IRIDEX CORP

Previous wording

Ophthalmologists typically use our laser systems in hospital operating rooms and ambulatory surgical centers, as well as their offices and clinics. In operating rooms and ambulatory surgical centers, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a single-use consumable probe, including MicroPulse P3®, G-Probe® and G-Probe Illuminate® delivery devices, and EndoProbe handpieces. In the offices and clinics, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a slit-lamp adapter.

Current wording

Ophthalmologists typically use our laser systems in hospital operating rooms and ambulatory surgical centers, as well as their offices and clinics. In operating rooms and ambulatory surgical centers, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a single-use consumable probe, including MicroPulse P3®, G-Probe® and G-Probe Illuminate® delivery devices, and EndoProbe handpieces. In the offices and clinics, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a slit-lamp adapter. Our proprietary MicroPulse® and Continuous Wave laser therapies for glaucoma have been adopted by physicians around the globe as effective tools for managing and slowing the progression of glaucoma.

Previous wording

In 2024 and 2023, our products were sold in the United States and Germany predominantly through a direct sales force and internationally (aside from Germany) primarily through independent distributors. Total revenues in 2024 and 2023 were $48.7 million and $51.9 million, respectively. We generated net losses of $8.9 million and $9.6 million in 2024 and 2023, respectively.

Current wording

In fiscal years 2025 and 2024, our products were sold in the United States and Germany predominantly through a direct sales force and internationally (aside from Germany) primarily through independent distributors. Total revenues in fiscal years 2025 and 2024 were $52.7 million and $48.7 million, respectively. We generated net losses of $4.4 million and $8.9 million in fiscal years 2025 and 2024, respectively.

Previous wording

Cost of revenues consists primarily of our direct manufacturing costs which include the cost of components and sub-systems, assembling, packaging, shipping and testing components at our facility, direct labor and associated overhead, warranty, royalty and amortization of intangible assets and depot service costs. For certain of our products, we are responsible for the cost of the fully assembled product that is manufactured by a third-party.

Current wording

Our overall manufacturing strategy is to continuously develop and refine our processes to achieve our objectives of continuity of supply, quality of supply and margin enhancement. Over time, this may lead to in-sourcing or outsourcing certain functions, including manufacturing, in various geographic locations in order to achieve our objectives. Cost of revenues consists primarily of our direct manufacturing costs which include the cost of components and sub-systems, assembling, packaging, shipping and testing components at our facility, direct labor and associated overhead, warranty, royalty and amortization of intangible assets and depot service costs. For certain of our products, we are responsible for the cost of the fully assembled product that is manufactured by a third-party.

Previous wording

Impact of the new Local Coverage Determination on our Business

Current wording

Impact of the recent Local Coverage Determination on our Business

Previous wording

During 2024 Local Coverage Determination ("LCD") L37531, relating to Micro-Invasive Glaucoma Surgery (MIGS), was adopted as scheduled became effective for services performed on or after November 17, 2024. We believe the reimbursement limitations created by the new LCD has potential to significantly increase physician interest in and use of Iridex’s advanced laser-based treatments for glaucoma.

Current wording

In 2024, Local Coverage Determination ("LCD") L37531, which relates to Micro-Invasive Glaucoma Surgery (MIGS), was adopted and became effective for services performed on or after November 17, 2024. We believe the reimbursement limitations created by the LCD has increased physician interest in and use of our advanced laser-based treatments for glaucoma.

Previous wording

The new LCD clarifies that treatments performed using Iridex’s laser consoles and probes are not MIGS procedures, and thus, Iridex’s Cyclo G6® product family is unaffected by the new reimbursement limitations. Iridex’s proprietary MicroPulse® and Continuous Wave laser therapies for glaucoma have been adopted by physicians around the globe as effective tools for managing and slowing the progression of glaucoma. Currently, Iridex sells more than 50,000 Cyclo G6 probes per year.

Current wording

The LCD clarifies that treatments performed using our laser consoles and probes are not MIGS procedures, and thus, our Cyclo G6® product family is unaffected by the new reimbursement limitations.

