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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 29, 2008
 Or
 o
    
    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: 0-27598
 IRIDEX CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    77-0210467(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)1212 Terra Bella AvenueMountain View, California
    
    94043-1824(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (650) 940-4700
 o þ
  Large accelerated filer
o

  
  Accelerated filer
o

  
  Non-accelerated filer
o
(Do not check if a smaller reporting company)

  
  Smaller reporting company
þ
 o þ




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TABLE OF CONTENTS
 Items
    
    PagePART I FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4T. Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    33Signature
    
    
    34EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements (unaudited)
 IRIDEX Corporation
 
 Condensed Consolidated Balance Sheets
 (Unaudited, in thousands)
 Mar 29,
    
    
    Dec 29,2008
    
    
    2007 (1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,013
    
    
    $
    5,809Restricted cash
    
    
    
    
    
    
    3,800Accounts receivable, net
    
    
    8,440
    
    
    
    8,876Inventories, net
    
    
    16,013
    
    
    
    15,967Prepaids and other current assets
    
    
    1,095
    
    
    
    1,051Total current assets
    
    
    29,561
    
    
    
    35,503Property and equipment, net
    
    
    1,481
    
    
    
    1,621Goodwill
    
    
    3,239
    
    
    
    3,239Other intangible assets, net
    
    
    5,358
    
    
    
    5,944Other long term assets
    
    
    282
    
    
    
    347Total assets
    
    $
    39,921
    
    
    $
    46,654Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    4,404
    
    
    $
    2,887Bank line of credit
    
    
    5,281
    
    
    
    4,863Accrued compensation
    
    
    1,567
    
    
    
    2,024Accrued expenses
    
    
    6,005
    
    
    
    7,809Accrued warranty
    
    
    1,500
    
    
    
    1,895Deferred revenue
    
    
    3,254
    
    
    
    3,350Bank term loan  current portion
    
    
    
    
    
    
    5,016Total current liabilities
    
    
    22,011
    
    
    
    27,844Commitments and contingenciesStockholders equity:Convertible Preferred Stock, $.01 par value:Authorized: 2,000,000 shares;Issued and outstanding: 500,000 shares in 2008 and 2007
    
    
    5
    
    
    
    5Common Stock, $.01 par value:Authorized: 30,000,000 shares;Issued and outstanding: 8,824,301 shares in 2008 and 2007
    
    
    89
    
    
    
    89Additional paid-in capital
    
    
    38,727
    
    
    
    38,695Accumulated other comprehensive loss
    
    
    (128
    )
    
    
    (88
    )Treasury stock, at cost
    
    
    (430
    )
    
    
    (430
    )(Accumulated deficit) retained earnings
    
    
    (20,353
    )
    
    
    (19,461
    )Total stockholders equity
    
    
    17,910
    
    
    
    18,810Total liabilities and stockholders equity
    
    $
    39,921
    
    
    $
    46,654
 
 (1)
    
    Derived from the consolidated audited financial statements included in our
report filed on Form 10-K with the SEC for the year ended December 29,
2007.  3




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IRIDEX Corporation
 
 Condensed Consolidated Statements of Operations
 (Unaudited, in thousands except per share data)
 Three Months EndedMar 29,
    
    
    Mar 31,2008
    
    
    2007Revenues
    
    $
    11,474
    
    
    $
    12,566Cost of goods sold
    
    
    6,669
    
    
    
    7,357Gross profit
    
    
    4,805
    
    
    
    5,209Operating expenses:Research and development
    
    
    1,025
    
    
    
    1,729Selling, general and administrative
    
    
    4,518
    
    
    
    8,274Total operating expenses
    
    
    5,543
    
    
    
    10,003Loss from operations
    
    
    (738
    )
    
    
    (4,794
    )Interest and other (expense) income, net
    
    
    (154
    )
    
    
    (126
    )Loss before income taxes
    
    
    (892
    )
    
