##### Table of Contents



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 June 28, 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
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 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
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4T. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34Signature
    
    
    35EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  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 except share amounts)
 June 28,
    
    
    Dec 29,2008
    
    
    2007 (1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,092
    
    
    $
    5,809Restricted cash
    
    
    
    
    
    
    3,800Accounts receivable, net
    
    
    9,061
    
    
    
    8,876Inventories, net
    
    
    15,197
    
    
    
    15,967Prepaids and other current assets
    
    
    983
    
    
    
    1,051Total current assets
    
    
    29,333
    
    
    
    35,503Property and equipment, net
    
    
    1,284
    
    
    
    1,621Goodwill
    
    
    3,239
    
    
    
    3,239Other intangible assets, net
    
    
    4,771
    
    
    
    5,944Other long term assets
    
    
    252
    
    
    
    347Total assets
    
    $
    38,879
    
    
    $
    46,654Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    3,728
    
    
    $
    2,887Bank line of credit
    
    
    6,000
    
    
    
    4,863Accrued compensation
    
    
    1,871
    
    
    
    2,024Accrued expenses
    
    
    4,350
    
    
    
    7,809Accrued warranty
    
    
    1,380
    
    
    
    1,895Deferred revenue
    
    
    3,131
    
    
    
    3,350Bank term loan  current portion
    
    
    
    
    
    
    5,016Total current liabilities
    
    
    20,460
    
    
    
    27,844Commitments and contingencies (Note 6)Stockholders 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
    
    
    38,922
    
    
    
    38,695Accumulated other comprehensive loss
    
    
    (89
    )
    
    
    (88
    )Treasury stock, at cost
    
    
    (430
    )
    
    
    (430
    )Accumulated deficit
    
    
    (20,078
    )
    
    
    (19,461
    )Total stockholders equity
    
    
    18,419
    
    
    
    18,810Total liabilities and stockholders equity
    
    $
    38,879
    
    
    $
    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 Ended
    
    
    Six Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    12,922
    
    
    $
    15,249
    
    
    $
    24,396
    
    
    $
    27,815Cost of revenues
    
    
    7,591
    
    
    
    8,665
    
    
    
    14,260
    
    
    
    16,023Gross profit
    
    
    5,331
    
    
    
    6,584
    
    
    
    10,136
    
    
    
    11,792Operating expenses:Research and development
    
    
    998
    
    
    
    1,588
    
    
    
    2,023
    
    
    
    3,317Selling, general and administrative
    
    
    4,589
    
    
    
    7,546
    
    
    
    9,107
    
    
    
    15,820Total operating expenses
    
    
    5,587
    
    
    
    9,134
    
    
    
    11,130
    
    
    
    19,137Loss from operations
    
    
    (256
    )
    
    
    (2,550
    )
    
    
    (994
    )
    
    
    (7,345
    )Legal settlement
    
    
    800
    
    
    
    2,500
    
    
    
    800
    
    
    
    2,500Interest and other expense, net
    
    
    (218
    )
    
    
    (293
    )
    
    
    (372
    )
    
    
    (418
    )Income (loss) before income taxes
    
    
    326
    
    
    
    (343
    )
    
    
    (566
    )
    
    
    (5,263
    )Provision for income taxes
    
    
    (51
    )
    
    
    
    
    
    
    (51
    )
    
    
    Net income (loss)
    
    $
    275
    
    
    $
    (343
    )
    
    $
    (617
    )
    
    $
    (5,263
    )Net income (loss) per share  basic and diluted
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    (0.07
    )
    
    $
    (0.65
    )Shares used in computing net income (loss) per
share  basic and diluted
    
    
    8,824
    
    
    
    8,196
    
    
    
    8,824
    
    
    
    8,138
 Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    275
    
    
    $
    (343
    )
    
    $
    (617
    )
    
    $
    (5,263
    )Foreign currency translation adjustments
    
    
    39
    
    
    
    (13
    )
    