Previous wording

In addition to creating some reimbursement advantages for Iridex’s glaucoma treatments in the United States, the LCD creates opportunity to capture more physician attention to the significant clinical benefits of our products, particularly MicroPulse Transscleral Laser Therapy (MPTLT). Our laser procedures are noninvasive, repeatable, and can be utilized to treat patients across a far broader range of glaucoma’s progression, whether before, after, or even coincident to MIGS procedures.

Current wording

In addition to creating some reimbursement advantages for our glaucoma treatments in the United States, the LCD creates opportunity to capture more physician attention to the significant clinical benefits of our products, particularly MicroPulse Transscleral Laser Therapy (MPTLT). Our laser procedures are noninvasive, repeatable, and can be utilized to treat patients across a far broader range of glaucoma’s progression, whether before, after, or even coincident to MIGS procedures.

Previous wording

The final LCD, L37531, which went into effect on November 17, 2024, provides the following reimbursement limitations:

Current wording

Moreover, the LCD provides the following reimbursement limitations:

Previous wording

Current macroeconomic conditions exhibit challenges that can affect capital equipment purchasing demand and timing, including recessionary fears, tariffs, trade wars, unexpected changes in taxes or policies, inflation concerns, changing interest rates, as well as other geopolitical uncertainties, have impacted and may continue to impact business spending and the economy as a whole. As a result, we have seen customers extend purchase decision cycles. We have also experienced some demand softness due to pricing effects from the strength of the U.S. dollar that have impacted and may continue to impact our operations.

Current wording

Current macroeconomic conditions exhibit challenges that can affect capital equipment purchasing demand and timing, including recessionary fears, tariffs, trade wars, unexpected changes in taxes or policies, inflation concerns, changing interest rates, as well as other geopolitical uncertainties and conflicts, have impacted and may continue to impact business spending and the economy as a whole. As a result, we have seen customers extend purchase decision cycles.

Previous wording

Our fiscal year ends on the Saturday closest to December 31. Fiscal year 2024 ended on December 28, 2024 and fiscal year 2023 ended on December 30, 2023. Fiscal years 2024 and 2023 each included 52 weeks of operations.

Current wording

Our fiscal year ends on the Saturday closest to December 31. Fiscal year 2025 ended on January 3, 2026 and fiscal year 2024 ended on December 28, 2024. Fiscal year 2025 included 53 weeks of operations and 2024 included 52 weeks.

Previous wording

While we believe that the market for our products remains strong, the overall capital expenditure landscape within hospitals, surgical centers and physician offices may continue to be negatively impacted by the persistent macroeconomic concerns discussed above.

Current wording

While we believe that the market for our products remains strong, the overall capital expenditure landscape within hospitals, surgical centers and physician offices may continue to be negatively impacted by persistent macroeconomic concerns discussed above.

Previous wording

Gross margins may fluctuate due to changes in the relative proportion of domestic and international sales, the product mix of sales, introduction of new products, manufacturing variances, total unit volume changes that lead to greater or lesser production efficiencies and other factors.

Current wording

Gross margins may fluctuate due to changes in the relative proportion of domestic and international sales, the product mix of sales, introduction of new products, manufacturing variances, total unit volume changes, responses to the evolving macroeconomic and geopolitical uncertainty, including tariffs and trade wars, and other factors.

Previous wording

Research and development expenses decreased by $1.4 million or 20.2% from $6.8 million in 2023 to $5.4 million in 2024. Spending on investment in new and expanded products decreased as we completed prior projects. In 2024 we also implemented cost savings measures including reductions in workforce that resulted in lower headcount expenses.

Current wording

Research and development expenses decreased by $1.8 million, or 32.7%, from $5.4 million in 2024 to $3.7 million in fiscal year 2025. The decrease was related to our cost savings measures we implemented, resulting in lower headcount expenses. Spending on investment in new and expanded products was also curtailed.

Previous wording

Sales and marketing expenses decreased by $3.6 million or 22.5%, from $16.2 million in 2023 to $12.6 million in 2024. The decrease in 2024 was related to our cost savings measures, including reductions in workforce that resulted in lower headcount expenses, lower consulting, travel expenses, and lower tradeshows and public relations expenses, partially offset by increases in bonus and clinical studies expenses.

