Iridex Corp: Form 10-Q for the period ended Jul 4, 2026

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions, that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management and should be read in conjunction with the section of this Quarterly Report on Form 10-Q entitled “Risk Factors.” Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors.”

Overview

IRIDEX is an ophthalmic medical technology company focused on the development and commercialization of breakthrough products and procedures used to treat sight-threatening eye conditions, including glaucoma and retinal diseases.

Our proprietary MicroPulse® Technology and Endpoint Management™ Technology are used for the treatment of glaucoma and retina disorders. Both technologies are offered as optional treatment modes in select laser consoles in addition to the standard continuous-wave (“CW”) treatment mode. They allow low-energy, subvisible, tissue-sparing laser therapy by different means: MicroPulse technology uses short, microsecond-long laser pulses that allow tissue to cool between pulses giving physicians finer control of thermal elevation to minimize tissue damage. Endpoint Management technology uses a delivery algorithm to titrate the laser energy. CW laser photocoagulation can stabilize vision over the long term but can also result in varying degrees of vision loss. Both MicroPulse and Endpoint Management technologies have demonstrated clinical efficacy with a safer profile compared to standard high-energy CW laser for the treatment of retinal diseases and glaucoma.

Our products consist of laser consoles, delivery devices and consumable probes.

Our laser consoles consist of the following product lines:

• Glaucoma – Our primary glaucoma console line is the Cyclo G6® laser system with MicroPulse technology. In addition, our medical retina consoles have features supporting glaucoma laser treatments.
• Medical Retina – Our medical-retina product line includes our portable IQ 532® and IQ 577® laser systems with MicroPulse technology; and the Pattern Scanning Laser (“PASCAL”) System, an integrated workstation with Endpoint Management technology and MicroPulse technology. These systems are ideal for multispecialty practices because these lasers also can be used to treat glaucoma, i.e., single-spot laser trabeculoplasty using MicroPulse technology, iridotomy, and iridectomy using the IQ lasers; and pattern scanning laser trabeculoplasty (“PSLT”) using the PASCAL laser system.
• Surgical Retina – Our surgical-retina product line includes our OcuLight® TX and OcuLight® SLx (with MicroPulse technology) laser photocoagulation systems. These systems are often used in vitrectomy procedures, which are used to treat proliferative diabetic retinopathy, macular holes, retinal tears and detachments.

Our business generates recurring revenues through sales of consumable products, predominantly single-use laser probe devices and other instrumentation, as well as repair, service and extended service contracts for our laser systems.

Our laser probes consist of the following product lines:

• Glaucoma – Probes used in our glaucoma product line include our patented single-use delivery devices - MicroPulse P3®, G-Probe®, and G-Probe Illuminate®.
• Surgical Retina – Probes used in our surgical-retina product line include our family of single-use EndoProbe® handpieces.

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 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.

Our products are sold in the United States and Germany predominantly through a direct sales force and internationally (aside from Germany, Italy, UK (Glaucoma), India, and other smaller markets) primarily through Topcon Corporation (“Topcon”) and other independent distributors.

Sales to international distributors are made on open credit terms or letters of credit and are currently denominated in U.S. dollars and accordingly, are not subject to risks associated with currency fluctuations. However, increases in the value of the U.S. dollar against any local currencies could cause our products to become relatively more expensive to customers in a particular country or region, leading to reduced revenue or profitability in that country or region. Sales to direct end users transacted through our German office are denominated in Euros and are subject to risks associated with currency fluctuations.

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 in various geographic locations 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.

Research and development expenses consist primarily of personnel costs, materials to support new product development and research support provided to clinicians at medical institutions developing new applications which utilize our products and regulatory expenses. Research and development costs have been expensed as incurred.

Sales and marketing expenses consist primarily of costs of personnel, sales commissions, travel expenses, advertising and promotional expenses.

General and administrative expenses consist primarily of costs of personnel, legal, accounting and other public company costs, insurance and other expenses not allocated to other departments.

Impact of Macroeconomic Conditions to our Business

Current macroeconomic conditions exhibit challenges that can affect capital equipment purchasing demand and timing, including recessionary fears, tariffs and retaliatory responses, trade wars, conflicts in the Middle East, lapse in government funding, healthcare reform initiatives, unexpected changes in taxes or policies, inflation concerns, changing interest rates, as well as other geopolitical developments and uncertainty, 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.

