryforward, offset by income tax expense generated from profits
in our Swiss and Japan operations. During 2019, 2018 and 2017, there are no unrecognized tax benefits related to uncertain
tax positions taken by us.
33
All earnings from our subsidiaries are not considered to be permanently reinvested. Accordingly, we provided
withholding and U.S. taxes on all unremitted foreign earnings through 2018. Beginning 2019, we no longer need to accrue
withholding taxes on foreign earnings (Note 10 to the Consolidated Financial Statements). During 2019, 2018 and 2017
there were no withholding taxes paid to foreign jurisdictions.
On December 22, 2017, the United States enacted major tax reform legislation, the 2017 Tax Act, which enacted a broad
range of changes to the federal tax code. Key provisions that could have an impact on our Consolidated Financial Statements
are the deemed repatriation of foreign earnings, the remeasurement of certain net deferred assets and other liabilities for the
change in the U.S. corporate tax rate from 35 percent to 21 percent, and the elimination of the AMT.
We applied the guidance in SAB 118 when accounting for the enactment-date effects of the 2017 Tax Act and
throughout 2018. At that time, for 2017, we made reasonable estimates of the impact and included $5.7 million in foreign
earnings, which were fully offset by the deemed foreign tax credit. This inclusion amount was later finalized at $7.5 million.
At December 28, 2018, we completed our accounting for all the enactment-date income tax effects of the 2017 Tax Act.
As we have an AMT credit from a prior year, we can carry the credit forward to offset regular tax. To the extent we do
not have a federal tax liability, a portion of the credit is now refundable each year starting in 2018, with any remaining
balance fully refundable in 2021. As we will ultimately receive a full refund for the credit, the valuation allowance
attributable to the AMT credit carryforward was released, creating a deferred tax benefit of $0.5 million for 2017. We
received a refund of $0.3 million of this AMT credit with the filing of our 2018 U.S. federal tax return. We expect to receive
a refund of $0.1 million of this AMT credit with the filing of our 2019 U.S. federal tax return.
Beginning in 2018, the 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (GILTI)
earned by certain foreign subsidiaries. In January 2018, the FASB released guidance (Staff Q&A Topic 740, No. 5) on the
accounting for tax on the GILTI provisions of the 2017 Tax Act. 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 our net operating loss carryforwards. For 2019 and 2018, we included GILTI of $16.1
million and $7.7 million, respectively, in U.S. gross income, which was fully offset with net operating loss carryforwards.
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. 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 in making this
assessment. As of January 3, 2020, we had three years of accumulated profits for federal income tax purposes as a result of
GILTI. Therefore, based upon our findings that the positive evidence outweighed the negative evidence, sufficient for us to
rely on our projected future profits, we reduced the valuation allowance.
For 2019, we have made a policy election to apply the incremental cash tax savings approach when analyzing the impact
GILTI could have on our U.S. valuation allowance. As a result of future expected GILTI inclusions, and because of the Tax
Act’s ordering rules, U.S. companies may now expect to utilize tax attribute carryforwards (e.g. net operating losses and
deferred tax assets) for which a valuation allowance has historically been recorded (this is referred to as the “tax law ordering
approach”). However, due to the mechanics of the GILTI rules, companies that have a GILTI inclusion may realize a reduced
(or no) cash tax savings from utilizing such tax attribute carryforwards (this view is referred to as the “incremental cash tax
savings approach”). Applying the incremental cash tax savings approach, resulted in the valuation allowance release of $3.0
million and $0.4 million for Federal and state purposes, respectively, during 2019. The remaining valuation allowance was
$30.8 million and $6.6 million for federal and state purposes, respectively, as of January 3, 2020.
See Critical Accounting Policies included later in this Item 7 for additional information about our provision for income
taxes.
A reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in Note 10 of Notes to the
Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
34
Liquidity and Capital Resources
We believe our current cash balances coupled with cash flows from operating activities is expected to be adequate to
cover our operational and business needs through at least the next 12 months from the issuance of this Annual Report. Our
financial condition at January 3, 2020, December 28, 2018 and December 29, 2017 included the following (in millions):
Cash and cash equivalents
Current assets
Current liabilities
Working capital
2019
2018
2017
2019 vs.
2018
2018 vs.
2017
$
$
$
120.0 $
174.7 $
34.5
140.2 $
103.9 $
151.6 $
27.7
123.9 $
18.5 $
53.9 $
19.1
34.8 $
16.1 $
23.1 $
6.8
16.3 $
85.4
97.7
8.6
89.1
We invest the net proceeds in short-term interest-bearing obligations, investment-grade instruments, certificates of
deposit or direct or guaranteed obligations of the U.S. government. Additionally, at January 3, 2020, we have a line of credit
with a Japanese lender, in the amount of $4.6 million, with $2.8 million of availability and a line of credit with a Swiss
lender, in the amount of $1.0 million, which is fully available for borrowing.
Overview of changes in cash and cash equivalents and other working capital accounts.
Net cash provided by operating activities was $25.8 million, $12.8 million and $2.9 million for 2019, 2018 and 2017,
respectively. For 2019, net cash provided by operating activities consisted of $14.0 million in net income and $13.0 million
in non-cash items, offset by $1.2 million in working-capital changes. For 2018, net cash provided by operating activities
consisted of $12.3 million in non-cash items and $5.0 million in net income, offset by $4.5 million in working-capital
changes. For 2017, net cash provided by operating activities consisted of $9.0 million in non-cash items, offset by $4.0
million in working-capital changes and a $2.1 million net loss.
Net cash used in investing activities was $10.2 million, $2.2 million and $1.0 million for 2019, 2018 and 2017
respectively, and relate primarily to the acquisition of property, plant, and equipment. The increase in investment in
property, plant and equipment during 2019, relative to 2018, is primarily due to continued increased investments in
manufacturing facilities intending to satisfy growing demand for our products. The increase in investment in property, plant
and equipment during 2018, relative to 2017, is primarily due to continued increased investments in manufacturing and
quality system improvement projects.
Net cash provided by financing activities was $0.1 million, $74.6 million and $2.4 million for 2019, 2018 and 2017,
respectively. For 2019, net cash used in financing activities consisted of $2.0 million repayment on the Japan line of credit
and $1.3 million repayment of finance lease obligations, offset by $3.5 million of proceeds from the exercise of stock
options. For 2018, net cash provided by financing activities resulting primarily from the proceeds of $72.2 million from the
equity offering (refer to Note 12 to the Consolidated Financial Statements). In addition, the increase also consisted of $5.2
million of proceeds from the exercise of stock options offset by $1.9 million repayment of finance lease obligations and $0.7
million repayment on the Japan line of credit. For 2017, net cash provided by financing activities consisted of $4.0 million in
proceeds from the exercise of stock options, offset by $1.3 million repayment on finance lease obligations and $0.2 million in
the repurchase of common stock shares from employees to satisfy minimum tax withholdings.
Accounts receivable, net was $31.0 million and $25.9 million at January 3, 2020 and December 28, 2018,
respectively. Days’ Sales Outstanding (DSO) was 76 days in 2019 and 2018.
Inventories, net was $17.1 million and $16.7 million at January 3, 2020 and December 28, 2018, respectively. Days’
Inventory on Hand (DOH) was 118 days in 2019 and 139 days in 2018 for finished goods, including consignment inventory.
The decrease in DOH is due to increased sales of ICL products resulting in more frequent inventory turnover and due to
decreased preloaded IOL inventory.
Shelf Registration
On May 11, 2017, STAAR filed a universal shelf registration statement with the SEC covering the future public offering
and sale of up to $200 million in equity or debt securities or any combination of such securities. The shelf registration
statement became effective on June 9, 2017 and expires on June 9, 2020. As a result of the August 8, 2018 offering, the
amount available for any future public offering and sale of equity, debt securities or any combination, is approximately $127
million. Among the purposes for which STAAR could use the proceeds of securities sold in the future under the shelf
registration statement are working capital, capital expenditures, expansion of sales and marketing, and continuing research
35
and development. STAAR could also use a portion of the net proceeds to acquire or invest in businesses, assets, products, and
technologies that are complementary to our own, although we are not currently contemplating or negotiating any such
acquisitions or investments. The availability of financing in the public capital markets through the shelf registration statement
depends on several factors in place at the time of financing, including the strength of STAAR’s business performance,
general economic conditions and investment climate, and investor perceptions of those factors. If STAAR seeks financing
under the shelf registration statement in the future, we cannot assure that such financing will be available on favorable terms,
if at all.
Credit Facilities, Lease Line of Credit, Contractual Obligations, and Commitments
Credit Facilities
We have credit facilities with different lenders to support operations as detailed below.
Lines of Credit
Since 1998, our 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 January 3, 2020) plus a 0.50% spread, and may be renewed quarterly (the current line expires on
February 21, 2020). The credit facility is not collateralized. We had 197,500,000 Yen and 417,500,000 Yen outstanding on
the line of credit as of January 3, 2020 and December 28, 2018, respectively, (approximately $1,827,000 and $3,780,000
based on the foreign exchange rates on January 3, 2020 and December 28, 2018, respectively), which approximates fair value
due to the short-term maturity and market interest rates of the line of credit. In case of default, the interest rate will be
increased to 14% per annum. There was 302,500,000 Yen and 82,500,000 Yen available for borrowing as of January 3, 2020
and December 28, 2018, respectively (approximately $2,798,000 and $747,000 based on the foreign exchange rate on
January 3, 2020 and December 28, 2018, respectively). At maturity on February 21, 2020, this line of credit was renewed
until May 21, 2020, with similar terms.
In September 2013, our 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 $1.0 million at the rate of exchange on January 3, 2020 and
December 28, 2018), to be used for working capital purposes. Accrued interest and 0.25% commissions on average
outstanding borrowings is payable quarterly and the interest rate will be determined by the Bank based on the then prevailing
market conditions at the time of borrowing. The framework agreement is automatically renewed on an annual basis based on
the same terms assuming there is no default. The framework agreement may be terminated by either party at any time in
accordance with its general terms and conditions. The framework agreement is not collateralized and contains certain
conditions such as providing the Bank with audited financial statements annually and notice of significant events or
conditions, as defined in the framework agreement. The Bank may also declare all amounts outstanding to be immediately
due and payable upon a change of control or a “material qualification” in STAAR Surgical independent auditors’ report, as
defined. There were no borrowings outstanding as of January 3, 2020 and December 28, 2018.
Covenant Compliance
We are in compliance with the covenants of our credit facilities and lines of credit as of January 3, 2020.
Lease Line of Credit (Finance Leases)
During 2019, we converted the lease line of credit schedule 011 with Farnam Street Financial, Inc. into a finance lease
liability of approximately $500,000.
36
Contractual Obligations
The following table represents the Company’s known contractual obligations as of January 3, 2020 (in thousands):
Contractual Obligations
Line of credit (Note 8)*
Finance lease obligations (Note 9)
Operating lease obligations (Note 9)*
Pension benefit payments (Note 11)*
Severance (Note 13)*
Asset retirement obligation (Note 13)*
Open purchase orders (Note 13)*
Total
Payments Due by Period
2 – 3
Years
4 – 5
Years
1 Year
Total
$
1,827 $
962
7,104
4,021
10
211
13,450
1,827 $
590
2,850
109
10
211
10,192
$ 27,585 $ 15,789 $
— $
362
2,914
336
—
—
3,196
6,808 $
More than
5 Years
—
—
73
3,020
—
—
—
3,093
— $
10
1,267
556
—
—
62
1,895 $
* Refer to the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K
Critical Accounting Policies
The preparation of financial statements in accordance with accounting principles generally accepted in the United States
of America requires management to make significant estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting period. On an on-going basis, we evaluate our estimates, including those
related to revenue recognition, allowances for doubtful accounts and sales returns, inventory reserves and income taxes,
among others. Our estimates are based on historical experiences, market trends and financial forecasts and projections, and
on various other assumptions that management believes are reasonable under the circumstances and at that certain point in
time. Actual results may differ, significantly at times, from these if actual conditions differ from our assumptions.
We believe the following represent our critical accounting policies.
Revenue Recognition
We recognize revenue when our contractual performance obligations with customers are satisfied. Our performance
obligations are generally limited to single sales orders with product shipping to the customer within a month of receipt of the
sales order. Substantially all of our revenues are recognized at a point-in-time when control of our products transfers to the
customer, which is typically upon shipment (as discussed below). We present sales tax and similar taxes we collect from our
customers on a net basis (excluded from revenues).
We sell certain injector parts to an unrelated customer and supplier (collectively referred to as “supplier”) whereby these
injector part sales are either made as a final sale to the supplier or, are sold to be combined with an acrylic IOL by the
supplier into finished goods inventory (a preloaded acrylic IOL). These finished goods are then sold back to us at an agreed
upon, contractual price. We make a profit margin on either type of sale with the supplier and each type of sale is made under
separate purchase and sales orders between the two parties resulting in cash settlement for the orders sold or repurchased.
For parts that are sold as a final sale, we recognize a sale and those sales are classified as other product sales in total net sales.
For the injector parts that are sold to be combined with an acrylic IOL into finished goods, we record the transaction at its
carrying value deferring any profit margin as contra-inventory, until the finished goods inventory is sold to an end-customer
(not the supplier) at which point we recognize revenues.
For all sales, we are considered the principal in the transaction as we are the party providing specified goods under our
control prior to when control is transferred to the customer. Cost of sales includes cost of production, freight and
distribution, and inventory provisions, net of any purchase discounts. Shipping and handling activities that occur after the
customer obtains control of the goods are recognized as fulfillment costs.
Non-consignment sales
We recognize revenue from non-consignment product sales at a point-in-time when control has been transferred, which
is typically at shipping point, except for certain customers and for our STAAR Japan subsidiary, which is typically
recognized when the customer receives the product. We generally do not have significant deferred as delivery to the
customer is generally made within the same or the next day of shipment.
37
We also enter into certain strategic cooperation agreements with customers in which, as consideration for certain
commitments made by the customer, including minimum purchase commitments, we agree, among other things, to pay for
marketing, educational training and general support of our products. The provisions in these arrangements allow for these
payments to be made directly to the customer or payments can be made directly to a third party for distinct marketing,
educational training and general support services provided to or on behalf of the customer by the third party. For payments
we make to another party, or reimburse the customer for distinct marketing and support services, we recognize these
payments as sales and marketing expense as incurred. These strategic cooperation agreements are generally for periods of 12
months or more with quarterly minimum purchase commitments. We recognize sales and marketing expenses in the period
in which it expects the customer will achieve its minimum purchase commitment, generally quarterly, and any unpaid
amounts are recorded in Other Current Liabilities in “Other” on the Consolidated Balance Sheets, see Note 7 to the
Consolidated Financial Statements. Reimbursements made directly to the customer for general marketing incentives are
treated as a reduction in revenues. Our performance obligations generally occur in the same quarter as the shipment of
product.
Since the payments for distinct or non-distinct services occur within the quarter corresponding with the purchases made
by the customer and our shipments to that customer, there is no remaining performance obligation. Accordingly, there are no
deferred revenues associated with these types of arrangements.
Consignment Sales
Our products are marketed to ophthalmic surgeons, hospitals, ambulatory surgery centers or vision centers, and
distributors. IOLs and ICLs may be offered to surgeons and hospitals on a consignment basis. We maintain title and risk of
loss on consigned inventory and recognize revenue for consignment inventory at a point-in-time when we are notified that the
lenses have been implanted, thus completing the performance obligation.
Sales Return Reserves
Generally, we may permit returns of product if the product, upon issuance of a Returned Goods Authorization, is
returned within the time allowed by our return policies, and in good condition. We provide allowances for sales returns based
on an analysis of our historical patterns of returns matched against the sales from which they originated. While such
allowances have historically been within our expectations, we cannot guarantee that we will continue to experience the same
return rates that we have in the past. Measurement of such returns requires consideration of, among other factors, historical
returns experience and trends, including the need to adjust for current conditions and product lines, the entry of a competitor,
and judgments about the probable effects of relevant observable data. We consider all available information in our quarterly
assessments of the adequacy of the allowance for sales returns. Sales are reported net of estimated returns. If the actual sales
returns are higher or lower than estimated by management, additional reduction or increase in sales may occur.
Allowance for Doubtful Accounts
We maintain provisions for uncollectible accounts based on estimated losses resulting from the inability of our customers
to remit payments. If the financial condition of customers were to deteriorate, thereby resulting in an inability to make
payments, additional allowances could be required. We perform ongoing credit evaluations of our customers and adjust credit
limits based upon customer payment history and current creditworthiness, as determined by our review of our customers’
current credit information. We continuously monitor collections and payments from our customers and maintain a provision
for estimated credit losses based upon our historical experience and any specific customer collection issues that have been
identified. We write off amounts determined to be uncollectible against the allowance for doubtful accounts. While such
credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will
continue to experience the same credit loss rates that we have in the past. Measurement of such losses requires consideration
of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of
relevant observable data, including present economic conditions such as delinquency rates and financial health of specific
customers. We consider all available information in our assessments of the adequacy of the reserves for uncollectible
accounts.
