Company: STAA
Filing Date: 2025-02-21
Form Type: 10-K
Source: 0000950170-25-024813
Chunk: 143

Company: STAAR SURGICAL CO
Filing Date: 2025-02-21
Form: 10-K
Item: Item 7
Chunk 143
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27.5 million order of ICLs to one of our distributors in China. After the shipment was received, the distributor raised concerns about the ongoing fluctuations in procedural volumes in China and forecasted demand for fiscal 2025. Following discussions with the distributor, the distributor requested extended payment terms for the order, and we agreed. From time to time, we agree to extended 

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payment terms with our distributors, but given that these payment terms were significantly longer than the terms included in our distributor agreement, we determined that under accounting principles generally accepted in the U.S. (“GAAP”), collectability was not probable, and we did not recognize the revenue associated with the shipment in the quarter ended December 27, 2024. As the shipment was received by the distributor, and control of the product passed to the distributor, the product is no longer recorded in our inventory. Ordinarily, we recognize revenue upon shipment of product, and we record cost of sales when we recognize revenue based on the matching principle under GAAP. In this instance, we did not recognize the revenue, but we did recognize costs of sales associated with this order of $3.9 million, which had a negative impact on our gross profit and gross profit margin for the fourth quarter and fiscal year ended December 27, 2024. As the control of the inventory transferred to the distributor, accounting rules require us to record the costs of sales upon such transfer, even if revenue is not recognized until a future period. 

Under the extended payment terms, the distributor agreed to pay for the $27.5 million order by the end of the quarter ending September 26, 2025. Revenue for the order will not be recognized until payments are received from the distributor, at which point the collectability concern is alleviated. Because the cost of sales associated with this order was recognized in the quarter ended December 27, 2024, there will be no associated cost of sales for this order when the revenue is recognized, resulting in a 100% gross profit in the period payments are received. While we did not recognize revenue on this order upon shipment, we believe that having these ICLs in-country in China can help address challenges and delays associated with importation and logistics and can mitigate potential impacts from geopolitical risk and tariff changes. 

Our agreements with our distributors in China provide for minimum inventory requirements based on forecasted demand. During fiscal 2024, our distributors purchased lenses above such minimums in anticipation of higher procedural volumes during what is typically a summer