    
    (4,920
    )Benefit from (provision for) income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (892
    )
    
    $
    (4,920
    )Net loss per share  basic and diluted
    
    $
    (0.10
    )
    
    $
    (0.61
    )Shares used in computing net loss per
share  basic and diluted
    
    
    8,824
    
    
    
    8,080
 Condensed Consolidated Statements of Comprehensive Loss
(Unaudited, in thousands)
 Three Months EndedMar 29,
    
    
    Mar 31,2008
    
    
    2007Net Loss
    
    $
    (892
    )
    
    
    (4,920
    )Foreign currency translation adjustments
    
    
    (128
    )
    
    
    (9
    )Comprehensive Loss
    
    $
    (1,020
    )
    
    $
    (4,929
    )
  4




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IRIDEX Corporation
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited, in thousands)
 Three Months EndedMar 29,
    
    
    Mar 31,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (892
    )
    
    $
    (4,920
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    823
    
    
    
    802Stock compensation recognized
    
    
    32
    
    
    
    356Provision for doubtful accounts
    
    
    29
    
    
    
    Provision for inventories
    
    
    (45
    )
    
    
    285Changes in operating assets and liabilities:Accounts receivable
    
    
    408
    
    
    
    1,687Inventories
    
    
    (2
    )
    
    
    (1,327
    )Prepaids and other current assets
    
    
    (45
    )
    
    
    36Other long term assets
    
    
    65
    
    
    
    (71
    )Accounts payable
    
    
    1,517
    
    
    
    3,602Accrued compensation
    
    
    (457
    )
    
    
    Accrued expenses
    
    
    (1,804
    )
    
    
    880Accrued warranty
    
    
    (395
    )
    
    
    (543
    )Deferred revenue
    
    
    (96
    )
    
    
    393Net cash (used in) provided by operating activities
    
    
    (862
    )
    
    
    1,180Cash flows from investing activities:Business acquisition cost
    
    
    
    
    
    
    (24,166
    )Purchases of property and equipment
    
    
    (96
    )
    
    
    (217
    )Net cash used in investing activities
    
    
    (96
    )
    
    
    (24,383
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    672Proceeds of credit facility, net of issuance costs
    
    
    5,281
    
    
    
    11,900Restricted cash balance offset against credit facility
    
    
    3,800
    
    
    
    Repayment of credit facility
    
    
    (9,879
    )
    
    
    (863
    )Net cash (used in) provided by financing activities
    
    
    (798
    )
    
    
    11,709Effect of foreign exchange rate changes
    
    
    (40
    )
    
    
    11Net decrease in cash and cash equivalents
    
    
    (1,796
    )
    
    
    (11,483
    )Cash and cash equivalents at beginning of period
    
    
    5,809
    
    
    
    21,051Cash and cash equivalents at end of period
    
    $
    4,013
    
    
    $
    9,568
  5




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IRIDEX Corporation
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 1. Basis of Presentation
      Recent Accounting Pronouncements
   6




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Recently Adopted Accounting Standards
   2. Summary of Significant Accounting Policies
  Valuation of Goodwill and Intangible Assets
  7




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Revenue Recognition
   Deferred Revenue
  Three Months EndedMar 29,
    
    
    Mar 31,(in thousands)
    
    2008
    
    
    2007Balance, beginning of period
    
    $
    3,350
    
    
    $
    1,415Additions to deferral through acquisition
    
    
    
    
    
    
    1,870Additions to deferral
    
    
    1,750
    
    
    
    1,976Revenue recognize
    
    
    (1,846
    )
    
    
    (1,576
    )Balance, end of period
    
    $
    3,254
    
    
    $
    3,685
 8




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Warranty
  Three Months EndedMar 29,
    
    
    Mar 31,(in thousands)
    
    2008
    
    
    2007Balance, beginning of period
    
    $
    1,895
    
    
    $
    866Warranty accrual acquired through acquisition
    
    
    
    
    
