UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:    September 27, 2019

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-11634

STAAR SURGICAL COMPANY

(Exact Name of Registrant as Specified in its Charter)

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

(626) 303-7902

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☑     No ☐

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

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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

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

The registrant has 44,609,387 shares of common stock, par value $0.01 per share, issued and outstanding as of October 25, 2019.

STAAR SURGICAL COMPANY

INDEX

		PAGE NUMBER
PART I – FINANCIAL INFORMATION		1
ITEM 1	FINANCIAL STATEMENTS	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	26
ITEM 4.	CONTROLS AND PROCEDURES	26
PART II – OTHER INFORMATION		26
ITEM 1.	LEGAL PROCEEDINGS	26
ITEM 1A.	RISK FACTORS	26
ITEM 4.	MINE SAFETY DISCLOSURES	27
ITEM 5.	OTHER INFORMATION	27
ITEM 6.	EXHIBITS	27

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

	September 27, 2019			December 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	112,327		$	103,877
Accounts receivable trade, net of allowance of doubtful accounts of    $75 and $550, respectively		30,789			25,946
Inventories, net		16,440			16,704
Prepayments, deposits and other current assets		5,406			5,045
Total current assets		164,962			151,572
Property, plant and equipment, net		14,846			11,451
Finance lease right-of-use assets, net		2,006			—
Operating lease right-of-use assets, net		6,677			—
Intangible assets, net		252			243
Goodwill		1,786			1,786
Deferred income taxes		1,460			1,278
Other assets		752			1,009
Total assets	$	192,741		$	167,339
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	2,340		$	3,780
Accounts payable		7,535			6,524
Obligations under finance leases		752			1,098
Obligations under operating leases		2,789			—
Allowance for sales returns		3,691			2,895
Other current liabilities		12,865			13,431
Total current liabilities		29,972			27,728
Obligations under finance leases		471			459
Obligations under operating leases		4,003			—
Deferred income taxes		1,539			1,022
Asset retirement obligations		211			206
Deferred rent		—			188
Pension liability		7,205			5,310
Total liabilities		43,401			34,913
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value; 60,000 shares authorized: 44,606 and    44,195 shares issued and outstanding at September 27, 2019 and    December 28, 2018, respectively		446			442
Additional paid-in capital		299,597			289,584
Accumulated other comprehensive loss		(2,520	)		(1,320	)
Accumulated deficit		(148,183	)		(156,280	)
Total stockholders’ equity		149,340			132,426
Total liabilities and stockholders’ equity	$	192,741		$	167,339

See accompanying notes to the condensed consolidated financial statements.

1

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 27, 2019			September 28, 2018			September 27, 2019			September 28, 2018
Net sales	$	39,055		$	31,770		$	111,302		$	92,768
Cost of sales		10,004			7,910			28,172			24,250
Gross profit		29,051			23,860			83,130			68,518
Selling, general and administrative expenses:
General and administrative		7,098			6,087			21,443			18,054
Marketing and selling		12,463			10,620			34,288			28,733
Research and development		6,156			5,570			17,889			16,323
Total selling, general and administrative expenses		25,717			22,277			73,620			63,110
Operating income		3,334			1,583			9,510			5,408
Other income (expense), net:
Interest income (expense), net		266			(29	)		796			(65	)
Gain (loss) on foreign currency transactions		(584	)		52			(821	)		(545	)
Royalty income		106			159			440			465
Other income, net		26			40			124			61
Total other income (expense), net		(186	)		222			539			(84	)
Income before income taxes		3,148			1,805			10,049			5,324
Provision for income taxes		760			346			2,380			1,452
Net income	$	2,388		$	1,459		$	7,669		$	3,872
Net income per share:
Basic	$	0.05		$	0.03		$	0.17		$	0.09
Diluted	$	0.05		$	0.03		$	0.16		$	0.09
Weighted average shares outstanding:
Basic		44,563			43,054			44,426			42,065
Diluted		46,857			46,025			46,848			44,618

See accompanying notes to the condensed consolidated financial statements.