Stock-Based Compensation
We account for the issuance of stock options to employees and directors by estimating the fair value of options issued
using the Black-Scholes pricing model. This model’s calculations include the exercise price, the market price of shares on
grant date, risk-free interest rates, expected term of the option, expected volatility of our stock and expected dividend
yield. The amounts recorded in the financial statements for share-based compensation could vary significantly if we were to
use different assumptions. We also issue restricted stock units, or RSUs, which contain a service condition such that they
vest if the grantee is still employed with us on a range of measurement dates, which are typically three years after the grant
38
date. On occasion, we also issue RSUs to certain employees which contain a performance condition such that they vest if the
internally established target is met or exceeded and the grantee is still employed with us on the measurement date, which is
typically one year after the grant date. We recognize compensation cost for the RSUs when it is probable that the
performance condition will be achieved, net of an estimate of pre-vesting forfeitures, over the requisite service period based
on the grant-date fair value of the stock. We reassess the probability of vesting at each reporting period and adjust
compensation cost based on our probability assessment.
Income Taxes
We account for income taxes, on a jurisdiction-by-jurisdiction basis, under the asset and liability method, whereby
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are
expected to be recovered or settled in the jurisdictions in which they arise. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date. We evaluate the need to establish a
valuation allowance for deferred tax assets based on the amount of existing temporary differences, the period in which they
are expected to be recovered and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is
established when it is more likely than not that some or all the deferred tax assets will not be realized. We have made a
policy election to apply the incremental cash tax savings approach when analyzing the impact GILTI could have on our U.S.
valuation allowance assessment.
In many countries, including the U.S., we are subject to transfer pricing and other tax regulations designed to ensure that
appropriate levels of income are reported as earned by our U.S. and foreign entities and are taxed accordingly. In the normal
course of business, we are audited by federal, state and foreign tax authorities, and subject to inquiries from those tax
authorities regarding the amount of taxes due. These inquiries may relate to the timing and amount of deductions and the
allocation of income among various tax jurisdictions. We believe that our tax positions comply with applicable tax law and
intend to defend our positions, if necessary. Our effective tax rate in each financial statement period could be impacted if we
prevailed in matters for which reserves have been established, or were required to pay amounts more than established
reserves.
Inventories
We provide estimated inventory allowances for excess, slow moving, expiring and obsolete inventory as well as
inventory whose carrying value is more than net realizable value. These reserves are based on current assessments about
future demands, market conditions and related management initiatives. If market conditions and actual demands are less
favorable than those projected by management, additional inventory write-downs may be required. We value our inventory at
the lower of cost or net realizable market values. We regularly review inventory quantities on hand and record a provision for
excess and obsolete inventory based primarily on the expiration of products with a shelf life of less than four months,
estimated forecasts of product demand and production requirements for the next twelve months. Several factors may
influence the realizability of our inventories, including decisions to exit a product line, technological change, and new
product development. These factors could result in an increase in the amount of obsolete inventory quantities on hand.
Additionally, estimates of future product demand may prove to be inaccurate, in which case the provision required for excess
and obsolete inventory may be understated or overstated. If in the future, we determine that our inventory was overvalued, we
would be required to recognize such costs in cost of sales at the time of such determination. Likewise, if we determine that
our inventory was undervalued, cost of sales in previous periods could have been overstated and we would be required to
recognize such additional operating income at the time of sale. While such inventory losses have historically been within our
expectations and the provisions established, we cannot guarantee that we will continue to experience the same loss rates that
we have in the past. Therefore, although we make every effort to ensure the accuracy of forecasts of future product demand,
including the impact of planned future product launches, any significant unanticipated changes in demand or technological
developments could have a significant impact on the value of our inventory and our reported operating results.
Lease Accounting
We recognize right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months. Leases
are classified as either finance or operating, with classification affecting the pattern of expense recognition. Certain leases
may have non-lease components such as common area maintenance expense for building leases and maintenance expenses
for automobile leases. In general, we separate common area maintenance expense component from the value of the ROU
asset and lease liability when evaluating rental properties, whereas, we include the maintenance and service components in
the value of the ROU asset and lease liability while evaluating automobile leases. We review ROU assets, for impairment
whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We measure
recoverability of these assets by comparing the carrying value of such assets to the estimated undiscounted future cash flows
39
the assets are expected to generate. When the estimated undiscounted future cash flows are less than their carrying amount,
an impairment loss is recognized equal to the difference between the assets’ fair value and their carrying value.
Impairment of Long-Lived Assets
Intangible and other long lived-assets are reviewed for impairment whenever events such as product discontinuance,
plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be
recoverable. Certain factors which may occur and indicate that an impairment exists include, but are not limited to, the
following: significant underperformance relative to expected historical or projected future operating results; significant
changes in the manner of use of the underlying assets; and significant adverse industry or market economic trends. In
reviewing for impairment, we compare the carrying value of such assets to the estimated undiscounted future net cash flows
expected from the use of the assets and their eventual disposition. If the carrying value of assets is determined to be
unrecoverable, we would estimate the fair value of the assets and record an impairment charge for the excess of the carrying
value over the fair value. The estimate of fair value requires management to make several assumptions and projections, which
could include, but would not be limited to, future revenues, earnings and the probability of certain outcomes and scenarios.
Our policy is consistent with current accounting guidance as prescribed by ASC 360-10-35, “Accounting for the Impairment
or Disposal of Long-Lived Assets.”
Goodwill
Goodwill, which has an indefinite life, is not amortized, but instead is subject to periodic testing for impairment.
Goodwill is tested for impairment on an annual basis or between annual tests if an event occurs or circumstances change that
would reduce the fair value of a reporting unit below its carrying amount. Certain factors which may occur and indicate that
impairment exists include, but are not limited to the following: significant underperformance relative to expected historical or
projected future operating results; significant changes in the manner of our use of the underlying assets; and significant
adverse industry or market economic trends. If the carrying value of assets is determined to be unrecoverable, we would
estimate the fair value of the reporting unit and record an impairment charge for the excess of the carrying value over the fair
value. The estimate of fair value requires management to make several assumptions and projections, which could include, but
would not be limited to, future revenues, earnings and the probability of certain outcomes and scenarios, including the use of
experts.
Definite-Lived Intangible Assets
We also have other intangible assets mainly consisting of patents and licenses, certain acquired rights, developed
technologies, and customer relationships. We capitalize the cost of acquiring patents and licenses. Amortization is computed
on the straight-line basis over the estimated useful lives of the assets, which is our best estimate of the pattern of the
economic benefits, which are based on legal, contractual, and other provisions, and range from 3 to 20 years for patents,
certain acquired rights and licenses, 10 years for customer relationships and 3 to 10 years for developed technology. We
review intangible assets for impairment in the assessment discussed above regarding Impairment of Long-Lived Assets.
Employee Defined Benefit Plans - Pension
We have maintained a passive pension plan (the “Swiss Plan”) covering employees of our Swiss subsidiary. We
determined that the features of the Swiss Plan conform to the features of a defined benefit plan. As a result, we adopted the
recognition and disclosure requirements of ASC 715, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans.”
STAAR Japan has a noncontributory defined benefit pension plan (the “Japan Plan”) substantially covering employees
of our Japan subsidiary. The Japan Plan has also adopted the recognition and disclosure requirements of ASC 715. STAAR
Japan is not required, and we do not intend to provide any future contributions to this pension plan to meet benefit obligations
and will therefore not have any plan assets. Benefit payments are made to beneficiaries from operating cash flows as they
become due.
We recognize the funded status, or difference between the fair value of plan assets and the projected benefit obligations
of the pension plan on the statement of financial position with a corresponding adjustment to accumulated other
comprehensive income or loss. If the projected benefit obligation exceeds the fair value of plan assets, then that difference or
unfunded status represents the pension liability. We record a net periodic pension cost in the consolidated statement of
operations. The liabilities and annual income or expense of both plans are determined using methodologies that involve
several actuarial assumptions, the most significant of which are the discount rate, and the expected long-term rate of asset
return. Assumptions of expected asset returns and market-related values of plan assets are applicable to the Swiss Plan
only. The fair values of plan assets are determined based on prevailing market prices. The amounts recorded in the financial
statements pertaining to our employee defined benefit plans could vary significantly if we were to use different assumptions.
40
Foreign Exchange
Management does not believe that the fluctuation in the value of the dollar in relation to the currencies of its suppliers or
customers in the last three fiscal years has adversely affected our ability to purchase or sell products at agreed upon prices.
No assurance can be given, however, that adverse currency exchange rate fluctuations will not occur in the future, which
could significantly affect our operating results. We do not currently hedge transactions to offset changes in foreign currency.
Inflation
Management believes inflation has not had a significant impact on our net sales and revenues and on income from
continuing operations during the past three years.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See “Part II. Item 8. “Financial Statements and Supplementary Data – Note 1 – Organization and Description of
Business and Accounting Policies – Recent Accounting Pronouncements” of this Annual Report on Form 10-K.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our operations are exposed to risks associated with fluctuations in interest rates and
foreign currency exchange rates. The Company manages its risks based on management’s judgment of the appropriate trade-
off between risks, opportunity, and costs and does not generally enter into interest rate or foreign exchange rate hedge
instruments.
Interest rate risk
As of January 3, 2020, we had $1.8 million of foreign debt. Our $1.8 million of foreign debt bears an interest rate that is
equal to the uncollateralized overnight call rate in Japan (approximately 0.06%) plus a 0.50% spread. Thus, our interest
expense would fluctuate with any change in the base interest rate. If the uncollateralized overnight call rate were to increase
or decrease by 1% for the year, our annual interest expense would increase or decrease by approximately $18,000.
Foreign currency risk
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies in which we transact business could
adversely affect our financial results.
Our international subsidiaries operate in and are net recipients of currencies other than the U.S. dollar and, as a result,
our sales benefit from a weaker dollar and are reduced by a stronger dollar relative to major currencies worldwide (primarily,
the euro and the Japanese yen). Accordingly, changes in exchange rates, and particularly the strengthening of the U.S. dollar,
may negatively affect our consolidated sales and gross profit as expressed in U.S. dollars. Fluctuations during any given
reporting period result in the re-measurement of our foreign currency denominated cash, receivables, and payables,
generating currency transaction gains or losses and are reported in total other income (expense), net in our consolidated
statements of operations. In the normal course of business, we also face risks that are either non-financial or non-
quantifiable. Such risks include those set forth in “Item 1A. Risk Factors.”
ITEM 8.
Financial Statements and Supplementary Data
Financial Statements and the Report of Independent Registered Public Accounting Firm are filed with this Annual
Report on Form 10-K in a separate section following Part IV, as shown on the index under Item 15 of this Annual Report.
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
41
ITEM 9A. Controls and Procedures
Attached as exhibits to this Annual Report on Form 10-K are certifications of STAAR’s Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of
1934, as amended (the Exchange Act). This “Controls and Procedures” section includes information concerning the controls
and controls evaluation referred to in the certifications. The report of BDO USA, LLP, our independent registered public
accounting firm, regarding its audit of STAAR’s internal control over financial reporting follows below. This section should
be read in conjunction with the certifications and the BDO USA, LLP report for a more complete understanding of the topics
presented.
Evaluation of 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 our Form 10-K for the fiscal year ended January 3, 2020, 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 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 issuer
in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including
its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change during the fiscal quarter ended January 3, 2020 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management, including our CEO and CFO, is responsible for establishing and maintaining adequate
internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the
Company. The Company’s internal control system was designed to provide reasonable assurance to the Company’s
management and Board of Directors regarding the preparation and fair presentation of published consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable
assurance and may not prevent or detect misstatements. Further, because of changing conditions, effectiveness of internal
control over financial reporting may vary over time. The Company’s processes contain self-monitoring mechanisms, and
actions are taken to correct deficiencies as they are identified.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of
January 3, 2020, based on the criteria for effective internal control described in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment,
management concluded that the Company’s internal control over financial reporting was effective as of January 3, 2020.
42
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
STAAR Surgical Company
Lake Forest, California
Opinion on Internal Control over Financial Reporting
We have audited STAAR Surgical Company (the “Company’s”) internal control over financial reporting as of
January 3, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of January 3, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheets of the Company as of January 3, 2020 and December 28, 2018, the
related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of
the three years in the period ended January 3, 2020, and the related notes and financial statement schedule listed in the
accompanying index and our report dated February 26, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A,
Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ BDO USA, LLP
Los Angeles, California
February 26, 2020
43
ITEM 9B. Other Information
None.
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated herein by reference to the section entitled “Election of Directors”
contained in the proxy statement for the 2020 annual meeting of stockholders (the “Proxy Statement”) to be filed with the
Securities and Exchange Commission within 120 days of the close of the fiscal year ended January 3, 2020.
ITEM 11. Executive Compensation
The information required by this item is incorporated herein by reference to the section entitled “Election of Directors”
contained in the Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to the section entitled “General Information—
Security Ownership of Certain Beneficial Owners and Management” and “Election of Directors” contained in the Proxy
Statement.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the section entitled “Election of Directors”
contained in the Proxy Statement.
ITEM 14. Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to the section entitled “Ratification of the
Appointment of Independent Registered Public Accounting Firm” contained in the Proxy Statement.
ITEM 15. Exhibits and Financial Statement Schedules
We have filed the following documents as part of this Annual Report on Form 10-K:
PART IV
(1)
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2)
Schedules required by Regulation S-X are filed as an exhibit to this report
II. Schedule II — Valuation and Qualifying Accounts and Reserves
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-45
All other schedules have been omitted because they are not required, not applicable, or the required information is
otherwise included.
44
(3)
Exhibits
3.1
Amended and Restated Certificate of Incorporation.(1)
3.2
Amended and Restated Bylaws.(2)
4.1
Form of Certificate for Common Stock, par value $0.01 per share.(3)
†4.2
Amended and Restated Omnibus Equity Incentive Plan.(4)
4.3
Description of the Registrant’s Securities.*
10.1
Amendment No. 1 to Standard Industrial/Commercial Multi-Tenant Lease dated January 3, 2003, by and
between the Company and California Rosen LLC.(5)
†10.2
Form of Indemnification Agreement between the Company and certain officers and directors.(6)
†10.3
Employment Agreement, dated December 16, 2004 by and between the Company and Hans Blickensdoerfer.(7)
10.4
Credit Agreement between STAAR Japan Inc. and Mizuho Bank Inc., dated October 31, 2007.(8)
10.5
Amended Credit Agreement between STAAR Japan Inc. and Mizuho Bank Ltd., dated June 30, 2009.(8)
10.6
Amended Credit Agreement between STAAR Japan Inc. and Mizuho Bank Ltd., dated December 28, 2012.(9)
10.7
10.8
10.9
Basic Agreement on Unsterilized Intraocular Lens Sales Transactions between Canon Staar Co., Inc. and Nidek
Co., Ltd., dated May 23, 2005.(10)
Basic Agreement on Injector Product Sales Transactions between Canon Staar Co., Inc. and Nidek Co., Ltd.,
dated May 23, 2005.(10)
Memorandum of Understanding Concerning Basic Agreements for Purchase and Sale between STAAR Japan
Inc. and Nidek Co., Ltd., dated December 25, 2008.(10)
10.10
Acrylic Preset Supply Warranty Agreement between STAAR Japan Inc. and Nidek Co., Ltd., dated
December 25, 2008.(10)
10.11
Framework Agreement for Loans between Credit Suisse and STAAR Surgical AG, dated September 2013.(11)
†10.12 Form of Executive Severance Agreement.(12)
†10.13 Form of Executive Change in Control Agreement.(12)
10.14
Standard Industrial/Commercial Single – Tenant Lease – Net dated August 17, 2012, by and between the
Company and Pacific Equity Partners, LLC.(13)
†10.15
Letter of the Company dated March 27, 2012 to Samuel Gesten, Vice President and General Counsel, regarding
compensation.(9)
†10.16
Letter of the Company dated July 27, 2015 to Keith Holliday, Vice President of Research and Development,
regarding compensation.(14)
10.17
Amendment Agreement between STAAR Surgical Company and Nidek Co., Ltd., dated March 31, 2016.(15)
†10.18
Employment Agreement effective March 1, 2015 by and between the Company and Caren Mason, dated
March 1, 2015.(16)
10.19
Form of Option Grant and Stock Option Agreement for employees.(17)
10.20
Form of Option Grant and Stock Option Agreement for Non-Employee Directors.(17)
10.21
Form of Restricted Stock Unit Grant and Agreement.(17)
10.22
Form of Restricted Stock Award Grant and Restricted Stock Award Agreement.(17)
10.23
Form of Amendment to Credit Agreement between STAAR Japan Inc. and Mizuho Bank Ltd.(11)
10.24
Master Lease Agreement dated May 30, 2006 by and between the Company and Farnam Street Financial,
Inc.(17)
10.25
Lease Schedule No. 009R dated January 31, 2017, of Master Lease Agreement dated May 30, 2006, by and
45
between the Company and Farnam Street Financial, Inc.(17)
10.26
Lease Schedule No. 010R dated March 8, 2018, of Lease Agreement dated May 30, 2006, by and between the
Company and Farnam Street Financial, Inc.(22)
10.27
Lease Schedule No. 011 and Purchase Option dated March 8, 2018 of Lease Agreement dated May 30, 2006, by
and between the Company and Farnam Street Financial, Inc.(22)
10.28
Letter of the Company dated September 27, 2017 to Deborah Andrews, Vice President of Finance, Chief
Financial Officer, regarding compensation.(18)
10.29
Lease dated August 10, 2017 by and between the Company and 2000 Gold L.P.(19)
10.30
Lease Agreement commencing May 1, 2018 between Bukewihge Properties, LLC and STAAR Surgical
Company.(20)
10.31
Form of Distributorship Agreement.(6)
10.32
Lease Agreement dated January 29, 2019 between GZK Real Estate Ltd. and STAAR Surgical Ltd.(23)
10.33
Lease Agreement dated June 13, 2019 between Einfache Gesellschaft Calderari & Schwab. and STAAR Surgical
AG.(24)
†10.34
Letter of the Company dated August 10, 2012 to James Francese, Vice President, Global Marketing, regarding
compensation.(9)
†10.35
Letter of the Company dated June 15, 2015 to Jon K. Hayashida, Vice President Global Clinical Affairs,
regarding compensation.(14)
†10.36
Employment Agreement effective October 1, 2017 by and between the Company and Scott Barnes, dated
September 11 2011.*
†10.37
Letter of the Company dated December 15, 2015 to Graydon Hansen, Vice President of Operations, regarding
compensation.*
14.1
Code of Business Conduct and Ethics.(21)
21.1
List of Subsidiaries.*
23.1
Consent of BDO USA, LLP.*
31.1
31.2
32.1
101
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.**
The following materials from the Company’s Annual Report on Form 10-K for the year ended January 3, 2020
formatted inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets, (ii) the
Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv)
the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi)
related notes.