    
    1,771Accrual for warranties issued during the period
    
    
    57
    
    
    
    356Settlements made in kind during the period
    
    
    (452
    )
    
    
    (657
    )Balance, end of period
    
    $
    1,500
    
    
    $
    2,336
 3. Business Combination
   4. Inventories
  Mar 29,
    
    
    Dec 29,(in thousands)
    
    2008
    
    
    2007Raw materials and work in progress
    
    $
    9,474
    
    
    $
    9,450Finished goods
    
    
    6,539
    
    
    
    6,517Total inventories
    
    $
    16,013
    
    
    $
    15,967
 5. Bank Borrowings
  9




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6. AMS Settlement
   10




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7. Stock Based Compensation
   WeightedAverage
    
    
    Weighted AverageExercise Price
    
    
    Remaining Contractual
    
    
    AggregateNumber of Shares
    
    
    Per Share
    
    
    Life (Years)
    
    
    Intrinsic ValueOutstanding at Dec 29, 2007
    
    
    1,859,537
    
    
    $
    6.09Granted
    
    
    383,812
    
    
    
    3.04Exercised
    
    
    0Canceled or forfeited
    
    
    (229,151
    )
    
    
    6.11Outstanding at Mar 29, 2008
    
    
    2,014,198
    
    
    $
    5.50
    
    
    
    4.44
    
    
    $
    0Vested and
expected to vest at Mar 29, 2008
    
    
    1,844,196
    
    
    $
    5.51
    
    
    
    4.29
    
    
    $
    0Exercisable at Mar 29, 2008
    
    
    1,322,500
    
    
    $
    5.70
    
    
    
    3.55
    
    
    $
    0
 11




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Three Months EndedMar 29, 2008
    
    Mar 31, 2007Average risk free interest rate
    
    
    3.25
    %
    
    
    4.50
    %Expected life (in years)
    
    6 years
    
    4.61 yearsDividend yield
    
    
    0.0
    %
    
    
    0.0
    %Average volatility
    
    
    70.0
    %
    
    
    59.0
    %
   Three Months EndedMar 29, 2008
    
    
    Mar 31, 2007Cost of sales
    
    $
    23
    
    
    $
    26Research and development
    
    
    30
    
    
    
    62Sales, general and administrative
    
    
    (21
    )
    
    
    268$
    32
    
    
    $
    356
 8. Stock Option Exchange Offer
   th th
 9. Computation of Basic and Diluted Net Loss Per Common Share
   12




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10. Business Segments
   Three Months Ended Mar 29, 2008
    
    
    Three Months Ended Mar 31, 2007(in thousands)
    
    Ophthalmology
    
    
    Aesthetics
    
    
    Total
    
    
    Ophthalmology
    
    
    Aesthetics
    
    
    TotalRevenues
    
    $
    7,536
    
    
    $
    3,938
    
    
    $
    11,474
    
    
    $
    7,189
    
    
    $
    5,377
    
    
    $
    12,566Direct cost of goods sold
    
    
    2,069
    
    
    
    1,653
    
    
    
    3,722
    
    
    
    2,144
    
    
    
    2,835
    
    
    
    4,979Direct gross profit
    
    
    5,467
    
    
    
    2,285
    
    
    
    7,752
    
    
    
    5,045
    
    
    
    2,542
    
    
    
    7,587Total
unallocated indirect costs
    
    
    
    
    
    
    
    
    
    
    ( 8,644
    )
    
    
    
    
    
    
    
    
    
    
    (12,507
    )Pre-tax loss
    
    
    
    
    
    
    
    
    
    $
    (892
    )
    
    
    
    
    
    
    
    
    