The macroeconomic conditions on our business and operations remain uncertain, and it is not possible for us to predict the duration and extent to which they will affect our business, future results of operations, and financial condition.

For more information on risks associated with the current macroeconomic conditions, see the sections titled “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended January 3, 2026.

Results of Operations

The following table sets forth certain operating data as a percentage of revenues:

The following comparisons are between the three months ended July 4, 2026 and June 28, 2025 (in thousands):

Revenues

25

Our total revenues decreased by $1.0 million, or 7.4%, from $13.6 million to $12.6 million. Revenue in our retina and other revenue product groups decreased, partially offset by an increase in our glaucoma product group.

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, including those from ongoing geopolitical uncertainties, including the conflicts in the Middle East, tariffs and trade wars, and other factors.

Gross Profit and Gross Margin

Gross profit decreased by $0.4 million, or 8.2% from $4.7 million to $4.3 million. Gross margin decreased by 0.3% from 34.5% to 34.2%. The decrease in gross margin was primarily due to higher manufacturing costs and increased product costs related to recent tariff developments as the Company continues its transition to lower-cost contract manufacturers.

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, conflicts in the Middle East, including tariffs and trade wars, and other factors.

Research and Development

Research and development expenses remained relatively flat at $0.9 million. This reflects management’s continued focus on cost saving initiatives, including reduced spending on new and expanded product investments.

Sales and Marketing

Sales and marketing expenses remained relatively flat at $2.5 million. This also reflects management’s continued focus on cost saving initiatives and maintaining stable spending levels within this function.

General and Administrative

General and administrative expenses decreased by $0.4 million, or 16.9% from $2.2 million to $1.8 million. The decrease primarily reflects cost savings realized from the previously announced general and administrative function transfer initiative and lower severance expense compared to the prior fiscal year.

Other Income (Expense), Net

Other expense, net, was $167 thousand and $33 thousand, respectively, for the three months ended July 4, 2026 and June 28, 2025, primarily consisting of interest and amortization of loan expenses.

Income Taxes

We recorded an income tax provision of $70 thousand and $21 thousand for the three months ended July 4, 2026 and June 28, 2025, respectively.

The following comparisons are between the six months ended July 4, 2026 and June 28, 2025 (in thousands):

Revenues

Our total revenues decreased by $1.1 million, or 4.3%, from $25.5 million to $24.4 million. Revenue in our retina product group decreased, partially offset by an increase in our glaucoma and other revenue product groups.

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, including those from ongoing geopolitical uncertainties, including the conflicts in the Middle East, tariffs and trade wars, and other factors.

Gross Profit and Gross Margin

Gross profit decreased by $0.7 million, or 7.2% from $9.7 million to $9.0 million. Gross margin decreased by 1.1% from 38.2% to 37.1%. The decrease in gross margin was primarily due to higher manufacturing costs and increased product costs related to recent tariff developments as the Company continues its transition to lower-cost contract manufacturers.

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, conflicts in the Middle East, including tariffs and trade wars, and other factors.

Research and Development

Research and development expenses increased $0.1 million from $1.7 million to $1.8 million, primarily due to increased personnel costs associated with higher headcount.

Sales and Marketing

Sales and marketing expenses increased $0.1 million from $5.0 million to $5.1 million. The increase was primarily attributable to higher personnel-related costs resulting from increased average headcount.

General and Administrative

General and administrative expenses decreased by $0.6 million, or 16.4% from $4.1 million to $3.5 million. The decrease primarily reflects lower consulting costs, cost savings realized from the previously announced general and administrative function transfer initiative, and lower severance expense compared to the prior fiscal year.

Other Income (Expense), Net

Other expense, net, was $0.3 million for the six months ended July 4, 2026, primarily consisting of interest and amortization of loan expenses. Other expense, net, was $1.5 million for the six months ended June 28, 2025, driven primarily by the costs associated with the Lind Note payable settlement.

Income Taxes

We recorded an income tax provision of $128 thousand and $33 thousand for the six months ended July 4, 2026 and June 28, 2025, respectively.

Liquidity, Capital Resources and Management Plans

Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing or to raise capital.