104
The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2020, has
been formatted in Inline XBRL with applicable taxonomy extension information contained in Exhibit 101.
*
**
†
(1)
(2)
(3)
Filed herewith.
Furnished herewith.
Management contract or compensatory plan.
Incorporated by reference to Appendix 2 of the Company’s Proxy Statement on Form DEF 14A as filed with the
Commission on April 13, 2018.
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.
Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form
8-A/A as filed with the Commission on April 18, 2003.
46
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
to
to
the year ended
the year ended
the Company’s Annual Report on Form 10-K, for
the Company’s Annual Report on Form 10-K, for
Incorporated by reference to Appendix 1 of the Company’s Proxy Statement on Form DEF 14A as filed with the
Commission on April 13, 2018.
Incorporated by reference to the Company’s Annual Report on Form 10-K, for the year ended January 2, 2004,
as filed with the Commission on March 17, 2004.
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q, for the period ended
June 29, 2018, as filed with the Commission on August 1, 2018.
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on
October 1, 2009.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, for the period ended
October 2, 2009, as filed with the Commission on November 12, 2009.
Incorporated by reference
December 31, 2012, as filed with the commission on March 12, 2013.
Incorporated by reference to the Company’s Annual Report on Form 10-K, for the year ended January 1, 2010 as
filed with the Commission on April 1, 2010.
Incorporated by reference
December 29, 2017, as filed with the commission on February 28, 2018.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, for the period ended
September 30, 2011, as filed with the Commission on November 2, 2011.
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on
August 23, 2012.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, for the period ended
October 2, 2015, as filed with the Commission on November 4, 2015.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, for the period ended April 1, 2016,
as filed with the Commission on May 11, 2016.
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on
March 3, 2015.
Incorporated by reference
December 30, 2016, as filed with the Commission on March 2, 2017.
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Commission on
September 28, 2017.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, for the period ended
September 29, 2017, as filed with the Commission on November 8, 2017.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, for the period ended
March 30, 2018, as filed with the Commission on May 2, 2018.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A, for the period ended
June 29, 2012, as filed with the Commission on August 8, 2012.
Incorporated by reference
to
December 28 2018, as filed with the Commission on February 21, 2019.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, for the period ended
March 29, 2019, as filed with the Commission on May 1, 2019.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, for the period ended June 28, 2019,
as filed with the Commission on July 31, 2019.
the Company’s Annual Report on Form 10-K, for
the Company’s Annual Report on Form 10-K, for
the year ended
the year ended
to
ITEM 16. Form 10-K Summary
None.
47
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 26, 2020
STAAR SURGICAL COMPANY
By: /s/ CAREN MASON
Caren Mason
President and Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
/s/ CAREN MASON
Caren Mason
Title
Date
President, Chief Executive Officer and Director
February 26, 2020
(principal executive officer)
/s/ DEBORAH J. ANDREWS
Deborah J. Andrews
Vice President, Chief Financial Officer
(principal accounting and financial officer)
February 26, 2020
/s/ LOUIS E. SILVERMAN
Louis E. Silverman
/s/ STEPHEN C. FARRELL
Stephen C. Farrell
/s/ JOHN C. MOORE
John C. Moore
/s/ WILLIAM P. WALL
William P. Wall
Chairman of the Board, Director
February 26, 2020
Director
Director
Director
February 26, 2020
February 26, 2020
February 26, 2020
48
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 3, 2020, December 28, 2018 and December 29, 2017
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at January 3, 2020 and December 28, 2018
Consolidated Statements of Operations for the years ended January 3, 2020, December 28, 2018 and
December 29, 2017
Consolidated Statements of Comprehensive Income (Loss) for the years ended January 3, 2020,
December 28, 2018 and December 29, 2017
Consolidated Statements of Stockholders’ Equity for the years ended January 3, 2020, December 28, 2018
and December 29, 2017
Consolidated Statements of Cash Flows for the years ended January 3, 2020, December 28, 2018 and
December 29, 2017
Notes to Consolidated Financial Statements
Schedule II Valuation and Qualifying Accounts and Reserves
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-45
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
STAAR Surgical Company
Lake Forest, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of STAAR Surgical Company (the “Company”) as of
January 3, 2020 and December 28, 2018, the related consolidated statements of operations, comprehensive income (loss),
stockholders’ equity, and cash flows for each of the three years in the period ended January 3, 2020, and the related notes and
financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at January 3, 2020 and December 28, 2018, and the results of its operations and its cash flows for
each of the three years in the period ended January 3, 2020, in conformity with accounting principles generally accepted in
the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company's internal control over financial reporting as of January 3, 2020, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) and our report dated February 26, 2020 expressed an unqualified opinion thereon.
Change in Accounting Method Related to Leases and Revenue
As discussed in Notes 1 and 9 to the consolidated financial statements, the Company has changed its method of
accounting for leases during the year ended January 3, 2020 due to the adoption of the Accounting Standards Codification
(“ASC”) 842, “Leases.”
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for
revenue during the year ended December 28, 2018 due to the adoption of the ASC 606, “Revenue from Contracts with
Customers.”
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Income Tax Provision
As described in Notes 1 and 10 to the Company’s consolidated financial statements, the Company operates in multiple
jurisdictions through its wholly-owned subsidiaries. The Company serves international markets and is subject to income taxes
in the U.S. and numerous foreign jurisdictions, which affect the Company’s provision for income taxes. The tax provision is
an estimate based on management’s understanding of current enacted tax laws and tax rates of each tax jurisdiction.
We identified the Company’s calculation of the provision for income taxes as a critical audit matter. Management is
required to apply significant judgments in calculating the provision for income taxes related to the evaluation of tax laws,
including the methods used to allocate taxable income to various jurisdictions and transfer pricing methods. Auditing these
elements involved especially complex auditor judgment due to the nature of audit evidence and extent of audit effort required
to address these matters, including the need to involve personnel with specialized skill and knowledge.
The primary procedures we performed to address this critical audit matter included:
Testing the design and operating effectiveness of controls over management’s calculation of its provision for
income taxes, including controls over: (i) evaluating allocation methodologies, and (ii) reviewing the
assumptions and data utilized in determining the allocation of income to applicable tax jurisdictions.
Recalculating income tax expense and agreeing the data used in the calculations to the Company’s underlying
books and records.
Utilizing personnel with specialized skill and knowledge in domestic and international tax law to assist in: (i)
evaluating the application of tax laws used in management’s allocation methodologies based on the
Company’s structure and operations, and (ii) recalculating the income tax expense utilizing enacted tax rates.
Utilizing personnel with specialized skill and knowledge in transfer pricing regulations to assist in assessing
the appropriateness of intercompany transactions and the rates used to cross charge and allocate costs based
on transfer pricing agreements.
Deferred Tax Asset Valuation Allowance
As described in Notes 1 and 10 to the Company’s consolidated financial statements, the Company released
approximately $3.4 million valuation allowance on its deferred tax assets in the U.S Jurisdiction, utilizing the “incremental
cash tax savings approach.” In evaluating the Company’s ability to realize the deferred tax assets management considered
available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable
income, tax-planning strategies, and results of recent operations.
We identified the Company’s evaluation of whether the deferred tax assets are realizable as a critical audit matter.
Significant management judgments are required to develop the forecasts and assumptions related to the projected sales
growth, margins, costs, and income that are used to assess the realizability of deferred tax assets. These forecasts include
various assumptions including the likelihood of continued growth in certain key markets, projected industry-wide
performance, macro and micro economic factors, and the development and approval of new products. Auditing these
elements involved especially complex auditor judgment due to the nature and extent of audit effort required to address these
matters, including the need to involve personnel with specialized skill and knowledge.
The primary procedures we performed to address this critical audit matter included:
Testing the design and operating effectiveness of controls over the realizability of deferred tax assets.
Assessing the reasonableness of the Company’s future forecasts and related assumptions against the
Company’s historical performance, industry conditions and outlooks, and evidence obtained in other areas of
the audit.
Utilizing personnel with specialized knowledge and skill in taxes to assist in evaluating both positive and
negative evidence and assessing the reasonableness of assumptions used in the Company’s valuation
allowance.
/s/ BDO USA, LLP
We have served as the Company's auditor since 1993.
Los Angeles, California
February 26, 2020
F-3
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 3, 2020 and December 28, 2018
(In thousands, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable trade, net
Inventories, net
Prepayments, deposits and other current assets
Total current assets
Property, plant and equipment, net
Finance lease right-of-use assets, net
Operating lease right-of-use assets, net
Intangible assets, net
Goodwill
Deferred income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit
Accounts payable
Obligations under finance leases
Obligations under operating leases
Allowance for sales returns
Other current liabilities
Total current liabilities
Obligations under finance leases
Obligations under operating leases
Deferred income taxes
Asset retirement obligations
Deferred rent
Pension liability
Total liabilities
$
$
$
2019
2018
119,968 $
30,996
17,142
6,560
174,666
17,065
1,867
6,684
296
1,786
3,750
751
206,865 $
1,827 $
8,050
560
2,700
3,644
17,697
34,478
366
4,086
—
211
—
7,840
46,981
103,877
25,946
16,704
5,045
151,572
11,451
—
—
243
1,786
1,278
1,009
167,339
3,780
6,524
1,098
—
2,895
13,431
27,728
459
—
1,022
206
188
5,310
34,913
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.01 par value; 60,000 shares authorized: 44,822 and 44,195
shares issued and outstanding at January 3, 2020 and December 28, 2018,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
448
304,288
(3,048 )
(141,804 )
159,884
206,865 $
442
289,584
(1,320 )
(156,280 )
132,426
167,339
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended January 3, 2020, December 28, 2018 and December 29, 2017
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses:
General and administrative
Marketing and selling
Research and development
Total selling, general and administrative expenses
Operating income (loss)
Other income (expense), net:
Interest income (expense), net
Gain (loss) on foreign currency transactions
Royalty income
Other income, net
Total other income, net
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Net income (loss) per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
2019
2018
2017
$
150,185 $
38,231
111,954
123,954 $
32,444
91,510
29,313
45,491
25,298
100,102
11,852
988
(517 )
551
152
1,174
13,026
(1,022 )
14,048 $
24,287
38,600
22,028
84,915
6,595
165
(836 )
633
82
44
6,639
1,671
4,968 $
0.32 $
0.30 $
0.12 $
0.11 $
$
$
$
90,611
26,331
64,280
19,465
28,402
20,044
67,911
(3,631 )
(112 )
819
581
47
1,335
(2,296 )
(157 )
(2,139 )
(0.05 )
(0.05 )
44,493
46,895
42,587
45,257
41,004
41,004
The accompanying notes are an integral part of these consolidated financial statements.
F-5
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended January 3, 2020, December 28, 2018 and December 29, 2017
(In thousands)
Net income (loss)
Other comprehensive income (loss):
Defined benefit plans:
Net change in plan assets
Reclassification into other income (expense), net
Foreign currency translation gain
Tax effect
Other comprehensive loss, net of tax
Comprehensive income (loss)
2019
2018
2017
$
14,048 $
4,968 $
(2,139 )
(2,265 )
107
291
139
(1,728 )
12,320 $
(498 )
101
242
(15 )
(170 )
4,798 $
(485 )
73
387
(75 )
(100 )
(2,239 )
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended January 3, 2020, December 28, 2018 and December 29, 2017
(In thousands)
Balance, at December 30, 2016
Net loss
Other comprehensive loss
Common stock issued upon exercise of options
Stock-based compensation
Repurchase of employee common stock for taxes withheld
Unvested restricted stock
Vested restricted stock
Balance, at December 29, 2017
Net income
Other comprehensive loss
Proceeds from public offering of stock
Common stock issued upon exercise of options
Stock-based compensation
Repurchase of employee common stock for taxes withheld
Unvested restricted stock
Vested restricted stock
Balance, at December 28, 2018
Net income
Impact of the adoption of lease accounting standard
Impact of adoption of nonemployee share-based payment standard
Other comprehensive loss
Common stock issued upon exercise of options
Stock-based compensation
Unvested restricted stock
Vested restricted stock
Balance, at January 3, 2020
Common
Stock
Shares
Common
Stock Par
Value
Additional
Paid-In
Capital
Accumulated
Other
Compre-
hensive
Income (Loss)
Accumulated
Deficit
Total
40,732 $
—
—
557
—
(24 )
21
97
41,383
—
—
2,000
595
—
—
11
206
44,195
—
—
—
—
387
—
11
229
44,822 $
407 $
—
—
6
—
—
—
1
414
—
—
20
6
—
—
—
2
442
—
—
—
—
4
—
—
2
448 $
197,657 $
—
—
3,964
3,533
(234 )
—
—
204,920
—
—
72,130
5,189
7,399
(54 )
—
—
289,584
—
—
(315 )
—
3,455
11,564
—
—
304,288 $
(1,050 ) $
—
(100 )
—
—
—
—
—
(1,150 )
—
(170 )
—
—
—
—
—
—
(1,320 )
—
—
—
(1,728 )
—
—
—
—
(3,048 ) $
(159,109 ) $
(2,139 )
—
—
—
—
—
—
(161,248 )
4,968
—
—
—
—
—
—
—
(156,280 )
14,048
113
315
—
—
—
—
—
(141,804 ) $
37,905
(2,139 )
(100 )
3,970
3,533
(234 )
—
1
42,936
4,968
(170 )
72,150
5,195
7,399
(54 )
—
2
132,426
14,048
113
—
(1,728 )
3,459
11,564
—
2
159,884
The accompanying notes are an integral part of these consolidated financial statements.
F-7
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended January 3, 2020, December 28, 2018 and December 29, 2017
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
2019
2018
2017
$
14,048 $
4,968 $
(2,139 )
Depreciation of property, plant, and equipment
Amortization of intangibles
Deferred income taxes
Change in net pension liability
Loss on disposal of property and equipment
Stock-based compensation expense
Provision for sales returns and bad debts
Inventory provision
Changes in working capital:
Accounts receivable
Inventories
Prepayments, deposits, and other current assets
Accounts payable
Other current liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of property and equipment
Acquisition of patents and licenses
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from public offering of stock
Repayment of finance lease obligations
Repayment on line of credit
Repurchase of employee common stock for taxes withheld
Proceeds from the exercise of stock options
Proceeds from vested restricted stock
Net cash provided by financing activities
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
Increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, at beginning of year
Cash, cash equivalents and restricted cash, at end of year
3,665
34
(3,481 )
359
14
10,547
275
1,580
(4,502 )
(950 )
(1,313 )
1,084
4,435
25,795
(10,095 )
(83 )
(10,178 )
—
(1,294 )
(2,018 )
—
3,459
2
149
2,430
34
441
231
10
6,762
905
1,473
(6,040 )
(4,194 )
(598 )
243
6,102
12,767
(2,245 )
—
(2,245 )
72,150
(1,907 )
(747 )
(54 )
5,195
2
74,639
203
15,969
103,999
119,968 $
197
85,358
18,641
103,999 $
$
3,133
221
(547 )
186
623
3,161
463
1,739
(1,857 )
312
(64 )
(2,501 )
123
2,853
(1,046 )
—
(1,046 )
—
(1,300 )
—
(234 )
3,970
1
2,437
279
4,523
14,118
18,641
The accompanying notes are an integral part of these consolidated financial statements.
