STAAR SURGICAL CO

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Note 1 — Basis of Presentation and Significant Accounting Policies

STAAR Surgical Company, a Delaware corporation, was first incorporated in 1982, and together with its subsidiaries designs, develops, manufactures, and sells implantable lenses for the eye and accessory delivery systems used to deliver the lenses into the eye. The accompanying Condensed Consolidated Financial Statements present the financial position, results of operations, and cash flows of STAAR Surgical Company and its wholly owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in the Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of December 27, 2024 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 27, 2024.

The Condensed Consolidated Financial Statements for the three months ended March 28, 2025 and March 29, 2024, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The results of operations for the three months ended March 28, 2025 and March 29, 2024, are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

Each of the Company’s fiscal reporting periods ends on the Friday nearest to the quarter ending date and generally consists of 13 weeks. Unless the context indicates otherwise “we,” “us,” the “Company,” and “STAAR” refer to STAAR Surgical Company and its consolidated subsidiaries.

Cloud-Based Software

As of March 28, 2025 and December 27, 2024, the Company capitalized $17,930,000 and $15,763,000, respectively, of cloud-based software implementation costs related to several systems, including enterprise resource planning and customer relationship management systems, recorded within Prepayments, deposits and other current assets or Other assets on the Condensed Consolidated Balance Sheets, depending upon the short- or long-term nature of such costs. During the quarter ended March 28, 2025, cloud-based software costs of $1,256,000 were placed into service. The remaining assets are expected to be placed into service throughout 2025 and 2026. During thethree months ended March 28, 2025, amortization of capitalized cloud-based software implementation costs of $53,000 were recognized. No amortization of capitalized cloud-based software implementation costs was recognized during the three months ended March 29, 2024.

Vendor Concentration

There was one vendor that accounted for over 10% of the Company’s consolidated accounts payable as of December 27, 2024.

Restructuring, Impairment and Related Charges

In the first quarter of 2025, the Company took a number of steps to change its leadership team, realign its leadership structure to better address market needs, reduce costs and discretionary spending, and better position the Company to return to sustainable growth. As part of this leadership realignment and related efforts, during the three months ended March 28, 2025, the Company recognized costs related to severance, reduction in workforce, and consulting expenses of $9,447,000; impairment expenses on leasehold improvements and machinery and equipment of $7,059,000, as the Company will no longer be using these assets; and impairment on real property right-of-use assets of $3,407,000, as the Company is actively pursuing subleasing opportunities fortwo of its leased properties. In addition, the Company also recognized impairment of $2,751,000 for internally developed software that it will no longer be using as it will transition to a cloud-based software solution. An aggregate of $22,664,000 for such costs, expenses and charges is included in Restructuring, impairment and related charges on the Condensed Consolidated Statement of Operations. For more detail, see Notes 5, 6 and 7.

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

Segment Reporting

The Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer. The Company’s CODM manages and allocates resources to the operations of the Company on a consolidated basis. The CODM assesses performance by comparing actual results to forecasts and decides how to allocate resources, i.e., headcount and compensation, based on consolidated net loss. Significant segment expenses are consistent with those presented on the Condensed Consolidated Statements of Operations.

The measure of segment assets is reported on the balance sheet as total consolidated assets and the expenditures for additions to long-lived assets, and depreciation and amortization expense is consistent with those presented on the Condensed Statement of Cash Flows.

See “Note 13 – Disaggregation of Revenues, Geographic Sales and Product Sales” and “Note 14 – Geographic Assets” for specific information regarding the Company’s sales and long-lived assets.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740).” ASU 2023-09 improves the transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. It also includes certain other amendments to improve the effectiveness of income tax disclosures regarding (a) income or loss from continuing operations disaggregated between domestic and foreign and (b) income tax expense or benefit from continuing operations disaggregated by federal, state and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40).” ASU 2024-03 does not change the expense captions an entity presents on the face of the income statement; rather it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 requires footnote disclosure about specific expenses to disaggregate, in a tabular presentation, each relevant expense caption on the face of the income statement that includes any of the following natural expenses: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) depreciation, depletion and amortization recognized as part of oil- and gas-production activities or other types of depletion expenses. The tabular disclosure would also include certain other expenses, when applicable. ASU 2024-03 does not change or remove existing expense disclosure requirements; however, it may affect where that information appears in the footnotes to the financial statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application. Early adoption is permitted. The Company will adopt the annual disclosure requirements of ASU 2024-03 at the beginning of fiscal year 2026 and will adopt the interim disclosure requirement beginning fiscal year 2027. The Company is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.