Current wording

Sales and marketing expenses decreased by $2.2 million, or 17.4%, from $12.6 million in 2024 to $10.4 million in fiscal year 2025. The decrease in fiscal year 2025 was related to our cost savings measures, including reductions in workforce that resulted in lower headcount expenses and lower tradeshows and promotional expenses.

Previous wording

General and administrative expenses increased by $1.1 million or 11.8% from $8.7 million in 2023 to $9.8 million in 2024. The increase is primarily due to higher consulting costs and deal related legal expenses, partially offset by lower ERP implementation expenses.

Current wording

General and administrative expenses decreased by $2.0 million, or 20.9% from $9.8 million in 2024 to $7.7 million in fiscal year 2025. The decrease was a primarily due to a decrease in consulting costs and deal related legal expenses.

Previous wording

We recorded a provision for income taxes of $68 thousand for the year ended December 28, 2024 compared to $90 thousand for the year ended December 30, 2023. The effective tax rate for the years ended December 28, 2024 and December 30, 2023, were both negative 0.8%.

Current wording

We recorded a provision for income taxes of $57 thousand for the fiscal year ended January 3, 2026 compared to provision for income of $68 thousand for the fiscal year ended December 28, 2024. The effective tax rate for the fiscal year ended January 3, 2026 was -1.3% compared to an effective rate of -0.8% for the fiscal year ended December 28, 2024. Our effective tax rate decrease is due mainly to the change in valuation allowance. At the end of fiscal year 2025, the valuation allowance totaled $27.5 million.

Previous wording

As of December 28, 2024, we had cash and cash equivalents of $2.4 million and working capital of $7.0 million compared to cash and cash equivalents of $7.0 million and working capital of $14.5 million as of December 30, 2023.

Current wording

As of January 3, 2026, we had cash and cash equivalents of $6.0 million and working capital of $12.0 million compared to cash and cash equivalents of $2.4 million and working capital of $7.0 million as of December 28, 2024.

Previous wording

Net cash used in operating activities was $7.3 million in 2024 compared to net cash used in operating activities of $6.7 million in 2023. The increase in net cash used in operating activities, expressed in direct cash flow terms, was primarily due to cash used in inventory, prepaids, deferred revenue and accrued expenses, partially offset by decreases in cash paid to accounts payable and increased cash collections from accounts receivable.

Current wording

Net cash used in operating activities was $2.1 million in 2025 compared to net cash used in operating activities of $7.3 million in 2024. The decrease in net cash used in operating activities was primarily due to reduction in net loss and reduction in inventory.

Previous wording

During 2024, net cash used in investing activities was $13 thousand for capital expenditures. During 2023, net cash used in investing activities was $109 thousand for capital expenditures.

Current wording

During fiscal year 2025, net cash used in investing activities was $143 thousand for capital expenditures. During fiscal year 2024, net cash used in investing activities was $13 thousand for capital expenditures.

Previous wording

During 2024, net cash provided by financing activities was $2.6 million, primarily from net proceeds of $3.4 million from issuance of a senior convertible promissory note payable to Lind partially offset by $0.5 million debt issuance costs and $0.2 million payments to the note were payable to Lind. During 2023, net cash used in financing activities was $5 thousand, primarily from payroll taxes related to net share settlement of equity awards partially offset by the net proceeds arising from the proceeds from stock option exercises.

Current wording

During fiscal year 2025, net cash provided by financing activities was $6.0 million, primarily from net proceeds of $10.0 million from issuances of Series B preferred stock and a convertible note payable to Novel Inspiration International Co., Ltd (“Novel”), offset by a $4.0 million early prepayment of convertible debt and taxes paid related to net share settlements of equity awards. During fiscal year 2024, net cash provided by financing activities was $2.6 million, primarily from net proceeds of $3.4 million from issuance of a senior convertible promissory note payable to Lind Global Asset Management IX LLC (“Lind”) partially offset by $0.5 million debt issuance costs and $0.2 million payments to the note were payable to Lind.

Previous wording

We have historically funded our operations primarily through sales of our products to customers, and through common stock and borrowing arrangements. As of December 28, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $2.4 million. We have incurred net losses over the last several years, and as of December 28, 2024, have an accumulated deficit of approximately $88.0 million. We may continue to incur operating losses and negative cash flows from operations.