F-8
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Description of Business and Accounting Policies
Organization and Description of Business
STAAR Surgical Company and subsidiaries (the “Company”), a Delaware corporation, was first incorporated in 1982
for the purpose of developing, producing, and marketing implantable lenses for the eye and delivery systems used to deliver
the lenses into the eye. Principal products are implantable Collamer lenses (“ICLs”) and intraocular lenses (“IOLs”). ICLs,
consisting of the Company’s ICL family of products, including the Toric implantable Collamer lenses (“TICL”) and EVO+
Visian ICL, are intraocular lenses used to correct refractive conditions such as myopia (near-sightedness), hyperopia (far-
sightedness) and astigmatism. IOLs are prosthetic intraocular lenses used to restore vision that has been adversely affected
by cataracts, and include the Company’s lines of silicone IOLs and the Preloaded Injector (a silicone or acrylic IOL
preloaded into a single-use disposable injector).
As of January 3, 2020, the Company’s significant subsidiaries consisted of:
STAAR Surgical AG, a wholly owned subsidiary formed in Switzerland that markets and distributes ICLs and
Preloaded IOLs.
STAAR Japan, a wholly owned subsidiary that markets and distributes Preloaded IOLs and ICLs.
The Company operates as one operating segment, the ophthalmic surgical market, for financial reporting purposes (see
Note 17).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of STAAR Surgical Company and its wholly-
owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”). All significant intercompany balances and transactions have been eliminated.
Certain
reclassifications have been made to financial statements of prior years to conform to the current year presentation (see Note
20).
Fiscal Year and Interim Reporting Periods
The Company’s fiscal year ends on the Friday nearest December 31 and each of the Company’s quarterly reporting
periods generally consists of 13 weeks. Fiscal year 2019 is based on a 53-week period and fiscal years 2018 and 2017 are
based on a 52-week period.
Foreign Currency
The functional currency of the Company’s Japanese subsidiary, STAAR Japan, Inc., is the Japanese yen. The functional
currency of the Company’s Swiss subsidiary, STAAR Surgical AG, is the U.S. dollar.
Assets and liabilities of the Company’s Japanese subsidiary are translated at rates of exchange in effect at the close of the
period. Sales and expenses are translated at the weighted average of exchange rates in effect during the period. Net foreign
translation gain (loss) was as follows (in thousands):
Foreign currency translation gain(1)
Gain (loss) on foreign currency transactions(2)
2019
Years Ended
2018
2017
$
291 $
(517 )
242 $
(836 )
387
819
(1) Shown as a separate line item on the Consolidated Statements of Comprehensive Income (Loss).
(2) Shown as a separate line item on the Consolidated Statements of Operations.
F-9
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Use of Estimates
The consolidated financial statements have been prepared in conformity with GAAP and, as such, include amounts based
on significant estimates and judgments of management with consideration given to materiality. Significant estimates used
include determining valuation allowances for uncollectible trade receivables, sales returns reserves, obsolete and excess
inventory reserves, deferred income taxes, and tax reserves, including valuation allowances for deferred tax assets, pension
liabilities, evaluation of asset impairment, in determining the useful life of depreciable and definite-lived intangible assets,
and in the variables and assumptions used to calculate and record stock-based compensation. Actual results could differ
materially from those estimates.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash
equivalents. The Company maintains cash deposits with major banks which from time to time may exceed federally insured
limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is
minimal. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the
Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash
Flows at January 3, 2020, December 28, 2018 and December 29, 2017 (in thousands):
Cash and cash equivalents
Restricted cash(1)
Total cash, cash equivalents and restricted cash
(1)
Included in other assets on the Consolidated Balance Sheets.
2019
2018
2017
$
$
119,968 $
—
119,968 $
103,877 $
122
103,999 $
18,520
121
18,641
The Company had restricted cash 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. Since the quarter ended June 28, 2019, the Company was no longer required to set aside collateral for this
standby letter of credit.
Revenue Recognition
On December 30, 2017 (beginning of fiscal year 2018), the Company adopted Financial Accounting Standards Board
(“FASB”) Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” and its
subsequent amendments, using the modified retrospective method, and determined that there was no cumulative effect
adjustment on the Consolidated Financial Statements. The Company determined that the adoption of the new standard did not
materially impact the revenue recognition on its Consolidated Financial Statements. Revenue recognition for 2017 continue
to be in accordance with Topic 605.
The Company recognizes revenue when its contractual performance obligations with customers are satisfied. The
Company’s performance obligations are generally limited to single sales orders with product shipping to the customer within
a month of receipt of the sales order. Substantially all of the Company’s revenues are recognized at a point-in-time when
control of its products transfers to the customer, which is typically upon shipment (as discussed below). The Company
presents sales tax and similar taxes it collects from its customers on a net basis (excluded from revenues).
F-10
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Revenue Recognition (Continued)
The Company sells certain injector parts to an unrelated customer and supplier (collectively referred to as “supplier”)
whereby these injector part sales are either made as a final sale to the supplier or, are sold to be combined with an acrylic IOL
by the supplier into finished goods inventory (a preloaded acrylic IOL). These finished goods are then sold back to the
Company at an agreed upon, contractual price. The Company makes a profit margin on either type of sale with the supplier
and each type of sale is made under separate purchase and sales orders between the two parties resulting in cash settlement
for the orders sold or repurchased. For parts that are sold as a final sale, the Company recognizes a sale and those sales are
classified as other product sales in total net sales. For the injector parts that are sold to be combined with an acrylic IOL into
finished goods, the Company records the transaction at its carrying value deferring any profit margin as contra-inventory,
until the finished goods inventory is sold to an end-customer (not the supplier) at which point the Company recognizes
revenues.
For all sales, the Company is considered the principal in the transaction as the Company is the party providing specified
goods it has control over prior to when control is transferred to the customer. Cost of sales includes cost of production,
freight and distribution, and inventory provisions, net of any purchase discounts. Shipping and handling activities that occur
after the customer obtains control of the goods are recognized as fulfillment costs.
The Company disaggregates its revenue into the following categories: non-consignment sales and consignment sales.
Non-consignment Sales
The Company recognizes revenue from non-consignment product sales at a point-in-time when control has been
transferred, which is typically at shipping point, except for certain customers and for the Company’s STAAR Japan
subsidiary, which is typically recognized when the customer receives the product. The Company does not have significant
deferred revenues as of January 3, 2020, December 28, 2018 and December 29, 2017, as delivery to the customer is generally
made within the same or the next day of shipment.
The Company also enters into certain strategic cooperation agreements with customers in which, as consideration for
certain commitments made by the customer, including minimum purchase commitments, the Company agrees, among other
things, to pay for marketing, educational training and general support of the Company’s products. The provisions in these
arrangements allow for these payments to be made directly to the customer or payments can be made directly to a third party
for distinct marketing, educational training and general support services provided to or on behalf of the customer by the third
party. For payments the Company makes to another party, or reimburses the customer for distinct marketing and support
services, the Company recognizes these payments as sales and marketing expense as incurred in accordance with ASC 606-
10-32-25. These strategic cooperation agreements are generally for periods of 12 months or more with quarterly minimum
purchase commitments. The Company recognizes sales and marketing expenses in the period in which it expects the
customer will achieve its minimum purchase commitment, generally quarterly, and any unpaid amounts are recorded in Other
Current Liabilities in “Other” on the Consolidated Balance Sheets, see Note 7. Reimbursements made directly to the
customer for general marketing incentives are treated as a reduction in revenues. The Company’s performance obligations
generally occur in the same quarter as the shipment of product. Sales and marketing expenses for distinct services were as
follows (in thousands):
Marketing and support services related to strategic cooperation
agreements
$
485 $
629 $
120
2019
Years Ended
2018
2017
F-11
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Revenue Recognition (Continued)
Non-consignment Sales (Continued)
Since the payments for distinct or non-distinct services occur within the quarter corresponding with the purchases made
by the customer and the shipments made by the Company to that customer, there is no remaining performance obligation by
the Company to the customer. Accordingly, there are no deferred revenues associated with these types of arrangements as of
January 3, 2020, December 28, 2018 and December 29, 2017.
Consignment Sales
The Company’s products are marketed to ophthalmic surgeons, hospitals, ambulatory surgery centers or vision centers,
and distributors. IOLs and ICLs may be offered to surgeons and hospitals on a consignment basis. The Company maintains
title and risk of loss on consigned inventory and recognizes revenue for consignment inventory at a point-in-time when the
Company is notified that the lenses have been implanted, thus completing the performance obligation.
See Note 17 for additional information on disaggregation of revenues, geographic sales information and product sales.
Allowance for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment
history and credit worthiness, as determined by the Company’s review of its customers’ current credit information. The
Company continuously monitors collections and payments from customers and maintains a provision for estimated credit
losses and uncollectible accounts based upon its historical experience and any specific customer collection issues that have
been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts.
Concentration of Credit Risk and Revenues
Financial instruments that potentially subject the Company to credit risk principally consist of trade receivables. This
risk is limited due to the large number of customers comprising the Company’s customer base, and their geographic
dispersion. As of January 3, 2020 and December 28, 2018, there was one customer who accounted for 43% and 36% of the
Company’s consolidated trade receivables, respectively. Ongoing credit evaluations of customers’ financial condition are
performed and, generally, no collateral is required. The Company maintains reserves for potential credit losses and such
losses, taken together, have not exceeded management’s expectations.
There was one customer who accounted for 43%, 37% and 27% of the Company’s consolidated net sales for the years
ended 2019, 2018 and 2017, respectively.
F-12
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Sales Return Reserve
The Company generally may permit returns of product if the product, upon issuance of a Return Goods Authorization, is
returned within the time allowed by its return policies and records an allowance for estimated returns at the time revenue is
recognized. The Company’s allowance for estimated returns considers historical trends and experience, the impact of new
product launches, the entry of a competitor, availability of timely and pertinent information and the various terms and
arrangements offered, including sales with extended credit terms. For estimated returns, sales are reported net of estimated
returns and cost of sales are reported net of estimated returns that can be resold. On the Consolidated Balance Sheets, the
balances associated for estimated sales returns were as follows (in thousands):
Estimated returns - inventory(1)
Allowance for sales returns
(1) Recognized in inventories, net on the Consolidated Balance Sheets
Fair Value of Financial Instruments
2019
2018
$
869 $
3,644
722
2,895
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. To increase the comparability of fair value measures, the
following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value (ASC 820-10-50):
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in
active markets.
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets,
and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of
the financial instruments.
Level 3 – Inputs to the valuation methodology are unobservable; that reflect management’s own assumptions about
the assumptions market participants would make and significant to the fair value.
The carrying values reflected on the Consolidated Balance Sheets for cash and cash equivalents, trade accounts
receivable, net, prepayments, deposits and other current assets, accounts payable, other current liabilities and line of credit
approximate their fair values because of the short maturity of these instruments.
Inventories, Net
Inventories, net are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value.
Inventories include the costs of raw material, labor, and manufacturing overhead, work in process and finished goods.
Inventories also include as a contra item, deferred margins for certain injector parts described under the revenue recognition
policy. The Company provides estimated inventory allowances for excess, expiring, slow moving and obsolete inventory as
well as inventory whose carrying value is in excess of net realizable value to properly reflect inventory at the lower of cost or
market.
F-13
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation on property, plant, and equipment is computed using
the straight-line method over the estimated useful lives of the assets as noted below. Leasehold improvements are amortized
over the lesser of the estimated useful lives of the assets or the related lease term. Major improvements are capitalized and
minor replacements, maintenance and repairs are charged to expense as incurred.
Also included in property, plant and equipment is construction in process. Construction in process includes the cost of
design plans and build out of facilities and the cost of equipment, as well as the direct costs incurred in the testing and
validation of machinery and equipment and facilities before they are ready for productive use. Upon placement in service,
costs are reclassified into the appropriate asset category and depreciation commences
The estimated useful lives of assets are as follows:
Machinery and equipment
Computer equipment and software
Furniture and equipment
Leasehold improvements
5-10 years
2-5 years
3-7 years
The shorter of the useful life of the asset or the term of the associated lease
Goodwill
Goodwill, which has an indefinite life, is not amortized but instead is tested for impairment on an annual basis or
between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired.
Impairment testing for goodwill is done at the reporting unit level. Reporting units can be one level below the operating
segment level, and can be combined when reporting units within the same operating segment have similar economic
characteristics. The Company has determined that its reporting units have similar economic characteristics, and therefore, can
be combined into one reporting unit for the purposes of goodwill impairment testing. The Company performed its annual
impairment test and determined that its goodwill was not impaired. As of January 3, 2020 and December 28, 2018, the
carrying value of goodwill was $1,786,000.
Long-Lived Assets
The Company reviews property, plant, and equipment and intangible assets, excluding goodwill, for impairment
whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company
measures recoverability of these assets by comparing the carrying value of such assets to the estimated undiscounted future
cash flows the assets are expected to generate. When the estimated undiscounted future cash flows are less than their carrying
amount, an impairment loss is recognized equal to the difference between the assets’ fair value and their carrying value. A
review of long-lived assets was conducted as of January 3, 2020 and December 28, 2018 and no impairment was identified.
Amortization is computed on the straight-line basis, which is the Company’s best estimate of the economic benefits
realized over the estimated useful lives of the assets which range from 3 to 20 years for patents, certain acquired rights and
licenses, 10 years for customer relationships, and 3 to 10 years for developed technology.
F-14
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Lease Accounting
On December 29, 2018 (beginning of fiscal year 2019), the Company adopted FASB ASU 2016-02, “Leases (Topic
842)” and its subsequent amendments affecting the Company: (i) ASU 2018-10, “Codification Improvements to Topic 842,
Leases,” and (ii) ASU 2018-11, “Leases (Topic 842): Targeted improvements,” using the modified retrospective method.
Upon adoption of Topic 842, the Company recognized a cumulative adjustment of $113,000 which decreased the
accumulated deficit and recognized right-of-use (“ROU”) assets and lease liabilities for operating leases, whereby the
Company’s accounting finance leases remained substantially unchanged.
The Company recognizes ROU assets and lease liabilities for leases with terms greater than twelve months in the
Consolidated Balance Sheets. Leases are classified as either finance or operating, with classification affecting the pattern of
expense recognition in the Consolidated Statement of Income.
A contract contains a lease if the contract conveys the right to control an identified asset for a period of time in exchange
for consideration. An asset is either explicitly identified or implicitly identified and must be physically distinct. In addition,
the Company must have both the right to obtain substantially all of the economic benefits from use of the identified asset and
has the right to direct the use of the identified asset.
Certain leases may have non-lease components such as common area maintenance expense for building leases and
maintenance expenses for automobile leases. In general, the Company separates common area maintenance expense
component from the value of the ROU asset and lease liability when evaluating rental properties under Topic 842, whereas,
the Company includes the maintenance and service components in the value of the ROU asset and lease liability while
evaluating automobile leases under Topic 842.
When determining whether a lease is a finance lease or an operating lease, Topic 842 does not specifically define criteria
to determine “major part of remaining economic life of the underlying asset” and “substantially all of the fair value of the
underlying asset.” For lease classification determination, the Company continues to use (i) greater than or equal to 75% to
determine whether the lease term is a major part of the remaining economic life of the underlying asset and (ii) greater than
or equal to 90% to determine whether the present value of the sum of lease payments is substantially all of the fair value of
the underlying asset.
The Company uses either the rate implicit in the lease or its incremental borrowing rate as the discount rate in lease
accounting.
When adopting Topic 842, the Company did not reassess any expired or existing contracts, reassess the lease
classification for any expired or existing leases and reassess initial direct costs for exiting leases. The Company also elected
not to capitalize leases that have terms of twelve months or less.
The Company reviews ROU assets, for impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. The Company measures recoverability of these assets by comparing the carrying
value of such assets to the estimated undiscounted future cash flows the assets are expected to generate. When the estimated
undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference
between the assets’ fair value and their carrying value.
F-15
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Vendor Concentration
As of January 3, 2020 there was one vendor who accounted for over 11% of the Company’s consolidated accounts
payable. As of December 28, 2018, there were no vendors who accounted for 10% of the Company’s consolidated accounts
payable. There were no vendors who accounted for over 10% of the Company’s consolidated purchases for the years ended
2019 and 2017. There was one vendor who accounted for over 10% of the Company’s consolidated purchases for the year
ended 2018.