    
    ( 1
    )
    
    
    (22
    )Comprehensive income (loss)
    
    $
    314
    
    
    $
    (356
    )
    
    $
    (618
    )
    
    $
    (5,285
    )
  4




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IRIDEX Corporation
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 Six Months EndedJune 28,
    
    
    June 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (617
    )
    
    $
    (5,263
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,629
    
    
    
    1,803Stock compensation recognized
    
    
    227
    
    
    
    740Provision for doubtful accounts
    
    
    47
    
    
    
    42Provision for inventories
    
    
    1,135
    
    
    
    432Changes in operating assets and liabilities:Accounts receivable
    
    
    (232
    )
    
    
    1,147Inventories
    
    
    (365
    )
    
    
    (2,169
    )Prepaids and other current assets
    
    
    68
    
    
    
    224Other long term assets
    
    
    95
    
    
    
    (41
    )Accounts payable
    
    
    841
    
    
    
    4,243Accrued compensation and expenses
    
    
    (3,612
    )
    
    
    (813
    )Accrued warranty
    
    
    (515
    )
    
    
    (302
    )Deferred revenue
    
    
    (219
    )
    
    
    938Net cash (used in) provided by operating activities
    
    
    (1,518
    )
    
    
    981Cash flows from investing activities:Purchases of property and equipment
    
    
    (119
    )
    
    
    (502
    )Purchases of intangible assets
    
    
    
    
    
    
    (170
    )Acquisition of business
    
    
    
    
    
    
    (24,131
    )Net cash used in investing activities
    
    
    (119
    )
    
    
    (24,803
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    827Proceeds of credit facility, net of issuance costs
    
    
    1,137
    
    
    
    11,900Repayment of credit facility
    
    
    (5,016
    )
    
    
    (2,629
    )Restricted cash balance offset against credit facility
    
    
    3,800
    
    
    
    (3,800
    )Net cash (used in) provided by financing activities
    
    
    (79
    )
    
    
    6,298Effect of foreign exchange rate changes
    
    
    (1
    )
    
    
    24Net decrease in cash and cash equivalents
    
    
    (1,717
    )
    
    
    (17,500
    )Cash and cash equivalents at beginning of period
    
    
    5,809
    
    
    
    21,051Cash and cash equivalents at end of period
    
    $
    4,092
    
    
    $
    3,551
  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
  Six Months EndedJune 28,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007Balance, beginning of period
    
    $
    3,350
    
    
    $
    1,415Additions to deferral through acquisition
    
    
    
    
    
    
    1,870Additions to deferral
    
    
    3,365
    
    
    
    4,153Revenue recognized
    
    
    (3,584
    )
    
    
    (3,199
    )Balance, end of period
    
    $
    3,131
    
    
    $
    4,239
 8




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Warranty
  Six Months EndedJune 28,
    
    
    June 30,(in thousands)
    
    2008
    
    
    2007Balance, beginning of period
    
    $
    1,895
    
    
    $
    866Warranty accrual acquired through acquisition
    
    
    
    
    
    
    1,771Accrual for warranties issued during the period
    
    
    111
    
    
    
    497Settlements made in kind during the period
    
    
    (626
    )
    
    
    (799
    )Balance, end of period
    
    $
    1,380
    
    
    $
    2,335
 3. Business Combination
   4. Inventories
  (in thousands)
    
    June 28, 2008
    
    
    Dec 29, 2007Raw materials and work in progress
    
    $
    8,169
    
    
    $
    9,450Finished goods
    
    
    7,028
    
    
    
    6,517Total inventories
    
    $
    15,197
    
    
    $
    15,967
 5. Bank Borrowings
  9




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6. AMS Settlement
     7. Stock Based Compensation
  10




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WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingNumber
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Aggregate Intrinsicof Shares
    
    
    Per Share
    
    
    (Years)
    
    
    ValueOutstanding at Dec 29, 2007
    
    
    1,859,537
    
    
    $
    6.09Granted
    
    
    447,112
    
    
    