Current wording

We have historically funded our operations primarily through sales of our products to customers, and through common stock and borrowing arrangements. As of January 3, 2026, our principal sources of liquidity consisted of cash and cash equivalents of $6.0 million. We have incurred net losses over the last several years, and as of January 3, 2026, have an accumulated deficit of approximately $92.4 million. We may continue to incur operating losses and negative cash flows from operations.

Previous wording

Exclusive Distribution Rights: On March 2, 2021, we entered into a distribution agreement (“Distribution Agreement”) with Topcon, pursuant to which we granted Topcon the exclusive right to distribute the our retina and glaucoma products in certain geographies outside the United States. The exclusivity arrangement with Topcon obligates us to provide training, customer support, and exclusive territorial rights to Topcon for certain international regions, for a period of 10 years, commencing upon regulatory approval to transfer existing (non-exclusive) distribution rights from the current distributors in those regions to Topcon. We has the right to terminate the exclusive distribution rights granted to Topcon for any of the regions at any point in time during the 10 year exclusivity term for a termination fee that is based on a multiple of 1.2 times the revenue generated by us in 2019 for the respective region. We determined that the exclusivity rights, training, and customer support represents a single combined performance obligation for each region, to be recognized as exclusivity fee revenue on a straight-line basis over the 10 year period for each region, commencing on the date that regulatory approval is obtained for each region, based on the standalone selling price for such combined performance obligation for each region. The estimated fair value of the exclusive distribution rights for all regions combined totaled approximately $14.8 million. Of this amount, we fully-constrained and returned to Topcon the arrangement fee allocated to Belarus (approximately $0.2 million) because obtaining the necessary regulatory approvals and termination of existing distributor relationship was not feasible. During fiscal years ended 2024 and 2023, $1.5 million in revenue related to the exclusive distribution rights was recorded each year.

Current wording

Exclusive Distribution Rights: On March 2, 2021, the Company and Topcon Corporation (“Topcon”) entered into a distribution agreement (“Distribution Agreement”), pursuant to which the Company granted Topcon the exclusive right to distribute the Company’s retina and glaucoma products in certain geographies outside the United States. The exclusivity arrangement with Topcon obligates the Company to provide training, customer support, and exclusive territorial rights to Topcon for certain international regions, for a period of 10 years, commencing upon regulatory approval to transfer existing (non-exclusive) distribution rights from the current distributors in those regions to Topcon. The Company has the right to terminate the exclusive distribution rights granted to Topcon for any of the regions at any point in time during the 10 year exclusivity term for a termination fee that is based on a multiple of 1.2 times the revenue generated by the Company in 2019 for the respective region. Management has determined that the exclusivity rights, training, and customer support represents a single combined performance obligation for each region, to be recognized as exclusivity fee revenue on a straight-line basis over the 10 year period for each region, commencing on the date that regulatory approval is obtained for each region, based on the standalone selling price for such combined performance obligation for each region. The estimated fair value of the exclusive distribution rights for all regions combined totaled approximately $14.8 million. Of this amount, management has fully-constrained and returned to Topcon the arrangement fee allocated to Belarus (approximately $0.2 million) because obtaining the necessary regulatory approvals and termination of existing distributor relationship was not feasible. During both the fiscal years ended 2025 and 2024, $1.5 million in revenue related to the exclusive distribution rights was recorded.

Previous wording

We recognized assets from certain costs incurred to obtain revenue contracts. These costs relate to sales commissions arising from the sale of our products. The costs are considered incremental and recoverable of obtaining revenue contracts with customers. These deferred costs are amortized on a straight-line basis over the estimated period of benefit, which typically ranges from 2 to 3 years. These deferred costs are amortized on a straight-line basis over the estimated period of benefit, which typically ranges from 2 to 3 years. As of December 28, 2024 and December 30, 2023, we recognized deferred costs incurred to obtain revenue contracts with customers, net of accumulated amortization, of $0.2 million and included these amounts in Prepaid expenses and other current assets and Other long-term assets in our consolidated balance sheets. Amortization expense was $146 thousand and $105 thousand, respectively, for the fiscal years ended December 28, 2024 and December 30, 2023. There were no impairment expenses for both the fiscal years ended December 28, 2024 and December 30, 2023, respectively.