As of July 4, 2026, we had cash and cash equivalents of $4.7 million and working capital of $10.8 million compared to cash and cash equivalents of $6.0 million and working capital of $12.0 million as of January 3, 2026.

Net cash used in operating activities was $1.2 million in the six months ended July 4, 2026 compared to net cash used in operating activities of $1.5 million in the six months ended June 28, 2025. The decrease primarily reflects lower operating losses, partially offset by increased purchases of safety stock inventory.

For the six months ended July 4, 2026, net cash used in investing activities was $0.1 million, which consisted of capital expenditures. For the six months ended June 28, 2025, net cash used in investing activities was $24 thousand, which consisted of capital expenditures.

For the six months ended July 4, 2026, net cash used in financing activities was $39 thousand, primarily related to taxes paid related to net share settlement of equity awards. For the six months ended June 28, 2025, net cash from financing activities was $6.0 million. In the first fiscal quarter of 2025, we received $10 million in issuance of convertible preferred shares and convertible debt, offset by $4.0 million in early prepayment of convertible debt.

We have historically funded our operations primarily through sales of our products to customers, sales of our common stock and borrowing arrangements. As of July 4, 2026, our principal sources of liquidity consisted of cash and cash equivalents of $4.7 million. We have incurred net losses over the last several years, and as of July 4, 2026, have an accumulated deficit of approximately $94.2 million.

On March 19, 2025, the Company entered into the Novel Securities Agreement and the Novel Note Purchase Agreement with Novel. Pursuant to the Novel Securities Agreement and the Novel Note Purchase Agreement, Novel has the right to purchase additional convertible promissory notes (the “Growth Notes”) in an aggregate principal amount of $10,000,000. The Growth Notes are issuable in three installments, with one third of the aggregate principal amount issuable upon each yearly anniversary after March 19, 2025. We have not issued any Growth Notes, but may do so in the future.

We believe our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs over the next 12 months. Our future capital requirements will depend on many factors, including our growth rates, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced products and our costs to implement new manufacturing technologies. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. Any debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds through further issuances of equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of July 4, 2026. Based on the foregoing, our Principal Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

An investment in our securities has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions and/or operating results. If any of these risks actually occur, our business, operating results and financial condition could be harmed, and the value of our stock could go down. This means you could lose all or a part of your investment. We have included in Part I, Item 1A in our Annual Report on Form 10-K for the year ended January 3, 2026, which was filed with the SEC on April 2, 2026, a description of certain risks and uncertainties that could affect our business, future performance or financial condition (the “Risk Factors”). Except as indicated below, there have been no material changes from the disclosure provided in the Form 10-K with respect to the Risk Factors.

Tension and potential disagreements between a majority of our board of directors and other board members that are affiliated with our largest shareholder could adversely affect our business, strategy, operating results, and financial condition and this has the potential to distract from or otherwise impact the board’s direction provided to management.

As disclosed in our Current Report on Form 8-K filed on July 16, 2026, which is incorporated herein by reference as Exhibit 99.1, certain members of our board of directors have expressed diverging views and potentially alternative agendas with respect to certain matters concerning the Company and its future direction. The board is continuing to engage in constructive efforts to resolve these differences and improve constructive collaboration. If these disagreements are not resolved, however, they could create ongoing uncertainty regarding the Company's leadership, governance, operations, strategy and direction provided to management. Ongoing tensions may result in the resignation of one or more directors or the nomination of replacement or alternative directors by Novel Inspiration International Co., Ltd, the Company's largest stockholder. Any of these developments could adversely affect our business, operating results and financial condition, and may result in, among other things: (a) increased operating costs, including increased legal expenses, insurance, administrative expenses and associated costs; (b) uncertainties as to our future direction, which could result in the loss of potential business opportunities and could make it more difficult to attract, retain, or motivate qualified personnel, and strain relationships with investors and customers; (c) reduction or delay in our ability to effectively execute our current business strategy and to implement new strategies; and (d) fluctuations in our stock price based upon temporary or speculative market perceptions rather than the Company's underlying business fundamentals. The Board remains actively focused on its fiduciary duties minimizing further disruptions caused by the recent actions of our largest investor, and supports the company’s strategic direction, execution of our near- and long-term business goals.