Quarterly Report for Quarter Ending September 27, 2025 (Form 10-Q)

Management's Discussion and Analysis ofFinancial Condition and Results of Operations

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 propriety 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 both retinal diseases and glaucoma.

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

Our laser consoles consist of the following product lines:

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:

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 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.

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 the Company's products, the Company is 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, inflation concerns, tariffs and retaliatory responses, trade wars, lapse in government funding, healthcare reform initiatives, heightened interest rates as a result of government actions to combat inflation, and uncertainty in the global banking and financial services market, as well as other geopolitical developments, have impacted and may continue to impact business spending and the economy as a whole. As a result, the Company has seen customers extend purchase decision cycles. If the U.S. dollar strengthens again, the Company could experience some demand softness due to pricing effects from the strength of the U.S. dollar.

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 December 28, 2024.

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 September 27, 2025 and September 28, 2024 (in thousands):

Revenues

Our total revenues increased by $0.9 million, or 7.8%, from $11.6 million to $12.5 million. All of our product groups increased, led by probe sales in the glaucoma product group and system sales in the retina 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 uncertainty, tariffs and trade wars.

Gross Profit and Gross Margin

Gross profit decreased $0.3 million, or 7.2% from $4.3 million to $4.0 million. Gross margin decreased by 5.2% from 37.3% to 32.1%. The decrease in gross margin was driven by a $0.8 million loss on inventory write down, partially offset by shift to more favorable geographic and product mix.

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.

Research and Development

Research and development expenses decreased by $0.3 million, or 25.2% from $1.3 million to $1.0 million. 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.

Sales and Marketing

Sales and marketing expenses remained relatively flat, though we continued realizing cost savings from lower headcount and being disciplined with our expenses.

General and Administrative

General and administrative expenses decreased by $0.4 million, or 20.2% from $2.2 million to $1.8 million. The decrease was a primarily due to a decrease in consulting costs.

Other Expense, Net

Other expense, net was $158 thousand for the three months ended September 27, 2025 compared to $46 thousand for the three months ended September 28, 2024. Other expense, net, consisted primarily of interest income or expense and foreign currency gain or loss.

Income Taxes

The Company recorded an income tax provision of $4 thousand and $17 thousand for the three months ended September 27, 2025 and September 28, 2024, respectively.

The following comparisons are between the nine months ended September 27, 2025 and September 28, 2024 (in thousands):

Revenues

Our total revenues increased by $2.0 million, or 5.5%, from $36.0 million to $38.0 million. All of our product groups increased, led by probe sales in the glaucoma product group and system sales in the retina 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 discussed above.

Gross Profit and Gross Margin

Gross profit decreased $0.1 million, or 1.2%, from $13.9 million to $13.8 million. Gross margin decreased by 2.5% from 38.7% to 36.2%. The decrease in gross margin was driven by a $0.8 million loss on inventory write down, partially offset by shift to more favorable geographic and product mix.

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.

Research and Development

Research and development expenses decreased by $1.6 million, or 37.3%, from $4.3 million to $2.7 million. 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.

Sales and Marketing

Sales and marketing expenses decreased by $2.2 million, or 22.6%, from $9.9 million to $7.6 million. The decrease was related to our cost savings measures, resulting in lower headcount expenses, consulting expenses, travel expenses, tradeshows and public relations expenses, and clinical studies expenses.

General and Administrative

General and administrative expenses decreased by $1.6 million, or 20.8%, from $7.5 million to $5.9 million. The decrease was a primarily due to a decrease in consulting costs and deal related legal expenses.

Other Expense, Net

Other expense, net, was $1.7 million for the nine months ended September 27, 2025, driven primarily by the costs associated with the settlement of the Lind Note. Other expense, net, was $0.2 million for the nine months ended September 28, 2024, consisting of interest and amortization of loan expenses related to the Lind Note transaction and foreign currency loss.

Income Taxes

The Company recorded an income tax provision of $37 thousand and $74 thousand for the nine months ended September 27, 2025 and September 28, 2024, 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 September 27, 2025, the Company had cash and cash equivalents of $5.6 million and working capital of $11.7 million compared to cash and cash equivalents of $2.4 million and working capital of $7.0 million as of December 28, 2024.

Net cash used in operating activities was $2.7 million in the nine months ended September 27, 2025 compared to net cash used in operating activities of $6.0 million in the nine months ended September 28, 2024. The decrease in net cash used in operating activities was primarily due to reduction in net loss and reduction in inventory, offset by decreases in collections of accounts receivable and a paydown of liabilities.

For the nine months ended September 27, 2025 and September 28, 2024, net cash used in investing activities was $37 thousand and $4 thousand, respectively, which consisted of capital expenditures.

For the nine months ended September 27, 2025, net cash provided by financing activities was $6.0 million. The Company received $10 million in issuance of convertible preferred shares and convertible debt, offset by $4.0 million in early prepayment of convertible debt and taxes paid related to net share settlements of equity awards. For the nine months ended September 28, 2024, net cash $2.8 million was provided by financing activities of issuance of convertible notes, net.

The Company has historically funded our operations primarily through sales of our products to customers, sales of our common stock and borrowing arrangements. As of September 27, 2025, our principal sources of liquidity consisted of cash and cash equivalents of $5.6 million. The Company has incurred net losses over the last several years, and as of September 27, 2025, have an accumulated deficit of approximately $92.3 million.

The Company's purchase commitments consist primarily of non-cancellable purchase commitments with vendors to manufacture certain components and ophthalmic instrumentation. As of September 27, 2025, the Company's future minimum payments through fiscal year 2027 for its purchase commitments were approximately $20.7 million, with $12.4 million committed for the next 12 months.

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.

The Company believes its existing cash and cash equivalents will be sufficient to meet its anticipated cash needs over the next 12 months. The Company's future capital requirements will depend on many factors, including its growth rate, the timing and extent of its 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 its costs to implement new manufacturing technologies. Any debt financing obtained by the Company in the future could also involve restrictive covenants relating to its capital-raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions. Additionally, if the Company raises additional funds through further issuances of equity, its existing stockholders could suffer significant dilution in their percentage ownership of the Company, and any new equity securities the Company issues could have rights, preferences and privileges senior to those of holders of our common stock.

Off-Balance Sheet Arrangements

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