    2.96Exercised
    
    
    0Canceled or forfeited
    
    
    (329,985
    )
    
    
    6.40Outstanding at Jun 28, 2008
    
    
    1,976,664
    
    
    $
    5.32
    
    
    
    4.48
    
    
    $
    4,497Exercisable at Jun 28, 2008
    
    
    1,331,834
    
    
    $
    5.67
    
    
    
    3.55
    
    
    $
    0The aggregate intrinsic value in the table above represents the pre-tax intrinsic value, based
on the Companys closing price as of June 28, 2008, that would have been received by option holders
had all options holders exercised their stock options as of that date. During the six months ended
June 28, 2008 the intrinsic value of options exercised was $0.The weighted-average grant fair value of the options granted under the Companys stock plans
was $1.91 and $4.90 per share for the six months ended June 28, 2008 and June 30, 2007,
respectively.The Company uses the Black-Scholes option-pricing model to estimate fair value of stock-based
awards with the following weighted average assumptions:Three Months Ended
    
    Six Months EndedJune 28, 2008
    
    June 30, 2007
    
    June 28, 2008
    
    June 30, 2007Average risk free interest rate
    
    
    3.48
    %
    
    
    4.50
    %
    
    
    3.28
    %
    
    
    4.50
    %Expected life (in years)
    
    6 years
    
    4.5 years
    
    6 years
    
    4.6 yearsDividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Average volatility
    
    
    71.0
    %
    
    
    63.0
    %
    
    
    70.0
    %
    
    
    60.0
    %Option-pricing models require the input of various subjective assumptions, including the
options expected life and the price volatility of the underlying stock. The expected stock price
volatility is based on analysis of the Companys stock price history over a period commensurate
with the expected term of the options, trading volume of the Companys stock, look-back
volatilities and Company specific events that affected volatility in a prior period. The Company
has elected to use the simplified method for estimating the expected term as discussed in Staff
Accounting Bulletin No. 107 and Staff Accounting Bulletin No. 110. The risk-free interest rate is
based on the U.S. Treasury interest rates whose term is consistent with the expected life of the
stock options. No dividend yield is included as the Company has not issued any dividends and does
not anticipate issuing any dividends in the future.The following table shows stock-based compensation expense included in the Consolidated
Statements of Operations for the six months periods ended June 28, 2008 and June 30, 2007 (in
thousands):Three Months Ended
    
    
    Six Months EndedJune 28, 2008
    
    
    June 30, 2007
    
    
    June 28, 2008
    
    
    June 30, 2007Cost of revenues
    
    $
    41
    
    
    $
    44
    
    
    $
    65
    
    
    $
    70Research and development
    
    
    35
    
    
    
    50
    
    
    
    64
    
    
    
    112Sales, general and administrative
    
    
    119
    
    
    
    290
    
    
    
    98
    
    
    
    558$
    195
    
    
    $
    384
    
    
    $
    227
    
    
    $
    740
 11




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8. Stock Option Awards
 Exchange Offer
   th th
 Incentive Plan
  9. Income Taxes
 Provision for Income Tax
   Deferred Income Taxes
 ,
 Uncertain Tax Positions
     10. Computation of Basic and Diluted Net Income (Loss) Per Common Share
  12




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11. Business Segments
   Three Months Ended June 28, 2008
    
    
    Three Months Ended June 30, 2007(in thousands)
    
    Ophthalmology
    
    
    Aesthetics
    
    
    Total
    
    
    Ophthalmology
    
    
    Aesthetics
    
    
    TotalRevenues
    
    $
    8,172
    
    
    $
    4,750
    
    
    $
    12,922
    
    
    $
    8,389
    
    
    $
    6,860
    
    
    $
    15,249Direct cost of revenues
    
    
    2,345
    
    
    
    2,082
    
    
    
    4,427
    
    
    
    2,365
    
    
    
    3,876
    
    
    