Current wording

The Company recognized assets from certain costs incurred to obtain revenue contracts. These costs relate to sales commissions arising from the sale of our products. The costs are considered incremental and recoverable of obtaining revenue contracts with customers. These deferred costs are amortized on a straight-line basis over the estimated period of benefit, which typically ranges from 2 to 3 years. As of January 3, 2026, the Company had fully recognized deferred costs incurred to obtain revenue contracts with customers, which amounts were previously included in Prepaid expenses and other current assets and Other long-term assets in the Company’s consolidated balance sheets. Amortization expense was $23 thousand and $0.2 million, respectively, for the fiscal years ended January 3, 2026 and December 28, 2024. There were no impairment expenses for both the fiscal years ended January 3, 2026 and December 28, 2024.

Previous wording

Sales commissions that do not represent incremental and recoverable costs of obtaining a contract are expensed as incurred. As a practical expedient, we will not recognize such sales commission as a contract asset but rather recognize as an expense when incurred if the amortization period of the asset that we would have otherwise recognized is one year or less.

Current wording

Sales commissions that do not represent incremental and recoverable costs of obtaining a contract are expensed as incurred. As a practical expedient, the Company will not recognize such sales commission as a contract asset but rather recognize as expense when incurred if the amortization period of the asset that the Company would have otherwise recognized is one year or less.

Previous wording

We recognized an asset from the costs incurred to fulfill a contract. These costs relate directly and must be incurred to satisfy performance obligations on certain specific contract with a customer. These costs are expected to be recovered over time and are amortized on a systematic basis that is consistent with the recognition of revenue to which it relates. As of December 28, 2024 and December 30, 2023, we recognized deferred costs incurred to fulfill a contract with a customer, net of accumulated amortization, of $0.6 million and $0.7 million, respectively, and included these amounts in Prepaid expenses and other current assets and Other long-term assets in our consolidated balance sheets. Amortization expense was $83 thousand, for the fiscal years ended December 28, 2024 and December 30, 2023. There were no impairment expenses for both the fiscal years ended December 28, 2024 and December 30, 2023.

Current wording

The Company recognized an asset from the costs incurred to fulfill a contract. These costs relate directly and must be incurred to satisfy performance obligations on certain specific contract with a customer. These costs are expected to be recovered over time and are amortized on a systematic basis that is consistent with the recognition of revenue to which it relates. As of January 3, 2026 and December 28, 2024, we recognized deferred costs incurred to fulfill a contract with a customer, net of accumulated amortization, of $0.5 million and $0.6 million, respectively, and included these amounts in Prepaid expenses and other current assets and Other long-term assets in the Company’s consolidated balance sheets. Amortization expense was $83 thousand, for both fiscal years ended January 3, 2026 and December 28, 2024. There were no impairment expenses for both the fiscal years ended January 3, 2026 and December 28, 2024.

Previous wording

We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Under ASC 740, the liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. We annually evaluate the realizability of our deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. In 2024, based on our history of earnings and our forecasted losses, we believe on the more likely than not basis that a full valuation allowance is required. Accordingly, in the fourth quarter of fiscal year 2024, we provided a full valuation allowance on our federal and state deferred tax assets.

Current wording

We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Under ASC 740, the liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. We annually evaluate the realizability of our deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. In 2025, based on the Company’s history of earnings and forecasted losses, management continued to conclude that, on a more-likely-than-not basis, its deferred tax assets were not realizable. Accordingly, the Company maintained a full valuation allowance against its federal and state deferred tax assets that was initially recorded in the fourth quarter of fiscal year 2024.

Previous wording

We account for uncertain tax positions in accordance with ASC 740. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a "more-likely-than-not" threshold. In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. There was no accrued interest and penalties during the year ended December 28, 2024.

Current wording

We account for uncertain tax positions in accordance with ASC 740. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a "more-likely-than-not" threshold. In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. There was no accrued interest and penalties during the fiscal year ended January 3, 2026.

Previous wording

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our consolidated financial statement disclosures.

Current wording

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods after December 15, 2024. The Company adopted this ASU during the fourth fiscal quarter of fiscal year 2025. The adopted ASU had no material impact on the Company's consolidated financial statements as it only impacted disclosures.