Note 2 — Investments Available for Sale

Investments available for sale (“AFS”) and the related fair value measurement consisted of the following (dollars in thousands):

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

The Company assessed each debt security in a gross unrealized loss position to determine whether the decline in fair value below amortized cost was a result of credit losses or other factors, whether the Company expects to recover the amortized cost of the debt security, the Company’s intent to sell and whether it is more-likely-than-not that the Company will not be required to sell the debt security before the recovery of the amortized cost basis. There has been no allowance for expected credit losses recorded for the three months ended March 28, 2025 and March 29, 2024.

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

Note 2 — Investments Available for Sale (Continued)

During the three months ended March 28, 2025, one of the Company’s investments AFS with an aggregate fair value of $362,000 was subject to early redemption. The Company recognized a gain of less than $1,000 for the three months ended March 28, 2025. During the three months ended March 29, 2024, two of the Company’s investments AFS with an aggregate fair value of $850,000 were subject to early redemption. The Company recognized a gain of $3,000 for the three months ended March 29, 2024.

Note 3 — Inventories

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

Note 4 — Prepayments, Deposits, and Other Current Assets

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

(1)

No individual category in “Other” exceeds 5% of the total prepayments, deposits and other current assets.

Note 5 — Property, Plant and Equipment

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

Note 5 — Property, Plant and Equipment (Continued)

As discussed in Note 1, during the three months ended March 28, 2025, the Company recognized fixed asset impairment expense of $7,059,000 primarily on leasehold improvements and machinery and equipment as the Company will no longer be using these assets. The Company also recognized impairment of $2,751,000 for internally developed software that the Company will no longer be using as it will transition to a cloud-based software solution. These amounts are recorded in Restructuring, impairment and related charges on the Condensed Consolidated Statement of Operations.

Construction in process primarily consists of the build out of and validation of machinery and equipment.

The Company recorded depreciation expense in the following categories as follows (in thousands):

Note 6 – Other Current Liabilities

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

(1)

As discussed in Note 1, during the three months ended March 28, 2025, the Company recognized costs in connection with its leadership realignment and related efforts. Of these costs, a total of $8,808,000 was recognized for severance costs related to leadership realignment and reduction in workforce. This amount is recorded in Restructuring, impairment and related charges on the Condensed Consolidated Statement of Operations. A majority of these severance payments will be paid during the second quarter of 2025.

(2)

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

Note 7 – Leases

Operating Leases

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

As discussed in Note 1, during the three months ended March 28, 2025, the Company recognized impairment on real property right-of-use assets of $3,407,000. The impairment relates to the Company’s decision to exit two of its leased properties, for which the Company is actively pursuing subleasing. The impairment was determined based on market comparables of similar subleased properties. The impairment is recorded in Restructuring, impairment and related charges on the Condensed Consolidated Statement of Operations.

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

Future Maturities of Lease Liabilities

Estimated future maturities of lease liabilities under operating leases having initial or remaining non-cancelable lease terms more than one year as of March 28, 2025 is as follows (in thousands):

.

Note 8 — Income Taxes

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

The effective tax rates for the three months ended March 28, 2025 and March 29, 2024 were 0.5% and (51.0)%, respectively. The Company’s effective tax rates differ from the U.S. federal statutory rate of 21% for thethree months ended March 28, 2025 and March 29, 2024, respectively, primarily due to the income tax expense generated in foreign jurisdictions.

Note 9 – Defined Benefit Pension Plans

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

(1)

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

(2)

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

(3)

Amounts reclassified from accumulated other comprehensive income (loss).

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

Note 10 — Stockholders’ Equity

Incentive Plan

The Company maintains an Amended and Restated Omnibus Equity Incentive Plan, as amended (the “Equity Plan”). The Equity Plan allows for awards of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and performance stock units (“PSUs”) and other stock- and cash-based awards, including awards that are subject to service-based and performance-based vesting conditions. As of March 28, 2025, the Company had outstanding grants of stock options, restricted stock awards, RSUs and PSUs.