    $
    (4,920
    )
  13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Quarterly Report on Form 10-Q contains trend analysis and other 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, such as statements relating to levels of
future sales and operating results; broadening our product line through product innovation; market
acceptance of our products; expectations for future sales growth, generally, including expectations
of additional sales from our new products and new applications of our existing products; our
ability to integrate the newly acquired aesthetics business into our core business successfully and
in a timely manner; the potential for production cost decreases and higher gross margins; our
ability to develop and introduce new products through strategic alliances; our ability to reduce
spending, including a reduction in the use of contractors and consultants; levels of interest
income and expense; expectations regarding our effective tax rate; continued receipt of payments
from the Synergetics Settlement; general economic conditions; levels of international sales; our
current liquidity, ability to obtain additional financing, and meet the covenants of our existing
financing agreement with Wells Fargo, and impact of concern regarding our ability to generate
sufficient cash flow to continue as a going concern; and the potential to record an impairment
charge to goodwill and intangible assets and effects of recent accounting pronouncements on our
financial position; effect of pending or known to be threatened litigation on operating results;
our ability to protect our proprietary information. In some cases, forward-looking statements can
be identified by terminology, such as may, will, should, expects, plans, anticipates,
believes, estimates, predicts, intends, potential, continue, or the negative of such
terms or other comparable terminology. These statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance or achievements to
differ materially from those expressed or implied by such forward-looking statements, including as
a result of the factors set forth under Factors That May Affect Future Operating Results and
other risks detailed in our Annual Report on Form 10-K filed with the Securities and Exchange
Commission on April 10, 2008 and detailed from time to time in our reports filed with the
Securities and Exchange Commission. The reader is cautioned not to place undue reliance on these
forward-looking statements, which reflect managements analysis only as of the date of this
quarterly report on Form 10-Q . We undertake no obligation to update such forward-looking statements
to reflect events or circumstances occurring after the date of this report.
 Overview
     -i -i i i, i
  14




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Results of Operations
  Three Months EndedMar 29, 2008
    
    Mar 31, 2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    58.1
    
    
    
    58.5Gross Margin
    
    
    41.9
    
    
    
    41.5Operating expenses:Research and development
    
    
    8.9
    
    
    
    13.8Selling, general and administrative
    
    
    39.4
    
    
    
    65.8Total operating expenses
    
    
    48.3
    
    
    
    79.6Loss from operations
    
    
    (6.4
    )
    
    
    (38.1
    )Interest and other (expense) income, net
    
    
    (1.4
    )
    
    
    (1.0
    )Loss before income tax
    
    
    (7.8
    )
    
    
    (39.1
    )Provision for income taxes
    
    
    0.0
    
    
    
    0.0Net loss
    
    
    (7.8
    )
    
    
    (39.1
    )
 Revenues.
    Gross Profit
  15




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Our Operating Results May Fluctuate from Quarter to Quarter and
Year to Year.
 Research and Development
  Sales, General and Administrative
  Interest and Other expense, net.
  Income Taxes
  Liquidity and Capital Resources.
    16




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Item 3. Quantitative and Qualitative Disclosure about Market Risk
  
 Item 4T. Controls and Procedures
      17




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Factors That May Affect Future Results
  We believe there is significant risk as to whether our current liquidity and capital resources
will be sufficient to meet our currently planned operating requirements for the next 12 months.
   18




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We Have More Indebtedness and Fewer Liquid Resources After the Acquisition of the Aesthetics
Business of Laserscope, Which Does Adversely Affect Our Cash Flows and Business.
  
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our debt and obligations, thereby reducing funds available for working capital,
capital expenditures, acquisitions and other purposes;
    
    make it more difficult for us to meet our payments and other obligations to other 3rd
parties;
    
    increase our vulnerability to, and limit our flexibility in planning for, adverse
economic and industry conditions;
    
    increase our sensitivity to interest rate increases on our indebtedness with variable
interest rates;
    
    result in an event of default if we fail to comply with the financial and other
restrictive covenants contained in our debt agreements, which event of default could result
in all of our debt becoming immediately due and payable;
    
    affect our credit rating;
    
    limit our ability to obtain additional financing to fund future working capital,
capital expenditures, additional acquisitions and other general corporate requirements;
    
    create competitive disadvantages compared to other companies with less indebtedness;
and
    
    limit our ability to apply proceeds from an offering or asset sale to purposes other
than the repayment of debt.
 The Company May Not Realize The Anticipated Benefits of Our Acquisition of the Aesthetics
Business of Laserscope.
   If There is Not Sufficient Demand for the Aesthetics Procedures Performed with Our Products,
Practitioner Demand for Our Products Could be Inhibited, Resulting in Unfavorable Operating Results
and Reduced Growth Potential.
  19