Research and Development Costs
Expenditures for research activities relating to product development and improvement are charged to expense as
incurred.
Advertising Costs
Advertising costs, which are included in marketing and selling expenses, are expensed as incurred, and were as follows
(in thousands):
Advertising costs
Income Taxes
2019
Years Ended
2018
2017
$
10,990 $
8,981
$
6,102
On December 22, 2017, the United States enacted major tax reform legislation, the 2017 Tax Act, which enacted a broad
range of changes to the federal tax code. Key provisions that could have an impact on the Company’s Consolidated Financial
Statements are the deemed repatriation of foreign earnings, the remeasurement of certain net deferred assets and other
liabilities for the change in the U.S. corporate tax rate from 35 percent to 21 percent, and the elimination of the alternative
minimum tax (“AMT”) which were included in the Company’s 2017 Consolidated Financial Statements. The Company
applied the guidance in SAB 118 when accounting for the enactment-date effects of the 2017 Tax Act in 2017 and throughout
2018. At December 28, 2018, the Company has completed its accounting for all the enactment-date income tax effects of the
Tax Act.
Beginning in 2017, the 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (“GILTI”)
earned by certain foreign subsidiaries. In January 2018, the FASB released guidance (Staff Q&A Topic 740, No. 5) on the
accounting for tax on the GILTI provisions of the 2017 Tax Act. 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 net operating loss carryforwards. In addition, Staff Q&A Topic 740,
No. 5 states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis
differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax
is incurred as a period expense only. The Company has elected to account for GILTI as a current period expense when
incurred.
F-16
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Income Taxes (Continued)
The Company recognizes the income tax benefit from an uncertain tax position when it is more likely than not that,
based on technical merits, the position will be sustained upon examination, including resolutions of any related appeals or
litigation processes. The amount of tax benefit recorded, if any, is limited to the amount that is greater than 50 percent likely
to be realized upon settlement with the taxing authority (that has full knowledge of all relevant information). Accrued
interest, if any, related to uncertain tax positions is included as a component of income tax expense, and penalties, if incurred,
are recognized as a component of operating income or loss. The Company does not have any uncertain tax positions as of any
of the periods presented. The Company did not incur significant interest and penalties for any period presented.
The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting
basis and the tax basis of the Company’s assets and liabilities, net operating loss and credit carryforwards, and uncertainty in
income taxes, on a jurisdiction-by-jurisdiction basis. In evaluating the Company’s ability to recover the deferred tax assets
within a jurisdiction from which they arise, management considers all available positive and negative evidence, including
scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent
operations. In projecting future taxable income, the Company begins with historical results and incorporates assumptions
including overall current and projected business and industry conditions, the amount of future federal, state, and foreign
pretax operating income, the reversal of temporary differences and the successful implementation of feasible and prudent tax-
planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are
consistent with the plans and estimates the Company uses to manage the underlying businesses. In evaluating the objective
evidence that historical results provide, the Company considers three years of cumulative operating results. Valuation
allowances, or reductions to deferred tax assets, are recognized if, based on the weight of all the available evidence, it is more
likely than not that some portion or all the deferred tax asset may not be realized. The impact on deferred taxes of changes in
tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and reflected
in the financial statements in the period of enactment.
The Company has made a policy election to apply the incremental cash tax savings approach when analyzing the impact
GILTI could have on its U.S. valuation allowance. As a result of future expected GILTI inclusions, and because of the Tax
Act’s ordering rules, U.S. companies may now expect to utilize tax attribute carryforwards (e.g., net operating losses and
deferred tax assets) for which a valuation allowance has historically been recorded (this is referred to as the “tax law ordering
approach”). However, due to the mechanics of the GILTI rules, companies that have a GILTI inclusion may realize a reduced
(or no) cash tax savings from utilizing such tax attribute carryforwards (this view is referred to as the “incremental cash tax
savings approach”).
Basic and Diluted Net Income (Loss) Per Share
The Company has only one class of common stock and no participating securities which would require the two-class
method of calculating basic earnings per share. Basic per share information is calculated by dividing net income (loss) by the
weighted average number of shares outstanding, net of unvested restricted stock and unvested restricted stock units, during
the period. Diluted per share information is calculated by dividing net income (loss) by the weighted average number of
shares outstanding, adjusted for the effects of potentially dilutive common stock, which are comprised of outstanding
warrants, stock options, unvested restricted stock, and restricted stock units, during the period, using the treasury-stock
method (See Note 16).
F-17
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Employee Defined Benefit Plans
The Company maintains a passive pension plan (the “Swiss Plan”) covering employees of its Swiss subsidiary. The
Swiss Plan conforms to the features of a defined benefit plan.
The Company also maintains a noncontributory defined benefit pension plan which covers substantially all the
employees of STAAR Japan.
The Company recognizes the funded status, or difference between the fair value of plan assets and the projected benefit
obligations of the pension plan on the Consolidated Balance Sheets, with a corresponding adjustment to accumulated other
comprehensive income (loss). If the projected benefit obligation exceeds the fair value of plan assets, then that difference or
unfunded status represents the pension liability. The Company records a net periodic pension cost in the Consolidated
Statements of Operations. The liabilities and annual income or expense of both plans are determined using methodologies
that involve several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate
of asset return (asset returns and fair-value of plan assets are applicable for the Swiss Plan only). The fair values of plan
assets are determined based on prevailing market prices (see Note 11).
Stock-Based Compensation
Stock-based compensation expense for all stock-based compensation awards granted is based on the grant-date fair
value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the
award, which is generally the option vesting term of three to four years for executive officers and employees, and one year
for members of its Board of Directors (the “Board”) (see Note 12).
The Company also, at times, issues restricted stock to its executive officers, employees and the Board, which are
restricted and unvested common shares issued at fair market value on the date of grant. For the restricted shares issued to the
Board, the restricted stock vests over a one-year service period, for executive officers and employees, it is typically a three-
year service period, and are subject to forfeiture (or acceleration, depending upon the circumstances) until vested or the
service period is completed. Restricted stock compensation expense is recognized on a straight-line basis over the requisite
service period of one to three years, based on the grant-date fair value of the stock. Restricted stock is considered legally
issued and outstanding on the grant date (see Notes 12 and 16).
The Company issues restricted stock units (“RSUs”) (see Note 12), which can have only a service condition or a
performance contingent restricted stock award based upon the Company meeting certain internally established performance
conditions that vest only if those conditions are met or exceeded and the grantee is still employed with the Company.
Restricted stock unit compensation expense is recognized on a straight-line basis over the requisite service period. The
Company recognizes compensation cost for the performance condition RSUs when the Company concludes that it is probable
that the performance condition will be achieved, net of an estimate of pre-vesting forfeitures, over the requisite service period
based on the grant-date fair value of the stock. The Company reassesses the probability of vesting at each reporting period
and adjusts compensation cost based on its probability assessment.
Once the RSUs are vested, equivalent common shares will be issued or issuable to the grantee and therefore the RSUs
are not included in total common shares issued and outstanding until vested (see Notes 12 and 16).
F-18
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Comprehensive Income (Loss)
The Company presents comprehensive income (loss) in the Consolidated Balance Sheets and the Consolidated
Statements of Comprehensive Income (Loss). Total comprehensive income (loss) includes, in addition to the net income
(loss), changes in equity that are excluded from the Consolidated Statements of Operations and are recorded directly into a
separate section of stockholders’ equity on the Consolidated Balance Sheets. The following table summarizes the changes in
the accumulated balances for each component of accumulated other comprehensive income (loss) attributable to the
Company for the years ended January 3, 2020, December 28, 2018 and December 29, 2017 (in thousands):
Balance, at December 30, 2016
Other comprehensive income (loss)
Tax effect
Balance, at December 29, 2017
Other comprehensive income (loss)
Tax effect
Balance, at December 28, 2018
Other comprehensive income (loss)
Tax effect
Balance, at January 3, 2020
Foreign
Currency
Translation
Defined
Benefit
Pension
Plan –
Japan
Defined
Benefit
Pension
Plan –
Switzerland
Accumulated
Other Com-
prehensive
Income
(Loss)
$
$
11 $
387
(120 )
278
242
(74 )
446
291
(86 )
651 $
88 $
(6 )
6
88
(107 )
29
10
34
(6 )
38 $
(1,149 ) $
(406 )
39
(1,516 )
(290 )
30
(1,776 )
(2,192 )
231
(3,737 ) $
(1,050 )
(25 )
(75 )
(1,150 )
(155 )
(15 )
(1,320 )
(1,867 )
139
(3,048 )
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted
On December 29, 2018 (beginning of fiscal year 2019), the Company adopted ASU 2018-02, “Income Statement –
Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income,” provides an option to reclassify stranded tax effects within Accumulated Other Comprehensive
Income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in
the Tax Cuts and Jobs Act is recorded. The adoption of ASU 2018-02 did not have material impact on the Consolidated
Financial Statements.
On December 29, 2018 (beginning of fiscal year 2019), the Company adopted ASU 2018-07, “Compensation-Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” aligns the accounting for
share-based payments to nonemployees similar to employees. Upon the adoption of ASU 2018-07, the Company recognized
a cumulative adjustment of $315,000 which decreased the accumulated deficit.
F-19
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted (Continued)
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments,” which (i) significantly changes the impairment model for most financial assets that
are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model; and (ii)
provides for recording credit losses on available-for-sale debt securities through an allowance account. ASU 2016-13 also
requires certain incremental disclosures. Subsequently, the FASB issued ASU 2018-19, ASU 2019-04 and ASU 2019-05 to
clarify and improve ASU 2016-13. ASU 2016-13 is effective for fiscal years ending after December 15, 2019, including
interim periods, within those fiscal years. The Company will adopt this standard as of January 4, 2020 (beginning of fiscal
year 2020). The adoption of ASU 2016-13 is not expected to have a material impact on the Consolidated Financial
Statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies certain disclosures requirements for
reporting fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019. Early
adoption is permitted. The Company will adopt this standard as of January 4, 2020 (beginning of fiscal year 2020). The
adoption of ASU 2018-13 is not expected to have a material impact on the Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans –
General (Subtopic 715-20); Disclosure Framework – Changes in the Disclosure Requirement for Defined Benefit Plans,”
which modifies disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans.
This is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company will adopt this
standard for fiscal year 2020 and is currently evaluating the disclosure requirements and its effect on the Consolidated
Financial Statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes.” ASU 2019-12 removes the following exceptions: exception to the incremental approach for intraperiod tax
allocation; exception to accounting for basis differences when there are ownership changes in foreign investments; and
exception to interim period tax accounting for year to date losses that exceed anticipated losses. ASU 2019-12 also improves
financial reporting for franchise taxes that are partially based on income; transactions with a government that result in a step
up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes
in tax laws in interim periods. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim
periods within those fiscal years. Early adoption is permitted. The Company will adopt this standard as of January 2, 2021
(beginning of fiscal year 2021) and is currently evaluating the disclosure requirements and its effect on the Consolidated
Financial Statements.
Note 2 — Accounts Receivable Trade, Net
Accounts receivable trade, net consisted of the following at January 3, 2020 and December 28, 2018 (in thousands):
Domestic
Foreign
Total accounts receivable trade, gross
Less allowance for doubtful accounts
Total accounts receivable trade, net
2019
2018
989 $
30,095
31,084
88
30,996 $
807
25,689
26,496
550
25,946
$
$
F-20
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3 — Inventories, Net
Inventories, net consisted of the following at January 3, 2020 and December 28, 2018 (in thousands):
Raw materials and purchased parts
Work in process
Finished goods
Total inventories, gross
Less inventory reserves
Total inventories, net
2019
2018
3,334 $
1,870
12,976
18,180
1,038
17,142 $
2,678
2,195
13,214
18,087
1,383
16,704
$
$
Note 4 — Prepayments, Deposits and Other Current Assets
Prepayments, deposits and other current assets consisted of the following at January 3, 2020 and December 28, 2018 (in
thousands):
Prepayments and deposits
Prepaid insurance
Consumption tax receivable
Value added tax (VAT) receivable
Income tax receivable
Other(1)
Total prepayments, deposits and other current assets
2019
2018
3,031 $
1,488
875
713
138
315
6,560 $
1,707
1,271
912
565
285
305
5,045
$
$
(1) No individual item in “other” exceeds 5% of the total prepayments, deposits and other current assets.
Note 5 — Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at January 3, 2020 and December 28, 2018 (in thousands):
Machinery and equipment
Computer equipment and software
Furniture and fixtures
Leasehold improvements
Construction in process
Total property, plant and equipment, gross
Less accumulated depreciation
Total property, plant and equipment, net
2019
2018
17,173 $
6,244
4,169
10,151
8,477
46,214
29,149
17,065 $
16,905
5,992
3,868
10,045
2,095
38,905
27,454
11,451
$
$
Depreciation expense and loss on disposal of property, plant and equipment were as follows (in thousands):
Depreciation expense
Loss on disposal of property, plant and equipment
F-21
2019
Years Ended
2018
2017
$
3,665 $
14
2,430 $
10
3,133
623
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 5 — Property, Plant and Equipment, Net (Continued)
The loss recognized for the year ended December 29, 2017 consisted primarily of an asset, with a net book value of
$599,000, that was no longer in use.
Note 6 — Intangible Assets, Net
Intangible assets, net consisted of the following at January 3, 2020 and December 28, 2018 (in thousands):
Long-lived amortized intangible assets
Patents and licenses
2019
2018
Gross
Carrying
Amount
Accumulated
Amortization Net
Gross
Carrying
Amount
Accumulated
Amortization Net
$
9,353 $
(9,057 ) $
296 $
9,257 $
(9,014 ) $
243
Amortization expense for intangible assets were as follows (in thousands):
Amortization expense
2019
Years Ended
2018
2017
$
34 $
34 $
221
Future amortization of intangible assets is as follows (in thousands):
Year Ended
2020
2021
2022
2023
2024
Thereafter
Total
Amount
$
$
35
35
35
35
35
121
296
Note 7 — Other Current Liabilities
Other current liabilities consisted of the following at January 3, 2020 and December 28, 2018 (in thousands):
Accrued salaries and wages
Accrued bonuses
Accrued insurance
Income taxes payable
Accrued consumption tax
Other(1)
Total other current liabilities
(1) No individual item in “Other” exceeds 5% of the other current liabilities.
F-22
2019
2018
4,400 $
4,184
1,346
2,710
1,164
3,893
17,697 $
3,172
5,113
1,061
1,105
995
1,985
13,431
$
$
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8 — 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 January 3, 2020) plus a 0.50% spread, and may be renewed quarterly (the current line expires on
February 21, 2020). The credit facility is not collateralized. The Company had 197,500,000 Yen and 417,500,000 Yen
outstanding on the line of credit as of January 3, 2020 and December 28, 2018, respectively (approximately $1,827,000 and
$3,780,000 based on the foreign exchange rates on January 3, 2020 and December 28, 2018, respectively), which
approximates fair value due to the short-term maturity and market interest rates of the line of credit. In case of default, the
interest rate will be increased to 14% per annum. There was 302,500,000 Yen and 82,500,000 Yen available for borrowing
as of January 3, 2020 and December 28, 2018, respectively (approximately $2,798,000 and $747,000 based on the foreign
exchange rates on January 3, 2020 and December 28, 2018, respectively). At maturity on February 21, 2020, this line of
credit was renewed until May 21, 2020, with similar terms.
In September 2013, the Company’s wholly owned Swiss subsidiary, STAAR Surgical AG, entered into a framework
agreement for loans (“framework agreement”) with Credit Suisse (the “Bank”). The framework agreement provides for
borrowings of up to 1,000,000 CHF (Swiss Francs) (approximately $1,000,000 at the rate of exchange on January 3, 2020
and December 28, 2018), to be used for working capital purposes. Accrued interest and 0.25% commissions on average
outstanding borrowings is payable quarterly and the interest rate will be determined by the Bank based on the then prevailing
market conditions at the time of borrowing. The framework agreement is automatically renewed on an annual basis based on
the same terms assuming there is no default. The framework agreement may be terminated by either party at any time in
accordance with its general terms and conditions. The framework agreement is not collateralized and contains certain
conditions such as providing the Bank with audited financial statements annually and notice of significant events or
conditions, as defined in the framework agreement. The Bank may also declare all amounts outstanding to be immediately
due and payable upon a change of control or a “material qualification” in STAAR Surgical independent auditors’ report, as
defined. There were no borrowings outstanding as of January 3, 2020 and December 28, 2018.
Covenant Compliance
The Company is in compliance with covenants of its credit facilities and lines of credit as of January 3, 2020.
Lease Line of Credit (Finance Leases)
During 2019, the Company converted the lease line of credit schedule 011 with Farnam Street Financial, Inc. into a
finance lease liability of approximately $500,000.