    6,241Direct gross profit
    
    
    5,827
    
    
    
    2,668
    
    
    
    8,495
    
    
    
    6,024
    
    
    
    2,984
    
    
    
    9,008Total unallocated
indirect costs
    
    
    
    
    
    
    
    
    
    
    (8,169
    )
    
    
    
    
    
    
    
    
    
    
    (9,351
    )Pre-tax income (loss)
    
    
    
    
    
    
    
    
    
    $
    326
    
    
    
    
    
    
    
    
    
    
    $
    (343
    )
 Six Months Ended June 28, 2008
    
    
    Six Months Ended June 30, 2007(in thousands)
    
    Ophthalmology
    
    
    Aesthetics
    
    
    Total
    
    
    Ophthalmology
    
    
    Aesthetics
    
    
    TotalRevenues
    
    $
    15,708
    
    
    $
    8,688
    
    
    $
    24,396
    
    
    $
    15,578
    
    
    $
    12,237
    
    
    $
    27,815Direct cost of revenues
    
    
    4,414
    
    
    
    3,735
    
    
    
    8,149
    
    
    
    4,509
    
    
    
    6,749
    
    
    
    11,258Direct gross profit
    
    
    11,294
    
    
    
    4,953
    
    
    
    16,247
    
    
    
    11,069
    
    
    
    5,488
    
    
    
    16,557Total unallocated
indirect costs
    
    
    
    
    
    
    
    
    
    
    (16,813
    )
    
    
    
    
    
    
    
    
    
    
    (21,820
    )Pre-tax loss
    
    
    
    
    
    
    
    
    
    $
    (566
    )
    
    
    
    
    
    
    
    
    
    $
    (5,263
    )
  13




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Three Months Ended June 28, 2008
    
    
    Three Months Ended June 30, 2007(in thousands)
    
    Ophthalmology
    
    
    Aesthetics
    
    
    Total
    
    
    Ophthalmology
    
    
    Aesthetics
    
    
    TotalDomestic
    
    $
    4,807
    
    
    $
    1,958
    
    
    $
    6,765
    
    
    $
    4,961
    
    
    $
    3,420
    
    
    $
    8,381International
    
    
    3,365
    
    
    
    2,792
    
    
    
    6,157
    
    
    
    3,428
    
    
    
    3,440
    
    
    
    6,868Total revenue
    
    $
    8,172
    
    
    $
    4,750
    
    
    $
    12,922
    
    
    $
    8,389
    
    
    $
    6,860
    
    
    $
    15,249
 Six Months Ended June 28, 2008
    
    
    Six Months Ended June 30, 2007(in thousands)
    
    Ophthalmology
    
    
    Aesthetics
    
    
    Total
    
    
    Ophthalmology
    
    
    Aesthetics
    
    
    TotalDomestic
    
    $
    9,236
    
    
    $
    3,446
    
    
    $
    12,682
    
    
    $
    8,968
    
    
    $
    6,088
    
    
    $
    15,056International
    
    
    6,472
    
    
    
    5,242
    
    
    
    11,714
    
    
    
    6,610
    
    
    
    6,149
    
    
    
    12,759Total revenue
    
    $
    15,708
    
    
    $
    8,688
    
    
    $
    24,396
    
    
    $
    15,578
    
    
    $
    12,237
    
    
    $
    27,815
   14




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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, achieve financial stability, and meet
the covenants of our existing financing agreement with Wells Fargo Bank, and the impact of concerns
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; 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
  15




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Results of Operations
  Three Months Ended
    
    Six Months EndedJune 28, 2008
    
    June 30, 2007
    
    June 28, 2008
    
    June 30, 2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    58.7
    
    
    
    56.8
    
    
    
    58.5
    
    
    
    57.6Gross Margin
    
    
    41.3
    
    
    
    43.2
    
    
    
    41.5
    
    
    
    42.4Operating expenses:Research and development
    
    
    7.7
    
    
    