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
    
    evolving customer needs;
    
    the introduction of new products and technologies;
    
    evolving surgical practices;
    
    evolving industry standards;
    
    the cost of procedures performed using our products;
    
    the cost, safety and effectiveness of alternative treatments, including treatments
which are not based upon laser- or other light-based technologies and treatments which use
pharmaceutical products;
    
    the success of our sales and marketing efforts; and
    
    consumer confidence, which may be impacted by economic and political conditions.
  Failure to Remediate the Material Weaknesses in Our Disclosure Controls and Procedures in a
Timely Manner, or at All, Could Harm Our Operating Results or Cause Us to Fail to Meet Our
Regulatory or Reporting Obligations.
    We Rely on Continued Market Acceptance of Our Existing Products and Any Decline in Sales of
Our Existing Products Would Adversely Affect Our Business and Results of Operations.
  
    
    acceptance of product performance, features, ease of use, scalability and durability;
    
    recommendations and opinions by ophthalmologists, dermatologists, plastic surgeons,
other clinicians, and their associated opinion leaders;
    
    clinical study outcomes;
    
    price of our products and prices of competing products and technologies;
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
    
    availability of competing products, technologies and alternative treatments; and
    
    level of reimbursement for treatments administered with our products.
  Our Future Success Depends on Our Ability to Develop and Successfully Introduce New Products
and New Applications
  While We Devote Significant Resources to Research and Development, Our Research and
Development May Not Lead to New Products that Achieve Commercial Success.
  The Clinical Trial Process Required to Obtain Regulatory Approvals is Costly and Uncertain,
and Could Result in Delays in New Product Introductions or Even an Inability to Release a Product.
  21




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We Face Strong Competition in Our Markets and Expect the Level of Competition to Grow in the
Foreseeable Future.
    If We Cannot Increase Our Sales Volumes, Reduce Our Costs or Introduce Higher Margin Products
to Offset Anticipated Reductions in the Average Unit Price of Our Products, Our Operating Results
May Suffer.
  We Rely on Patents and Proprietary Rights to Protect our Intellectual Property and Business
    22




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We Depend on International Sales for a Significant Portion of Our Operating Results
  
    
    differing local product preferences and product requirements;
    
    cultural differences;
    
    changes in foreign medical reimbursement and coverage policies and programs;
    
    political and economic instability;
    
    impact of recessions in economies outside of the United States;
    
    difficulty in staffing and managing foreign operations;
    
    performance of our international channel of distributors;
    
    foreign certification requirements, including continued ability to use the CE mark in
Europe;
    
    reduced or limited protections of intellectual property rights in jurisdictions outside
the United States;
    
    longer accounts receivable collection periods;
    
    fluctuations in foreign currency exchange rates;
 23




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
    
    potentially adverse tax consequences; and
    
    multiple protectionist, adverse and changing foreign governmental laws and regulations.
   We Are Exposed to Risks Associated With Worldwide Economic Slowdowns and Related
Uncertainties.
  We Rely on Our Direct Sales Force and Network of International Distributors to Sell Our
Products and any Failure to Maintain Our Direct Sales Force and Distributor Relationships Could
Harm Our Business.
   If We Lose Key Personnel or Fail to Integrate Replacement Personnel Successfully, Our Ability
to Manage Our Business Could Be Impaired
  24