F-23
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9 — Leases
Finance Leases
The Company entered into finance leases primarily related to purchases of equipment used for manufacturing 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):
Machinery and equipment
Computer equipment and software
Furniture and fixtures
Leasehold improvements
Finance lease ROU assets, gross
Less accumulated depreciation
Finance lease ROU assets, net
Total finance lease liability
Weighted-average remaining lease term (in years)
Weighted-average discount rate
2019
$
$
$
1,885
912
102
27
2,926
1,059
1,867
926
1.1
6.17 %
Supplemental cash flow information related to finance leases consisted of the following (in thousands):
Amortization of finance lease ROU asset
Interest on finance lease liabilities
Cash paid for amounts included in the measurement of finance lease liabilities:
$
Operating cash flows
Financing cash flows
ROU assets obtained in exchange for new finance lease liabilities
Operating Leases
Year Ended
2019
584
72
72
1,294
679
The Company entered into operating leases primarily related to real property (office, manufacturing and warehouse
facilities), automobiles and copiers. These operating leases are two to five years in length with options to extend. The
Company did not include any lease extensions in the initial valuation unless the Company was reasonably certain to extend
the lease. Depending on the lease, there are those with fixed payment amounts for the entire length of the contract or
payments which increase periodically as noted in the contract or increased at an inflation rate indicator. For operating leases
that increase using an inflation rate indicator, the Company used the inflation rate at the time the lease was entered into for
the length of the lease term. Supplemental balance sheet information related to operating leases consisted of the following
(dollars in thousands):
F-24
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9 — Leases (Continued)
Operating Leases (Continued)
Machinery and equipment
Computer equipment and software
Real property
Operating lease ROU assets, gross
Less accumulated depreciation
Operating lease ROU assets, net
Total operating lease liability
Weighted-average remaining lease term (in years)
Weighted-average discount rate
Supplemental cash flow information related to operating leases was as follows (in thousands):
Operating lease cost
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows
ROU assets obtained in exchange for new operating lease liabilities
$
$
$
$
2019
765
462
11,116
12,343
5,659
6,684
6,786
2.3
1.82 %
Year Ended
2019
2,749
2,774
3,495
ROU assets related to operating leases of $5,726,000 were recorded upon the adoption of Topic 842.
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 January 3, 2020 are as follows (in thousands):
Year Ended
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments, including interest
Less amounts representing interest
Total minimum lease payments
Operating
Leases
Finance
Leases
$
$
$
2,850 $
1,694
1,220
921
346
73
7,104 $
318
6,786 $
590
349
13
8
2
—
962
36
926
F-25
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes
Provision (Benefit) for Income Taxes
Income (loss) from continuing operations before provision (benefit) for income taxes was as follows (in thousands):
Domestic
Foreign
Income (loss) before income taxes
2019
Years Ended
2018
$
$
(5,321 ) $
18,347
13,026 $
(2,629 ) $
9,268
6,639 $
2017
(3,318 )
1,022
(2,296 )
The provision (benefit) for income taxes consisted of the following (in thousands):
Current tax provision:
U.S. federal
State
Foreign
Total current provision
Deferred tax provision (benefit):
U.S. federal
State
Foreign
Total deferred provision (benefit)
Provision (benefit) for income taxes
2019
Years Ended
2018
2017
$
$
— $
13
2,446
2,459
(3,003 )
(373 )
(105 )
(3,481 )
(1,022 ) $
— $
10
1,220
1,230
—
—
441
441
1,671 $
—
12
378
390
(546 )
—
(1 )
(547 )
(157 )
F-26
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes (Continued)
Provision (Benefit) for Income Taxes (Continued)
A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate was as follows (dollars in
thousands):
2019
Rate
Amount Rate
Years Ended
2018
Amount Rate
2017
Amount
Computed provision (benefit) for taxes based on
income at statutory rate
Increase (decrease) in taxes resulting from:
Permanent differences
Change in the future federal tax rate
State taxes, net of federal income
tax benefit
State tax benefit
Foreign tax differential
Expiration of state net operating tax loss
carryforwards
Foreign earnings not permanently reinvested,
net of the participation exemption
Foreign dividend withholding
ASC 718 share based payment adjustment
Other
Valuation allowance
Effective tax provision (benefit)
21.0 % $ 2,735
21.0 % $ 1,394
34.0 % $
(781 )
17.4
—
(2.2 )
0.7
(11.6 )
2,266
—
0.6
—
41
—
(0.9 )
21
(833.0 ) 19,125
(284 )
93
(1,514 )
0.1
(6.7 )
(11.0 )
8
(447 )
(730 )
(0.3 )
8.3
(1.3 )
8
(190 )
29
8.0
1,039
—
—
(36.4 )
836
(0.1 )
—
—
1.0
(42.0 )
(7 )
—
—
122
(5,472 )
(7.8 )% $ (1,022 )
(14.0 )
(926 )
4.8
317
(6.5 )
(434 )
0.5
30
2,418
36.4
25.2 % $ 1,671
108.1
(0.3 )
—
(2.6 )
(2,482 )
7
—
59
731.2 (16,789 )
(157 )
6.8 % $
The Company recorded an income tax benefit of $1,022,000 during the year ended 2019 due to the income tax benefit
from the release of the U.S. and certain states valuation allowances, offset by income tax expense from profits generated in its
foreign operations. The Company recorded an income tax provision of $1,671,000 during the year ended 2018, due to profits
generated in its foreign operations. The Company recorded an income tax benefit of $157,000 during the year ended 2017
due primarily to a U.S. income tax benefit related to an alternative minimum tax carryforward, offset by income tax expense
generated from profits in its foreign operations.
For the year ended 2019, there was a decrease to the state deferred tax asset of $387,000 and a decrease to the valuation
allowance of $760,000, primarily related to the release of certain states valuation allowances as well as the expiration of state
net operating loss carryforwards. Included in the state tax provision was an increase to the state deferred tax asset and
corresponding increase to the valuation allowance of $447,000 for the year ended 2018, primarily related to the losses
generated in 2018. For the year ended 2017, there was a decrease to the state deferred tax asset and corresponding decrease
to the valuation allowance of $646,000, primarily related to the expiration of state net operating loss carryforwards.
F-27
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes (Continued)
Provision (Benefit) for Income Taxes (Continued)
For the years ended 2019 and 2017, there was a decrease in foreign deferred liabilities of $46,000 and $47,000, respectively.
Included in the foreign deferred tax provision is an increase of $36,000 in foreign deferred liabilities for the year ended 2018
All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. Accordingly, the Company
provided withholding and U.S. taxes on all unremitted foreign earnings for 2018 and 2017 (see STAAR Surgical UK discussion
below). During 2019, 2018 and 2017 there were no withholding taxes paid to foreign jurisdictions.
As discussed in Note 1, on December 22, 2017, the United States enacted major tax reform legislation, the 2017 Tax Act,
which enacted a broad range of changes to the federal tax code. Most of the changes from the new law are effective for years
beginning after December 31, 2017, with the noted exception of the deemed repatriation of the offshore earnings.
For 2019 and 2018, in accordance with the 2017 Tax Act, the Company included GILTI of $16,100,000 and $7,700,000,
respectively, in U.S. gross income, which was fully offset with net operating loss carryforwards. The Company was not able to
utilize the deduction of 50 percent of GILTI, as this deduction is limited by the Company’s pre-GILTI U.S. tax income.
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets (liabilities) at January 3, 2020 and December 28, 2018 were as follows (in thousands):
Deferred tax assets:
Allowance for doubtful accounts and sales returns
Inventories
Accrued vacation
Accrued other expenses
Stock-based compensation
Pensions
Depreciation and amortization
Net operating loss carryforwards
Business, foreign, AMT and R&D credit carryforwards
Prepaid expenses
Capitalized R&D
Operating lease liability
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Foreign tax withholding
Operating lease ROU assets
Amortization of R&D
Net foreign earnings not permanently reinvested
Total deferred tax liabilities
Total net deferred tax assets
F-28
2019
2018
233 $
703
428
1,036
3,455
1,159
162
32,251
3,164
272
986
1,309
5
(37,603 )
7,560 $
(1,295 ) $
(1,309 )
(805 )
(401 )
(3,810 )
3,750 $
252
560
387
1,232
2,489
884
843
34,347
3,256
272
968
—
122
(43,075 )
2,537
(1,282 )
—
(759 )
(240 )
(2,281 )
256
$
$
$
$
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes (Continued)
Deferred Tax Assets and Liabilities (Continued)
As of January 3, 2020, the Company had combined federal and state net deferred tax assets of $3,512,000, net deferred
tax assets in Japan of $896,000, and net deferred tax liabilities in Switzerland of $658,000 (which included $1,295,000 of
withholding taxes on unremitted foreign earnings) included in the Company’s components of deferred income tax assets and
liabilities table. As of December 28, 2018, the Company had net deferred tax assets in the U.S. of $273,000 and in Japan of
$905,000, and had net deferred tax liabilities in Switzerland of $922,000 (which included $1,282,000 of withholding taxes on
unremitted foreign earnings) included in the Company’s components of deferred income tax assets and liabilities table.
The Company had accrued net income taxes payable of $2,572,000 and $820,000 at January 3, 2020 and
December 28, 2018, respectively, primarily due to taxes owed in foreign jurisdictions.
U.S. Jurisdiction
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 January 3, 2020, the Company has three years of
accumulated profits for federal 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. After consideration of all the
information available, the Company determined that a release of the federal valuation and certain states valuation were
appropriate. 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. Under this method, valuation
allowances of $33,813,000 and $6,643,000 for federal and state, respectively, 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.
Further included in the federal deferred tax asset balance is $2,285,000 in foreign tax credits and foreign withholding
taxes that are unlikely to be realized in the future under the new tax act and the mechanics of GILTI.
As of January 3, 2020, the Company had net deferred tax assets in the U.S. of $3,139,000, which consisted of the federal
valuation allowance release of $3,003,000 and the refundable alternative minimum tax credit of $136,000. Also, as of
January 3, 2020, the Company had state net deferred tax assets of $373,000, which consisted of the release of certain state
valuation allowances.
As of January 3, 2020, the Company had federal net operating loss carryforwards of $129,000,000 available to reduce
future income taxes of its U.S. operations. The pre-2018 federal net operating loss carryforwards expire in varying amounts
between 2020 and 2037. In California, the main state from which the Company conducts its domestic operations, the
Company has state net operating losses of $33,000,000 available to reduce future California income taxes. The California net
operating loss carryforwards expire in varying amounts between 2028 and 2039.
Further, pursuant to the provisions of Internal Revenue Code Section 382, significant changes in ownership may restrict
the future utilization of these tax loss carry forwards.
F-29
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes (Continued)
Foreign Jurisdictions
STAAR Surgical UK
On October 9, 2019 STAAR US formed STAAR Surgical UK Limited (“STAAR UK”) as a holding company in the
United Kingdom for their foreign subsidiaries. On December 30, 2019, STAAR US transferred their shares in STAAR
Surgical AG to STAAR UK. STAAR UK will act as the main foreign group holding company (“STAAR Group”). The
STAAR Group intends to consolidate the group’s global operations to create a centralized hub to hold all future subsidiaries
of the group, as well as expand into the United Kingdom market. STAAR UK’s activity will include the training and
promotion of the entire product line with private and government hospitals in the United Kingdom.
Based on the current tax treaties there is no withholding on distributions between Switzerland and the United Kingdom,
and the United Kingdom and the U.S. Accordingly, the Company will no longer accrue Swiss withholding tax on foreign
earnings after fiscal 2018.
STAAR Surgical AG
Due to STAAR Surgical AG’s history of profits, the deferred tax assets are considered fully realizable. The Company
had net deferred tax liabilities in Switzerland of $658,000 and $922,000 as of January 3, 2020 and December 28, 2018,
respectively, as discussed above.
STAAR Japan, Inc.
Since 2012, STAAR Japan functions as a limited-risk distributor with a guaranteed return from STAAR AG and
accordingly, STAAR Japan’s deferred tax assets are considered fully realizable. The Company had net deferred tax assets of
$896,000 and $905,000 as of January 3, 2020 and December 28, 2018, respectively. STAAR Japan net deferred tax assets
included a valuation allowance of $46,000 and $44,000 as of January 3, 2020 and December 28, 2018, respectively, related to
non-deductible stock compensation for directors.
The following tax years remain subject to examination:
Significant jurisdictions
U.S. Federal
California
Switzerland
Japan
Open Years
2016 – 2018
2015 – 2018
2018
2017 – 2018
F-30
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans
Defined Benefit Plan – Switzerland
The Company maintains a passive pension plan (the “Swiss Plan”) covering employees of its Swiss subsidiary, which is
accounted for as a defined benefit plan.
In Switzerland employers are required to provide a minimum pension plan for their staff. Contributions of both the
employees and employer finance the Swiss Plan. The amount of the contributions is defined by the plan regulations and
cannot be decreased without amending the plan regulations. It is required that the employer contribute an amount equal to or
greater than the employee contribution.
The following table shows the changes in the benefit obligation and plan assets and the Swiss Plan’s funded status as of
January 3, 2020 and December 28, 2018 (in thousands):
2019
2018
Change in Projected Benefit Obligation:
Projected benefit obligation, beginning of period
Service cost
Interest cost
Participant contributions
Benefits deposited (paid)
Actuarial loss
Prior service credit
Projected benefit obligation, end of period
Change in Plan Assets:
Plan assets at fair value, beginning of period
Actual return on plan assets (including foreign currency impact)
Employer contributions
Participant contributions
Benefits deposited (paid)
Plan assets at fair value, end of period
Funded status (pension liability), end of year(1)
Amount Recognized in Accumulated Other Comprehensive Income
(Loss), net of tax:
Actuarial loss on plan assets
Actuarial loss on benefit obligation
Actuarial gain recognized in current year
Prior service credit
Effect of curtailments
Accumulated other comprehensive loss
Accumulated benefit obligation at year end
$
$
$
$
$
$
$
$
8,794 $
739
77
458
492
2,429
(125 )
12,864 $
5,130 $
152
542
458
492
6,774 $
(6,090 ) $
(1,031 ) $
(4,317 )
744
258
609
(3,737 ) $
(12,043 ) $
7,445
474
56
361
189
269
—
8,794
4,144
3
433
361
189
5,130
(3,664 )
(1,035 )
(2,145 )
630
165
609
(1,776 )
(8,230 )
(1) The underfunded balance was included in pension liability on the Consolidated Balance Sheets.
F-31
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan – Switzerland (Continued)
Net periodic pension cost associated with the Swiss Plan included the following components (in thousands):
Service cost(1)
Interest cost(2)
Expected return on plan assets(2)
Prior service credit(2),(3)
Actuarial loss recognized in current period(2),(3)
Net periodic pension cost
2019
Years Ended
2018
2017
$
$
739 $
77
(147 )
(21 )
129
777 $
474 $
56
(116 )
(21 )
113
506 $
381
53
(94 )
(7 )
72
405
(1) Recognized in selling general and administrative expenses on the Consolidated Statements of Operations.
(2) For years ended 2019 and 2018, recognized in other income (expense), net, and for the year ended 2017, recognized in
selling, general and administrative expenses on the Consolidated Statements of Operations.
(3) Amounts reclassified from accumulated other comprehensive income (loss).
Changes in other comprehensive income (loss), net of tax, associated with the Swiss included the following components
(in thousands):
Current year actuarial gain (loss) on plan assets
Current year actuarial loss on benefit obligation
Actuarial gain recorded in current year
Prior service credit
Change in other comprehensive loss
2019
Years Ended
2018
2017
$
$
4 $
(2,172 )
114
93
(1,961 ) $
(101 ) $
(243 )
103
(19 )
(260 ) $
98
(644 )
65
126
(355 )
The amount in accumulated other comprehensive income (loss) as of January 3, 2020 that is expected to be recognized as
a component of the net periodic pension costs during fiscal year 2020 is $318,000.
Net periodic pension cost and projected and accumulated pension obligation for the Company’s Swiss Plan were
calculated on January 3, 2020 and December 28, 2018 using the following assumptions:
Discount rate
Salary increases
Expected return on plan assets
Expected average remaining working lives in years
2019
2018
0.3 %
2.0 %
2.5 %
10.0
0.8 %
2.0 %
2.5 %
10.0
The discount rates are based on an assumed duration of the pension obligations and estimated using the rates of returns
for AAA and AA-rated Swiss and foreign CHF-denominated corporate bonds listed on the SIX Swiss Exchange. The salary
increase rate was based on the Company’s best estimate of future increases over time. The expected long-term rate of return
on plan assets is based on the expected asset allocation and assumptions concerning long-term interest rates, inflation rates,
and risk premiums for equities above the risk-free rates of return. These assumptions take into consideration historical long-
term rates of return for relevant asset categories.