Stock options granted under the Equity Plan are granted at fair market value on the date of grant, become exercisable generally over athree-year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain stock options and stock-based awards provide for accelerated vesting if there is a change in control and pre-established financial metrics are met (as defined in the Equity Plan). Grants of restricted stock outstanding under the Equity Plan generally vest over periods ofone tothree years. Grants of RSUs and PSUs outstanding under the Equity Plan generally vest based on service, performance, or a combination of both. On June 19, 2024, stockholders approved a proposal to increase the number of shares under the plan by 2,600,000 shares, for a total of 22,805,000 shares. As of March 28, 2025, there were 720,036 shares available for grant under the Equity Plan.

Note 10 — Stockholders’ Equity (Continued)

Stock-Based Compensation

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

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

As of March 28, 2025, total unrecognized compensation cost related to non-vested stock-based compensation arrangements were as follows (in thousands):

The cost is expected to be recognized over a weighted-average period of approximatelytwo years.

Assumptions

The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of stock options granted is derived from the historical exercises and post-vesting cancellations and represents the period of time that stock options granted are expected to be outstanding. The Company has calculated a 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.

Note 10 — Stockholders’ Equity (Continued)

Stock Options

A summary of stock option activity under the Equity Plan forthree months ended March 28, 2025 is presented below:

Restricted Stock, Restricted Stock Units and Performance Stock Units

A summary of restricted stock, RSU and PSU activity under the Equity Plan for thethree months ended March 28, 2025 is presented below (shares in thousands):

Note 11 - Commitments and Contingencies

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. The Company maintains insurance coverage for various matters, including product liability and certain securities claims. While the Company does not believe that any of the claims known is likely to have a material adverse effect on the Company’s financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.

Note 12 — Basic and Diluted Net Loss Per Share

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

Because the Company had a net loss for the three months ended March 28, 2025 and March 29, 2024, the number of diluted shares is equal to the number of basic shares. The following table sets forth (in thousands) the weighted average number of options to purchase shares of common stock, restricted stock, RSUs and PSUs with either exercise prices or unrecognized compensation cost per share greater than the average market price per share of the Company’s common stock, which were not included in the calculation of diluted per share amounts because the effects would be anti-dilutive.

Note 13 — Disaggregation of Sales, Geographic Sales and Product Sales

In the following tables, sales are disaggregated by category, sales by geographic market and sales by product data.

The Company maintains finished goods inventory at different sites in the United States, Switzerland and Japan, and from time to time, consigns or ships finished goods inventory to surgeons, hospitals, and distributors in advance of anticipated demand. The Company maintains title and risk of loss on consigned inventory and generally does not recognize revenue for consignment inventory until the Company is notified that the lenses have been implanted. The following table disaggregates the Company’s consignment sales (in thousands):

In April 2025, in order to mitigate potential financial exposure from tariffs imposed by China, the Company negotiated and implemented consignment agreements with itstwo distributors in China and delivered consigned inventory to its distributors. As this consigned inventory in China is purchased by the Company’s distributors, revenue associated with such consigned inventory will be recorded as consignment sales.

The Company markets and sells its products in over 75 countries and conducts its manufacturing in the United States. Other than China, Japan and Korea, the Company does not conduct business in any country in which its sales exceed 10% of worldwide consolidated net sales. Sales are attributed to countries based on location of customers. The composition of the Company’s net sales to unaffiliated customers was as follows (in thousands):

(1)

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

The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery. Historically the Company marketed and sold cataract intraocular lenses (“IOLs”) and related injectors and injector parts. The Company phased out sales of such products in fiscal 2023, and did not sell any such products in fiscal 2024 and it does not expect such sales in the future. The composition of the Company’s net sales by product line was as follows (in thousands):

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

The Company’s Korea distributor accounted for 17% of net sales for thethree months ended March 28, 2025 and the Company’s China distributors accounted for 49% of net sales for thethree months ended March 29, 2024. As of March 28, 2025, the Company’s China and Korea distributors accounted for 26% of consolidated trade receivables and as of December 27, 2024, the Company’s China distributors accounted for 58% of consolidated trade receivables.

Note 14 — Geographic Assets

The Company’s long-lived assets are located in the following geographical locations in which the Company operates. Other than the U.S. and Switzerland, no other geographic location exceeds 10% of each category of long-lived assets. The composition of the Company’s long-lived assets was as follows (in thousands):

(1)

No other location individually exceeds 10% of each category of long-lived assets.