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If We Fail to Accurately Forecast Demand For Our Product and Component Requirements For the
Manufacture of Our Product, We Could Incur Additional Costs or Experience Manufacturing Delays and
May Experience Lost Sales or Significant Inventory Carrying Costs.
  We Depend on Sole Source or Limited Source Suppliers.
  
    
    unavailability of, shortages or limitations on the ability to obtain supplies of
components in the quantities that we require;
    
    delays in delivery or failure of suppliers to deliver critical components on the dates
we require;
    
    failure of suppliers to manufacture components to our specifications, and potentially
reduced quality; and
    
    inability to obtain components at acceptable prices.
 .
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We Face Risks Associated with Our Collaborative and OEM Relationships.
  We Depend on Collaborative Relationships to Develop, Introduce and Market New Products,
Product Enhancements and New Applications
  If We Fail to Maintain Our Relationships With Health Care Providers, Customers May Not Buy Our
Products and Our Revenue and Profitability May Decline.
  We Face Manufacturing Risks
  26




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Our Operating Results May Fluctuate from Quarter to Quarter and Year to Year
  
    
    general economic uncertainties and political concerns;
    
    the timing of the introduction and market acceptance of new products, product
enhancements and new applications;
    
    changes in demand for our existing line of ophthalmic and aesthetics products;
    
    the cost and availability of components and subassemblies, including the willingness
and ability of our sole or limited source suppliers to timely deliver components at the
times and prices that we have planned;
    
    our ability to maintain sales volumes at a level sufficient to cover fixed
manufacturing and operating costs;
    
    fluctuations in our product mix between ophthalmic and aesthetics products and foreign
and domestic sales;
    
    our ability to address our current liquidity issues;
    
    the effect of regulatory approvals and changes in domestic and foreign regulatory
requirements;
    
    introduction of new products, product enhancements and new applications by our
competitors, entry of new competitors into our markets, pricing pressures and other
competitive factors;
    
    our long and highly variable sales cycle;
    
    changes in the prices at which we can sell our products;
    
    changes in customers or potential customers budgets as a result of, among other
things, reimbursement policies of government programs and private insurers for treatments
that use our products; and
    
    increased product innovation costs.
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Our Stock Price Has Been and May Continue to be Volatile and an Investment in Our Common Stock
Could Suffer a Decline in Value.
  Material Increases in Interest Rates May Harm Our Sales.
  We Are Subject To Government Regulation Which May Cause Us to Delay or Withdraw the
Introduction of New Products or New Applications for Our Products.
    If We Fail to Comply With the FDAs Quality System Regulation and Laser Performance Standards
Our Manufacturing Operations Could Be Halted, and Our Business Would Suffer.
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If We Modify One of Our FDA Approved Devices, We May Need to Seek Reapproval, Which, if Not
Granted, Would Prevent Us from Selling Our Modified Products or Cause Us to Redesign Our Products.
  The Requirements of Complying with the Sarbanes-Oxley Act of 2002 Might Strain Our Resources,
Which May Adversely Affect Our Business and Financial Condition.
  Because We Do Not Require Training for Users of Our Products, and Sell Our Products to
Non-physicians, There Exists an Increased Potential for Misuse of Our Products, Which Could Harm
Our Reputation and Our Business.
  Some of Our Laser Systems Are Complex in Design and May Contain Defects That Are Not Detected
Until Deployed By Our Customers, Which Could Increase Our Costs and Reduce Our Revenues.
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
    
    loss of customers;
    
    increased costs of product returns and warranty expenses;
    
    damage to our brand reputation;
    
    failure to attract new customers or achieve market acceptance;
    