F-32
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan – Switzerland (Continued)
Under Swiss law, pension funds are legally independent from the employer and all the contributions are invested with
regulated entities. The Company has a contract with Allianz Suisse Life Insurance Company’s BVG Collective Foundation
(the “Foundation”) to manage its Swiss pension fund. Multiple employers contract with the Foundation to manage the
employers’ respective pension plans. The Foundation manages the pension plans of its contracted employers as a collective
entity. The investment strategy is determined by the Foundation and applies to all members of the collective Foundation.
There are no separate financial statements for each employer contract. The pension plan assets of all the employers that
contract with the Foundation are comingled. They are considered multiple-employer plans under ASC 715-30-35-70 and
therefore accounted for as single-employer plans.
As there are no separate financial statements for each employer contract, there are no individual investments that can be
directly attributed to the Company’s pension plan assets. However, the funds contributed by an employer are specifically
earmarked for its employees and the total assets of the plan allocable to Company’s employees are separately tracked by the
Foundation. The lack of visibility into the specific investments of the plan assets and how they are valued is a significant
unobservable input, therefore, the Company considers the plan assets collectively to be Level 3 assets under the fair value
hierarchy (see Note 1).
The table below sets forth the fair value of Plan assets at December 28, 2018 and January 3, 2020, and the related
activity in years ended 2018 and 2019, in accordance with ASC 715-20-50-1(d) (in thousands):
Beginning balance at December 29, 2017
Actual return on plan assets
Purchases, sales, and settlement
Ending balance at December 28, 2018
Actual return on plan assets
Purchases, sales, and settlement
Ending balance at January 3, 2020
Insurance
Contracts
(Level 3)
4,144
3
983
5,130
152
1,492
6,774
$
$
$
During fiscal year 2020, the Company expects to make cash contributions totaling approximately $631,000 to the Swiss
Plan.
The estimated future benefit payments for the Swiss Plan are as follows (in thousands):
Year Ended
2020
2021
2022
2023
2024
Thereafter
Total
Amount
$
$
65
79
99
117
132
1,961
2,453
F-33
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan-Japan
STAAR Japan maintains a noncontributory defined benefit pension plan (“Japan Plan”) substantially covering all the
employees of STAAR Japan. Benefits under the Japan Plan are earned, vested, and accumulated based on a point-system,
primarily based on the combination of years of service, actual and expected future grades (management or non-management)
and actual and future zone (performance) levels of the employees. Each point earned is worth a fixed monetary value, 1,000
Yen per point, regardless of the level grade or zone of the employee. Gross benefits are calculated based on the cumulative
number of points earned over the service period multiplied by 1,000 Yen. The mandatory retirement age limit is 60 years
old.
STAAR Japan administers the pension plan and funds the obligations of the Japan Plan from STAAR Japan’s operating
cash flows. STAAR Japan is not required, and does not intend, to provide contributions to the Plan to meet benefit
obligations and therefore does not have any plan assets. Benefit payments are made to beneficiaries as they become due.
The funded status of the benefit plan at January 3, 2020 and December 28, 2018 was as follows (in thousands):
Change in Projected Benefit Obligation:
Projected benefit obligation, beginning of period
Service cost
Interest cost
Actuarial gain
Benefits paid
Foreign exchange adjustment
Projected benefit obligation, end of period
Change in Plan Assets:
Plan assets at fair value, beginning of period
Actual return on plan assets
Employer contributions
Benefits paid
Distribution of plan assets
Foreign exchange adjustment
Plan assets at fair value, end of period
Funded status (pension liability), end of year(1)
Amount Recognized in Accumulated Other Comprehensive Income
(Loss), net of tax:
Transition obligation
Actuarial loss
Prior service cost
Net gain
Accumulated other comprehensive income
Accumulated benefit obligation at year end
2019
2018
1,646 $
185
7
(58 )
(66 )
36
1,750 $
— $
—
—
—
—
—
— $
(1,750 ) $
— $
(37 )
7
68
38 $
(1,599 ) $
1,352
153
4
119
(9 )
27
1,646
—
—
—
—
—
—
—
(1,646 )
—
(36 )
8
38
10
(1,416 )
$
$
$
$
$
$
$
$
(1) The underfunded balance was included in pension liability on the Consolidated Balance Sheets.
F-34
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan-Japan (Continued)
Net periodic pension cost associated with the Japan Plan included the following components (in thousands):
Service cost(1)
Interest cost(2)
Net amortization of transitional obligation(2),(3)
Prior service credit(2),(3)
Actuarial loss recognized in current period(2),(3)
Net periodic pension cost
2019
$
$
Years Ended
2018
2017
185 $
7
—
(1 )
—
191 $
153 $
4
11
(1 )
—
167 $
147
4
11
(1 )
(3 )
158
(1) Recognized in selling general and administrative expenses on the Consolidated Statements of Operations.
(2) For the years ended 2019 and 2018, recognized in other income (expense), net, and for the year ended 2017, recognized
in selling, general and administrative expenses on the Consolidated Statements of Operations.
(3) Amounts reclassified from accumulated other comprehensive loss.
Changes in other comprehensive income (loss), net of tax, associated with the Japan Plan include the following
components (in thousands):
Amortization of net transition obligation
Amortization of actuarial loss
Prior service cost
Actuarial income (loss) recorded in current year
Change in other comprehensive income (loss)
2019
Years Ended
2018
2017
$
$
— $
(1 )
(1 )
30
28 $
7 $
(1 )
—
(84 )
(78 ) $
8
—
—
(22 )
(14 )
The amount in accumulated other comprehensive income (loss) as of January 3, 2020 that is expected to be recognized as
a component of the net periodic pension cost in fiscal year 2020 is approximately $1,000.
Net periodic pension cost and projected and accumulated pension obligation for the Company’s Japan Plan were
calculated on January 3, 2020 and December 28, 2018 using the following assumptions:
Discount rate
Salary increases
Expected return on plan assets
Expected average remaining working lives in years
2019
2018
0.3 %
4.5 %
N/A
10.0
0.4 %
6.0 %
N/A
9.4
The discount rates are based on the yield curve of corporate bonds rated AA or higher. The salary increase average rate
was based on the Company’s best estimate of future increases over time.
F-35
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan-Japan (Continued)
The estimated future benefit payments for the Japan Plan are as follows (in thousands):
Year Ended
2020
2021
2022
2023
2024
Thereafter
Total
Defined Contribution Plan
Amount
$
$
44
110
48
210
97
1,059
1,568
The Company has a 401(k) profit sharing plan (“401(k) Plan”) for the benefit of qualified employees in the U.S. During
the year ended January 3, 2020 employees who participate may elect to make salary deferral contributions to the 401(k) Plan
up to $19,000 of the employees’ eligible payroll subject to annual Internal Revenue Code maximum limitations (with a
$6,000 annual catch-up contribution permitted for those over 50 years old). The Company’s contribution percentage is 80%
of the employee’s contribution up to the first 6% of the employee’s compensation. In addition, STAAR may make a
discretionary contribution to qualified employees, in accordance with the 401(k) Plan. The Company’s contributions, net of
forfeitures, to the 401(k) Plan were as follows (in thousands):
Employer contributions, net of forfeitures
$
1,279 $
996 $
764
2019
Years Ended
2018
2017
Note 12 — Stockholders’ Equity
Incentive Plan
The Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based
incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted
stock, unrestricted share grants, and restricted stock units (“RSUs”). Options under the Plan are granted at fair market value
on the date of grant, become exercisable generally over a three-year period, or as determined by the Board of Directors, and
expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated
vesting if there is a change in control and pre-established financial metrics are met (as defined in the Plan). Grants of
restricted stock outstanding under the Plan generally vest over periods of one to three years. Grants of RSUs outstanding
under the Plan generally vest based on service, performance, or a combination of both. On June 14, 2018, stockholders
approved a proposal to increase the number of shares under the Plan by 2,235,000 shares, for a total of 15,385,000 shares. As
of January 3, 2020, there were 1,633,221 shares available for grant under the Plan.
Stock-Based Compensation
There was no net income tax benefit recognized in the Consolidated Statements of Operations for stock-based
compensation expense for non-qualified stock options, as the Company fully offsets net deferred tax assets with a valuation
allowance (see Note 10). The Company does not recognize deferred income taxes for incentive stock option compensation
expense, and records a tax deduction only when a disqualified disposition has occurred (see Note 10).
F-36
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 12 — Stockholders’ Equity (Continued)
Stock-Based Compensation (Continued)
The following table represents the fair value of stock-based compensation granted during the year ended 2019 (in
thousands):
Stock options
Restricted stock units
Restricted stock
Total stock-based compensation expense
Fair Value
14,813
728
313
15,854
$
$
The cost that has been charged against income for stock-based compensation is set forth below (in thousands):
Employee stock option
Restricted stock
Restricted stock units
Nonemployee stock options
Total stock-based compensation expense
2019
Years Ended
2018
2017
$
$
8,144 $
320
1,905
178
10,547 $
4,013 $
274
2,120
355
6,762 $
1,731
186
1,226
18
3,161
The Company recorded stock-based compensation expense in the following categories (in thousands):
Cost of sales
General and administrative
Marketing and selling
Research and development
$
Total stock-based compensation expense, net
Amounts capitalized as part of inventory
Total stock-based compensation expense, gross
$
2019
Years Ended
2018
2017
52 $
4,010
3,318
3,167
10,547
1,017
11,564 $
15 $
2,635
1,805
2,307
6,762
637
7,399 $
8
1,487
805
861
3,161
372
3,533
As of January 3, 2020, total unrecognized compensation cost related to non-vested stock-based compensation
arrangements granted under the Plan were as follows (in thousands):
Stock options
Restricted stock and restricted stock units
Total unrecognized stock-based compensation cost
$
$
2019
14,817
594
15,411
This cost is expected to be recognized over a weighted-average period of approximately two years.
F-37
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 12 — Stockholders’ Equity (Continued)
Assumptions
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model
applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical
volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-
vesting cancellations, and represents the period of time that options granted are expected to be outstanding. The Company has
calculated an 8% estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S.
Treasury yield curve corresponding to the expected term at the time of the grant.
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected term (in years)
Stock Options
2019
Years Ended
2018
2017
0 %
53 %
2.40 %
5.66
0 %
53 %
2.71 %
5.72
0 %
57 %
1.96 %
5.67
A summary of option activity under the Plan for the year ended January 3, 2020 is presented below:
Outstanding at December 28, 2018
Granted
Exercised
Forfeited or expired
Outstanding at January 3, 2020
Exercisable at January 3, 2020
Weighted-
Average
Exercise
Price
Shares
(in 000’s)
Weighted-
Average
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic
Value
(in 000’s)
3,920 $
824
(388 )
(30 )
4,326 $
3,047 $
11.80
35.40
8.92
25.87
16.46
10.66
6.51 $
5.54 $
78,995
72,393
A summary of unvested options activity under the Plan for the year ended January 3, 2020 was as follows:
Unvested at December 28, 2018
Granted
Forfeited or expired
Vested
Unvested at January 3, 2020
F-38
Shares
(in 000’s)
Weighted-
Average
Grant-Date
Fair Value
1,260 $
824
(30 )
(775 )
1,279 $
9.67
17.95
13.29
8.83
15.44
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 12 — Stockholders’ Equity (Continued)
Stock Options (Continued)
The weighted average grant date fair value of options granted and the total intrinsic value of options exercised were as
follows:
Weighted-average grant-date fair value
Intrinsic value of options (in thousands)
Restricted Stock
2019
Years Ended
2018
2017
$
$
17.95 $
9,955 $
11.95 $
13,699 $
5.42
3,065
A summary of restricted stock activity under the Plan for the year ended January 3, 2020 was as follows:
Outstanding at December 28, 2018
Granted
Vested
Outstanding at January 3, 2020
Restricted Stock Units
Shares
(in 000’s)
Weighted-
Average Grant-
Date Fair Value
29.80
29.39
29.80
29.39
11 $
11
(11 )
11 $
A summary of restricted stock units’ activity under the Plan for the year ended January 3, 2020 was as follows:
Outstanding at December 28, 2018
Granted
Vested
Forfeited or expired
Outstanding at January 3, 2020
Stock Offering
Units
(in 000’s)
Weighted-
Average Grant-
Date Fair Value
10.46
37.98
12.58
11.57
10.79
322 $
19
(229 )
(8 )
104 $
On August 10, 2018, the Company closed an offering of its common stock. As part of this transaction, the Company
issued 1,999,850 shares of its common stock at a price of $36.309 per share. Net proceeds, after deducting expenses,
received from this offering were $72,150,000.
F-39
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 13 — Commitments and Contingencies
Asset Retirement Obligation
The Company recorded certain Asset Retirement Obligations (“ARO”), in accordance with ASC 410-20 in connection
with the Company’s obligation to return its Japan facility to its “original condition”, as defined in the lease agreement. The
Company has recorded approximately $211,000 and $206,000, representing the fair value of the ARO liability obligation in
noncurrent liabilities at January 3, 2020 and December 28, 2018, respectively. The lease was renewed for another two years
expiring in 2021.
Open Purchase Orders and Severance Payable
As of January 3, 2020, there were open purchase orders of $13,450,000 and severance payable of $10,000.
Indemnification Agreements
The Company has entered into indemnification agreements with its directors and officers that may require the Company:
(a) to indemnify them against liabilities that may arise by reason of their status or service as directors or officers, except as
prohibited by applicable law; (b) to advance their expenses incurred as a result of any proceeding against them as to which
they could be indemnified; and (c) to make a good faith determination whether or not it is practicable for the Company to
obtain directors’ and officers’ insurance. The Company currently has directors’ and officers’ liability insurance through a
third-party carrier. Also, in connection with the sale of products and entering into business relationships in the ordinary
course of business, the Company may make representations affirming, among other things, that its products do not infringe
on the intellectual property rights of others and agrees to indemnify customers against third-party claims for such
infringement as well as its negligence. The Company has not been required to make material payments under such
provisions.
Tax Filings
The Company’s tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These
audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through
the courts. Management believes the Company has adequately provided for taxes; however, final assessments, if any, could
be significantly different than the amounts recorded in the consolidated financial statements.
Employment Agreements
The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective
March 1, 2015. She and certain officers have as provisions of their agreements certain rights, including continuance of cash
compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all its assets, or
termination “without cause or for good reason” as defined in the employment agreements.
Litigation and Claims
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course
of business. These legal proceedings and other matters may relate to, among other things, contractual rights and obligations,
employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including
product liability and certain securities claims. While the Company does not believe that any of the claims known is likely to
have a material adverse effect on the Company’s financial condition or results of operations, new claims or unexpected
results of existing claims could lead to significant financial harm.
F-40
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 14 — Related Party Transactions
The Company has made various advances to certain non-executive employees. Amounts due from employees are
included in prepayments, deposits, and other current assets at January 3, 2020 and December 28, 2018 were as follows (in
thousands):
Due from employees
Note 15 — Supplemental Disclosure of Cash Flow Information
2019
2018
$
1 $
10
The Company’s non-cash operating activities, non-cash investing and financing activities, and cash paid were as follows
(in thousands):
Non-cash operating activities:
Insurance receivable
Settlement liability
Non-cash investing and financing activities:
Right-of-use-assets obtained in exchange for new finance lease
liabilities
Purchase of property and equipment included in accounts payable
Cash paid:
Interest
Taxes
2019
Years Ended
2018
2017
— $
— $
— $
— $
7,000
7,000
679 $
381 $
105 $
792 $
1,656 $
207 $
130 $
635 $
563
121
90
881
$
$
$
$
$
$
Note 16 — Basic and Diluted Net Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands except per
share amounts):
Numerator:
Net income (loss)
Denominator:
Weighted average common shares:
Common shares outstanding
Less: Unvested restricted stock
Denominator for basic calculation
Weighted average effects of potentially diluted common stock:
Stock options
Unvested restricted stock
Restricted stock units
Denominator for diluted calculation
Net income (loss) per share:
Basic
Diluted
F-41
2019
Years Ended
2018
2017
$
14,048 $
4,968 $
(2,139 )
44,504
(11 )
44,493
2,254
6
142
46,895
42,598
(11 )
42,587
2,360
10
300
45,257
$
$
0.32 $
0.30 $
0.12 $
0.11 $
41,025
(21 )
41,004
—
—
—
41,004
(0.05 )
(0.05 )
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 16 — Basic and Diluted Net Income (Loss) Per Share (Continued)
Because the Company had a net loss for the year ended 2017, the number of diluted shares is equal to the number of
basic shares. Outstanding options, restricted stock and restricted stock units would have had an anti-dilutive effect on diluted
per share amounts. The following table sets forth (in thousands) the weighted average number of options to purchase shares
of common stock, restricted stock, and restricted stock units with either exercise prices or unrecognized compensation cost
per share greater than the average market price per share of the Company’s common stock, which were not included in the
calculation of diluted per share amounts because the effects would be anti-dilutive.