    10.4
    
    
    
    8.3
    
    
    
    11.9Selling, general and administrative
    
    
    35.6
    
    
    
    49.5
    
    
    
    37.3
    
    
    
    56.9Total operating expenses
    
    
    43.3
    
    
    
    59.9
    
    
    
    45.6
    
    
    
    68.8Loss from operations
    
    
    (2.0
    )
    
    
    (16.7
    )
    
    
    (4.1
    )
    
    
    (26.4
    )Legal settlement
    
    
    6.2
    
    
    
    16.4
    
    
    
    3.3
    
    
    
    9.0Interest and other expense, net
    
    
    (1.7
    )
    
    
    (2.0
    )
    
    
    (1.5
    )
    
    
    (1.5
    )Income (loss) before income tax
    
    
    2.5
    
    
    
    (2.3
    )
    
    
    (2.3
    )
    
    
    (18.9
    )Provision for income taxes
    
    
    (0.4
    )
    
    
    0.0
    
    
    
    (0.2
    )
    
    
    0.0Net income (loss)
    
    
    2.1
    
    
    
    (2.3
    )
    
    
    (2.5
    )
    
    
    (18.9
    )
 Revenues.
   16




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Gross Profit
   Our Operating Results May Fluctuate from Quarter to Quarter and
Year to Year.
 Research and Development
  Selling, General and Administrative
   Legal settlement, Interest and Other expense, net.
  17




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Income Taxes
  Liquidity and Capital Resources.
    
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
  
 Item 4T. Controls and Procedures
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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.
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We Have More Indebtedness and Fewer Liquid Resources After the Acquisition of the Aesthetics
Business of AMS and Laserscope, Which Adversely Affects 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 third
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.
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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.
  
    
    consumer confidence, which may be impacted by economic and political conditions;
    
    the success of our sales and marketing efforts;
    
    evolving customer needs;
    
    the introduction of new products and technologies;
    
    evolving surgical practices;
    
    evolving industry standards;
    
    the cost of procedures performed using our products; and
    
    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.
  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.
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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;
    
    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.
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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
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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;
    
    potentially adverse tax consequences; and
    
    multiple protectionist, adverse and changing foreign governmental laws and regulations.
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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.
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If We Lose Key Personnel or Fail to Integrate Replacement Personnel Successfully, Our Ability
to Manage Our Business Could Be Impaired
  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.
  27




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We Face Manufacturing Risks
  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.
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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.
  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.
  30




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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.
   
    
    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.
  31




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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.
   32




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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
  33




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Item 4. Submission of Matters to a Vote of Security Holders
   Total Vote
    
    Total VoteFor
    
    Withheld FromEach Director
    
    Each DirectorTheodore A. Boutacoff
    
    
    7,295,091
    
    
    
    588,153James L. Donovan
    
    
    7,473,737
    
    
    
    409,507Donald L. Hammond
    
    
    7,495,891
    
    
    
    387,353Garrett A. Garrettson
    
    
    7,497,950
    
    
    
    385,294James B. Hawkins
    
    
    7,552,750
    
    
    
    330,494Sanford Fitch
    
    
    7,502,394
    
    
    
    380,850William M. Moore
    
    
    7,545,250
    
    
    
    337,994
  ABSTAIN
    
    FOR
    
    AGAINST
    
    BROKER NON-VOTE22,266
    
    4,618,542
    
    788,588
    
    2,453,848
  ABSTAIN
    
    FOR
    
    AGAINST106,612
    
    7,763,945
    
    12,687
 
 Item 5. Other Information
  
 Item 6. Exhibits
 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.
 34




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Trademark Acknowledgments
   IRIDEX Corporation (Registrant)Date:  August  12, 2008
    By:
    /s/ THEODORE A. BOUTACOFFName:
    Theodore A. BoutacoffTitle:
    President, Chief
Executive Officer and Chairman 
(Principal
Executive Officer) 35




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Exhibit Index
 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.
 36