    diversion of development and engineering resources; and
    
    legal actions by our customers.
  Our Products Could Be Subject to Recalls Even After Receiving FDA Approval or Clearance. A
Recall Would Harm Our Reputation and Adversely Affect Our Operating Results.
  If We Fail to Manage Growth Effectively, Our Business Could Be Disrupted Which Could Harm Our
Operating Results.
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Our Manufacturing Capacity May Not Be Adequate to Meet the Demands of Our Business.
  If Product Liability Claims are Successfully Asserted Against Us, We may Incur Substantial
Liabilities That May Adversely Affect Our Business or Results of Operations.
  Our Operating Results May be Adversely Affected by Changes in Third Party Coverage and
Reimbursement Policies and any Uncertainty Regarding Healthcare Reform Measures.
   If Our Facilities Were To Experience Catastrophic Loss, Our Operations Would Be Seriously
Harmed.
  Our Business is Subject to Environmental Regulations.
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Our Export Controls May Not be Adequate to Ensure Compliance With United States Export Laws,
Especially When We Sell Our Products to Distributors Over Which We Have Limited Control.
     
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
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Item 5. Other Information
  
 Item 6. Exhibits
 10.1
    
    Change of Control Severance Agreement by and between the Company and James Mackaness, dated January 22,
2008 (described more fully in the Companys Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 28, 2008 and incorporated herein by reference).10.2
    
    Separation Agreement by and between the Company and Larry Tannenbaum, dated January 22, 2008 (described
more fully in the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission
on January 28, 2008 and incorporated herein by reference).10.3
    
    Credit and Security Agreement by and between IRIDEX Corporation and Wells Fargo Bank, National
Association, acting through its Wells Fargo Business Credit operating division, dated March 27, 2008
(which is incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
(Commission File No. 000-27598) filed on April 2, 2008).10.4
    
    Credit and Security Agreement (Ex-Im Subfacility) by and between IRIDEX Corporation and Wells Fargo Bank,
National Association, acting through its Wells Fargo Business Credit operating division, dated March 27,
2008 (which is incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form
8-K (Commission File No. 000-27598) filed on April 2, 2008).10.5
    
    Borrower Agreement by IRIDEX Corporation in favor of Export-Import Bank of the United States and Wells
Fargo Bank, National Association, acting through its Wells Fargo Business Credit operating division, dated
March 27, 2008 (which is incorporated herein by reference to Exhibit 10.3 to the Registrants Current
Report on Form 8-K (Commission File No. 000-27598) filed on April 2, 2008).31.1
    
    Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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Trademark Acknowledgments
   IRIDEX Corporation (Registrant)Date: May 13, 2008
    By:
    /s/ THEODORE A. BOUTACOFFName:
    Theodore A. BoutacoffTitle:
    President and Chief Executive Officer
(Principal Executive and Principal
Financial Officer) 34




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Index
 10.1
    
    Change of Control Severance Agreement by and between the Company and James Mackaness, dated January 22,
2008 (described more fully in the Companys Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 28, 2008 and incorporated herein by reference).10.2
    
    Separation Agreement by and between the Company and Larry Tannenbaum, dated January 22, 2008 (described
more fully in the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission
on January 28, 2008 and incorporated herein by reference).10.3
    
    Credit and Security Agreement by and between IRIDEX Corporation and Wells Fargo Bank, National
Association, acting through its Wells Fargo Business Credit operating division, dated March 27, 2008
(which is incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
(Commission File No. 000-27598) filed on April 2, 2008).10.4
    
    Credit and Security Agreement (Ex-Im Subfacility) by and between IRIDEX Corporation and Wells Fargo Bank,
National Association, acting through its Wells Fargo Business Credit operating division, dated March 27,
2008 (which is incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form
8-K (Commission File No. 000-27598) filed on April 2, 2008).10.5
    
    Borrower Agreement by IRIDEX Corporation in favor of Export-Import Bank of the United States and Wells
Fargo Bank, National Association, acting through its Wells Fargo Business Credit operating division, dated
March 27, 2008 (which is incorporated herein by reference to Exhibit 10.3 to the Registrants Current
Report on Form 8-K (Commission File No. 000-27598) filed on April 2, 2008).31.1
    
    Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.