Stock options
Restricted stock and restricted stock units
Total
2019
Years Ended
2018
1,503
—
1,503
315
—
315
2017
2,237
203
2,440
Note 17 — Disaggregation of Revenues, Geographic Sales and Product Sales
In the following tables, revenues are disaggregated by category, sales by geographic market and sales by product data.
The following breaks down revenues into the following categories (in thousands):
Non-consignment sales
Consignment sales
Total net sales
2019
Years Ended
2018
$
$
132,716 $
17,469
150,185 $
106,338 $
17,616
123,954 $
2017
74,163
16,448
90,611
The Company markets and sells its products in more than 75 countries and conducts its manufacturing in the United
States. Other than China and Japan, the Company does not conduct business in any country in which its sales in that country
exceed 10% of consolidated net sales. Sales are attributed to countries based on location of customers. The composition of
the Company’s net sales to unaffiliated customers was as follows (in thousands):
Domestic
Foreign:
China(1)
Japan
Other(2)
Total foreign sales
Total net sales
(1) The China region includes sales into China and Hong Kong.
(2) No other location individually exceeds 10% of the total net sales.
2019
Years Ended
2018
2017
$
8,106 $
7,316 $
7,894
64,820
26,881
50,378
142,079
150,185 $
46,070
23,151
47,417
116,638
123,954 $
24,473
18,125
40,119
82,717
90,611
$
F-42
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 17 — Disaggregation of Revenues, Geographic Sales and Product Sales (Continued)
100% of the Company’s sales are generated from the ophthalmic surgical product segment and the chief operating
decision maker makes the operating decisions and allocates resources based upon the consolidated operating results,
therefore, the Company operates as one operating segment for financial reporting purposes. The Company’s principal
products are IOLs used in cataract surgery and ICLs used in refractive surgery. The composition of the Company’s net sales
by product line was as follows (in thousands):
ICLs
Other product sales
IOLs
Other surgical products
Total other product sales
Total net sales
2019
Years Ended
2018
2017
$
129,322 $
101,082 $
68,325
15,689
5,174
20,863
150,185 $
16,193
6,679
22,872
123,954 $
17,258
5,028
22,286
90,611
$
The Company sells its products internationally, which subjects the Company to several potential risks, including
fluctuating exchange rates (to the extent the Company’s transactions are not in U.S. dollars), regulation of fund transfers by
foreign governments, U.S. and foreign export and import duties and tariffs, and political instability
Note 18 —Geographic Assets
The composition of the Company’s long-lived assets between those in the U.S., Japan and Switzerland is set forth below
as of January 3, 2020 and December 28, 2018 (in thousands):
Property, plant and equipment, net
Finance lease ROU assets, net
Operating lease ROU assets, net
Intangible assets, net
Total
Property, plant and equipment, net
Finance lease ROU assets, net
Operating lease ROU assets, net
Intangible assets, net
Total
U.S.
Japan
2019
Switzerland
Total
14,956 $
1,756
2,920
83
19,715 $
306 $
80
919
213
1,518 $
1,803 $
31
2,845
—
4,679 $
17,065
1,867
6,684
296
25,912
U.S.
Japan
2018
Switzerland
Total
10,416 $
—
—
—
10,416 $
330 $
—
—
243
573 $
705 $
—
—
—
705 $
11,451
—
—
243
11,694
$
$
$
$
F-43
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 19 — Quarterly Financial Data (Unaudited)
Summary unaudited quarterly financial data from continuing operations for years ended 2019 and 2018 was as follows
(in thousands except per share data). The Company has derived this data from the unaudited consolidated interim financial
statements that, in the Company’s opinion, have been prepared on substantially the same basis as the audited financial
statements contained elsewhere in this report and include all normal recurring adjustments necessary for a fair presentation of
the financial information for the periods presented. These unaudited quarterly results should be read in conjunction with the
financial statements and notes thereto included elsewhere in this report. The operating results in any quarter are not
necessarily indicative of the results that may be expected for any future period.
January 3, 2020
Net sales
Gross profit
Net income
Net income per share – basic
Net income per share – diluted
December 28, 2018
Net sales
Gross profit
Net income (loss)
Net income per share – basic
Net income per share – diluted
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
38,883
$
28,824
6,379
0.14
0.14
39,664 $
29,899
3,914
0.09
0.08
39,055 $
29,051
2,388
0.05
0.05
32,583 $
24,180
1,367
0.03
0.03
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
31,186
$
22,992
1,096
0.02
0.02
33,905 $
25,227
1,830
0.04
0.04
31,770 $
23,860
1,459
0.03
0.03
27,093 $
19,431
583
0.01
0.01
Quarterly and year-to-date computations of net income per share amounts are made independently. Therefore, the sum of
the per share amounts for the quarters may not agree with the per share amounts for the year.
Note 20 – Reclassifications
Computer equipment and software was reclassed into a separate line item from furniture and fixtures and construction in
process was reclassed into a separate line item from machinery and equipment in Note 5 for 2018 to conform to 2019
presentation.
F-44
STAAR SURGICAL COMPANY AND SUBSDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A
Column B Column C - Additions Column D Column E
Description
2019
Allowance for doubtful accounts
Sales return reserve
Deferred tax asset valuation allowance
2018
Allowance for doubtful accounts
Sales return reserve
Deferred tax asset valuation allowance
2017
Allowance for doubtful accounts
Sales return reserve
Deferred tax asset valuation allowance
Balance at
Beginning
Charged
to costs
and
of Year
expenses
Charged
to other
accounts Deductions
Balance at
End of
Year
(in thousands)
$
550 $
2,895
43,075
$ 46,520 $
(320 ) $
6,183
(5,259 )
604 $
$
349 $
2,182
40,656
$ 43,187 $
207 $
5,474
2,534
8,215 $
$
276 $
1,780
57,446
$ 59,502 $
81 $
4,313
2,253
6,647 $
— $
—
—
— $
— $
—
—
— $
— $
—
—
— $
142 $
5,434
213
5,789 $
88
3,644
37,603
41,335
6 $
4,761
115
4,882 $
550
2,895
43,075
46,520
8 $
3,911
19,043
22,962 $
349
2,182
40,656
43,187
F-45
EXHIBIT 4.3
DESCRIPTION OF REGISTRANT’S SECURITIES
As of February 27 2020, STAAR Surgical Company, a Delaware corporation
(hereinafter, the “Company”), had one class of securities registered pursuant to Section 12 of the
U.S. Securities Exchange Act of 1934, as amended: Common Stock, par value $0.01 per share
(the “Common Stock”). The Common Stock is listed on The NASDAQ Stock Market LLC
under the trading symbol “STAA.” The following summary includes a brief description of the
Common Stock, as well as certain related additional information.
General. The Company’s authorized capital stock consists of 60,000,000,000 shares of
Common Stock, and 10,000,000 shares of preferred stock, par value $0.01 per share (the
“Preferred Stock”) issuable in one or more series from time to time by resolution of the
Company’s Board of Directors (the “Board”). Except for restricted stock issued to some of our
employees as incentive compensation, all of the outstanding shares of the Company’s Common
Stock are fully paid and non-assessable.
Voting Rights. Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of Common Stock are not
entitled to cumulative voting rights in the election of directors.
Dividend Rights. Subject to the preferences of any then outstanding shares of Preferred
Stock, each holder of Common Stock is entitled to receive a pro rata share of any dividends that
may be declared by the Board of Directors out of funds legally available for that purpose.
No Preemption, Conversion or Redemption Rights; No Sinking Fund Provisions.
Holders of Common Stock have no preemptive rights and no right to convert their common stock
into any other securities. No redemption or sinking fund provisions apply to any of our common
stock.
Right to Receive Liquidation Distributions. If the Company is liquidated, dissolved or
wound up, each holder of Common Stock is entitled to a pro rata share of the net proceeds after
payment of all liabilities and the payment of the liquidation preferences of any then outstanding
shares of Preferred Stock.
Anti-Takeover Effects of the Provisions of Delaware Law and the Charter Documents
of the Company.
Delaware Takeover Statute
The Company is incorporated in Delaware and is thus subject to Section 203 of the
Delaware General Corporation Law. This is an anti-takeover law, which restricts transactions
and business combinations between a corporation and an interested stockholder owning 15% or
more of a corporation’s outstanding voting stock, for a period of three years from the date the
stockholder becomes an interested stockholder. With some exceptions, unless the transaction is
approved by the Board and the holders of at least two-thirds of the outstanding voting stock of a
corporation, excluding shares held by the interested stockholder, this law prohibits significant
business transactions such as a merger with, disposition of assets to, or receipt of
disproportionate financial benefits by, the interested stockholder, or any other transaction that
would increase the interested stockholder’s proportionate ownership of any class or series of the
corporation’s stock. The statutory ban does not apply to a person who became an interested
stockholder in a transaction approved by the Board. The statutory ban also does not apply if,
upon consummation of the transaction in which a person becomes an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of the corporation. This
calculation does not include shares held by persons who are both directors and officers or by
employee stock plans.
Charter Documents
Provisions of the Certificate of Incorporation and Bylaws could make it more difficult for
a third party to acquire the Company, or discourage a third party from attempting to acquire
control of the Company. These provisions are intended to discourage coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire control of the
Company to first negotiate with the Board. However, these provisions could also limit the price
investors might be willing to pay in the future for Common Stock and could have the effect of
delaying or preventing a change in control. The Board believes that the benefits of increased
protection of its ability to negotiate with the proponent of an unsolicited acquisition proposal
outweigh the disadvantages of discouraging these proposals because, among other things,
negotiation may result in an improvement of their terms. Nevertheless, these provisions could
limit the price that investors might be willing to pay in the future for shares of Common Stock.
These provisions include the following:
• stockholders may not act by written consent;
• some of the limitations on actions by stockholders cannot be changed without a 66-
2/3% supermajority vote of stockholders;
• stockholders must give advance notice to nominate directors or propose other business
at meetings; and
• the Board has the authority to issue up to 10,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions of those shares without any
further vote or action by the stockholders.
The foregoing summary does not purport to be complete and is subject to, and qualified
in its entirety by, the full text of the Certificate of Incorporation and Bylaws. For additional
information we encourage you to read the Certificate of Incorporation and Bylaws, including
amendments, all of which are exhibits to the Company’s Annual Report on Form 10‑K, and
Law.
applicable
Corporation
provisions
Delaware
General
the
of
Exhibit 10.36
September 11, 20l7
Dr. Scott Barnes
Dear Scott,
STAAR Surgical Company is pleased to offer you the position of Chief Medical Officer reporting to Caren
Mason, President and CEO. Your beginning wage will be $16,730.80 per bi-weekly pay period for 26 pay
periods per year ($435,000 per year), in addition to all the benefits offered in our current policies.
You will also receive a sign on bonus of $60,000 payable upon your first day of work. As is customary with
signing bonus’, if you choose to leave the company before twenty four months, a prorated claw back of the
bonus will need to be repaid to the company.
You will receive an initial grant of 25,000 STAAR Surgical Company Stock Options and 12,500 Restricted
Stock Units. The Options and RSU’s will vest over a period of three years, commencing on your first day of
employment.
As a participant in the Executive Long Term Incentive Plan, you will also be eligible for annual stock equity
grants which generally are a combination of Stock Options and Restricted Stock Units.
In addition, you will participate in our Corporate Annual Incentive Bonus Program. You will have a target
bonus of 40% of your annual base salary, which will be payable on an annual basis and subject to the successful
achievement of corporate and personal goals and objectives.
You are also eligible to participate in the Executive Severance and Change In Control benefit plans.
Upon acceptance of this offer and the successful completion of a drug screen, you may begin work. Your start
date is October 1st. On your first day of employment you will need to bring identification in order to complete
all necessary paperwork, including your Employment Eligibility Verification (Form I-9).
All arrangements between you and STAAR Surgical regarding your desire and ability to continue performing
ophthalmic surgery procedures untethered from STAAR is addressed in the attached Agreements.
Employment is at the mutual consent of the employee and STAAR and can be terminated “at will,” with or
without cause, by either you or STAAR in its sole discretion at any time.
Scott, we are very excited about the possibility of your joining the STAAR Executive Team. We believe your
contributions to the Company will quickly have significant and long lasting impact on STAAR and will benefit
patients worldwide. We look forward to seeing you soon.
Thank you,
Accepted by:
/s/ Bill Goodmen
Bill Goodmen
Vice President Global Human Resources
9/12/17
Cc: Caren Mason
BARNES.SCOTT.DANIE
L.1098947899
Scott Barnes
____11 September 2017_____________
Date
Exhibit 10.37
December 15, 2015
Mr. Graydon Hansen
13 Dogwood
Lake Forest, CA 92630
Dear Graydon,
STAAR Surgical Company is pleased to offer you the position of Vice President of Operations reporting to
Caren Mason, President and CEO. When you accept this offer and begin employment, your beginning wage will
be $10,769.24 per bi-weekly pay period for 26 pay periods per year ($280,000 per year), in addition to all the
benefits offered in our current policy. As a member of the Executive Team, you will be entitled to an Executive
Health Program and a Company paid Variable Universal Executive Life Insurance policy, which would include
a $500,000 death benefit.
Subject to approval by the Board of Directors, you will receive 25,000 STAAR Surgical Company Stock
options and 12,282 restricted stock units. The options and RSU's will vest 1/3 annually over a period of three
years, commencing on your first day of employment.
As a participant in the Executive Long Term Incentive Plan, you will also be eligible for annual stock equity
grants which generally are a combination of Stock Options and Restricted Shares.
In addition, you will be eligible to participate in our Corporate Annual Incentive Bonus Program. You will have
a target bonus of 35% of your annual salary, which will be payable on an annual basis and subject to the
successful achievement of corporate and personal goals and objectives. Bonus awards are subject to
recommendation by the Compensation Committee of the Board of Directors and approved by the entire Board
of Directors.
You will be eligible to participate in the Executive Change of Control and Severance Program.
Upon acceptance of this offer and the successful completion of a drug screen, you may begin work on the
projected started date of 01/25/2016. This offer is valid until December 18, 2015.
Please make note, employment is at the mutual consent of the employee and STAAR and can be terminated "at
will," with or without cause, by either you or STAAR in its sole discretion at any time.
On your first day of employment you will need to bring with you identification in order to complete all
necessary paperwork, including your Employment Eligibility Verification (Form I-9).
Graydon, we are very excited about the possibility of you joining the STAAR Executive TEAM, helping us
accomplish our mission and we hope you enjoy the many great opportunities STAAR has to offer. I look
forward to you joining our TEAM.
Thank you,
/s/ Bill Goodmen
Bill Goodmen
Vice President Global Human Resources
Accepted by:
/s/ Graydon Hansen
Graydon Hansen
2015/12/16
Date
Exhibit 21.1
Subsidiaries of STAAR Surgical Company
Name of Subsidiary
STAAR Surgical UK LTD
STAAR Surgical AG
STAAR Japan Inc.
STAAR Surgical PTE. LTD
STAAR Optical Equipment
Technology (Shanghai) Co., LTD
Other Names Under
Which it Does Business
None
None
STAAR Japan Godo Kaisha
None
State or Other
Jurisdiction of Incorporation
United Kingdom
Switzerland
Japan
Singapore
None
China
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
STAAR Surgical Company
Lake Forest, California
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-
217888, No. 333-148902, No. 333-143131, No. 333-124022 and No. 333-116901) and Form S-8 (No. 333-
228138, No. 333-213046, No. 333-201232, No. 333-167595 and No. 333-111154) of STAAR Surgical
Company of our reports dated February 26, 2020, relating to the consolidated financial statements and financial
statement schedule, and the effectiveness of STAAR Surgical Company’s internal control over financial
reporting, which appear in this Form 10-K.
/s/ BDO USA, LLP
Los Angeles, California
February 26, 2020
Exhibit 31.1
I, Caren Mason certify that:
CERTIFICATIONS
1. I have reviewed this annual report on Form 10-K of STAAR Surgical Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Dated: February 26, 2020
/s/ CAREN MASON
Caren Mason
President, Chief Executive Officer, and
Director (principal executive officer)
CERTIFICATIONS
Exhibit 31.2
I, Deborah J. Andrews, certify that:
1. I have reviewed this annual report on Form 10-K of STAAR Surgical Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting
Dated: February 26, 2020
/s/ DEBORAH J. ANDREWS
Deborah J. Andrews
Chief Financial Officer
(principal financial officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 10-K for the year ended January 3, 2020 (the
“Report”) by STAAR Surgical Company (“the Company”), each of the undersigned hereby certifies that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of and for the periods presented in the Report.
Dated: February 26, 2020
Dated: February 26, 2020
/s/ CAREN MASON
Caren Mason
President, Chief Executive Officer,
and Director (principal executive officer)
/s/ DEBORAH J. ANDREWS
Deborah J. Andrews
Chief Financial Officer
(principal financial officer)
A signed original of this statement has been provided to the Company and will be retained by the Company
and furnished to the Securities and Exchange Commission or its staff upon request.