2

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 27, 2019			September 28, 2018			September 27, 2019			September 28, 2018
Net income	$	2,388		$	1,459		$	7,669		$	3,872
Other comprehensive loss:
Defined benefit plans:
Net change in plan assets		(1,037	)		(21	)		(1,677	)		(51	)
Reclassification into other income, net		26			25			80			76
Foreign currency translation gain (loss)		(22	)		(321	)		317			(114	)
Tax effect		115			105			80			38
Other comprehensive loss, net of tax		(918	)		(212	)		(1,200	)		(51	)
Comprehensive income	$	1,470		$	1,247		$	6,469		$	3,821

See accompanying notes to the condensed consolidated financial statements.

3

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Three Months Ended
	Common Stock Shares		Common Stock Par Value		Additional Paid-In Capital		Accumulated Other Compre- hensive Income (Loss)			Accumulated Deficit			Total
Balance, at June 28, 2019		44,534	$	445	$	296,063	$	(1,602	)	$	(150,571	)	$	144,335
Net income		—		—		—		—			2,388			2,388
Other comprehensive loss		—		—		—		(918	)		—			(918	)
Common stock issued upon exercise of options		64		1		718		—			—			719
Stock-based compensation		—		—		2,816		—			—			2,816
Vested restricted stock		8		—		—		—			—			—
Balance, at September 27, 2019		44,606	$	446	$	299,597	$	(2,520	)	$	(148,183	)	$	149,340
Balance, at June 29, 2018		41,877	$	419	$	210,488	$	(989	)	$	(158,835	)	$	51,083
Net income		—		—		—		—			1,459			1,459
Other comprehensive loss		—		—		—		(212	)		—			(212	)
Proceeds from public stock offering		2,000		20		72,130		—			—			72,150
Common stock issued upon exercise of options		219		2		2,173		—			—			2,175
Stock-based compensation		—		—		2,209		—			—			2,209
Vested restricted stock		8		—		—		—			—			—
Balance, at September 28, 2018		44,104	$	441	$	287,000	$	(1,201	)	$	(157,376	)	$	128,864

See accompanying notes to the condensed consolidated financial statements.

4

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(In thousands)

(Unaudited)

	Nine Months Ended
	Common Stock Shares		Common Stock Par Value		Additional Paid-In Capital			Accumulated Other Compre- hensive Income (Loss)			Accumulated Deficit			Total
Balance, at December 28, 2018		44,195	$	442	$	289,584		$	(1,320	)	$	(156,280	)	$	132,426
Net income		—		—		—			—			7,669			7,669
Adoption of ASC 842		—		—		—			—			113			113
Adoption of ASU 2018-07		—		—		(315	)		—			315			—
Other comprehensive loss		—		—		—			(1,200	)		—			(1,200	)
Common stock issued upon exercise of options		190		2		1,827			—			—			1,829
Stock-based compensation		—		—		8,501			—			—			8,501
Unvested restricted stock		11		—		—			—			—			—
Vested restricted stock		210		2		—			—			—			2
Balance, at September 27, 2019		44,606	$	446	$	299,597		$	(2,520	)	$	(148,183	)	$	149,340
Balance, at December 29, 2017		41,383	$	414	$	204,920		$	(1,150	)	$	(161,248	)	$	42,936
Net income		—		—		—			—			3,872			3,872
Other comprehensive loss		—		—		—			(51	)		—			(51	)
Proceeds from public offering of stock		2,000		20		72,130			—			—			72,150
Common stock issued upon exercise of options		525		5		4,575			—			—			4,580
Stock-based compensation		—		—		5,375			—			—			5,375
Unvested restricted stock		11		—		—			—			—			—
Vested restricted stock		185		2		—			—			—			2
Balance, at September 28, 2018		44,104	$	441	$	287,000		$	(1,201	)	$	(157,376	)	$	128,864

See accompanying notes to the condensed consolidated financial statements.

5

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	September 27, 2019			September 28, 2018
Cash flows from operating activities:
Net income	$	7,669		$	3,872
Adjustments to reconcile net income to net cash provided by    operating activities:
Depreciation of property, plant, and equipment		2,853			1,792
Amortization of intangibles		26			26
Deferred income taxes		526			363
Change in net pension liability		264			233
Loss on disposal of property and equipment		14			8
Stock-based compensation expense		7,778			4,926
Provision for sales returns and bad debts		309			892
Inventory provision		1,222			1,181
Changes in working capital:
Accounts receivable		(4,260	)		(3,989	)
Inventories		(179	)		(3,625	)
Prepayments, deposits, and other current assets