A G E N T L E R A L T E R N A T I V E I R I D E X C O R P O R A T I O N 2 0 0 0 A N N U A L R E P O R T LASERS FOR OPHTHALMOLOGY AND AESTHETICS 2 0 0 0 A N N U A L R E P O R T S A L E S R & D E X P E N S E N E T I N C O M E $33.4 $5.3 $2.4 $26.9 $23.6 $18.1 $12.4 $3.9 $3.1 $1.7 $1.3 $2.1 $1.7 $1.6 $1.0 1996 1997 1998 1999 2 0 0 0 1996 1997 1998 1999 2 0 0 0 19 96 19 97 1 998 199 9 2 0 0 0 dollars in millions dollars in millions dollars in millions 2 0 0 0 S A L E S INTERNATIONAL $11.9 DOMESTIC $21.5 dollars in millions I R I D E X C O R P O R A T E O F F I C E Mountain View, California F O R T H E F I S C A L Y E A R 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 Sales Operating Income Net Income Diluted Net Income Per Common Share Shares Used in Per Share Computation E N D O F F I S C A L Y E A R Working Capital Total Assets Total Shareholders’ Equity $ $ $ $ $ $ $ 12, 372 18, 098 23,644 26,852 982 1, 005 0. 16 6, 410 2, 671 2, 098 0. 31 6, 755 1,820 1,748 0.26 6,765 1,825 1,618 0.24 6,849 20, 777 23, 707 21, 478 21, 716 26, 686 23, 880 23,450 28,377 25,885 23,842 32,763 27,504 dollars in thousands 2 0 0 0 33,437 2,787 2,416 0.33 7,285 27,005 35,025 30,500 2 0 0 0 F I N A N C I A L H I G H L I G H T S 1 2 0 0 0 A N N U A L R E P O R T R E T T E L S ’ T N E D I S E R P 2 D E A R I R I D E X S T O C K H O L D E R : Fiscal year 2000 was a record year for IRIDEX Corporation in sales and profits. Sales grew by 25% to $33.4 million, up from $26.9 million in 1999, while net income for the year was $2.4 million, a 49% increase from 1999. We are proud of those accomplishments. The majority of our sales continue to be generated from our family of IRIS Medical® OcuLight® photocoagulator systems used by ophthalmologists to treat the leading causes of blindness: age-related macular degeneration (AMD), diabetic retinopathy and glaucoma. Our DioLite™ 532 addresses a need in the aesthetic market and is used by dermatologists and plastic surgeons for the treatment of vascular and pigmented skin lesions. During fiscal 2000, IRIDEX continued to advance its crusade to improve the outcomes of laser treatments provided by ophthalmologists and cosmetic surgeons. These improvements are based upon a core IRIDEX strategy — to provide devices and develop applications that obtain effective therapeutic results with fewer side effects. This is accomplished by delivering the right dose of laser light to the right place at the right time. IRIDEX has been a pioneer in developing these Minimum Intensity Photocoagulation (MIP) laser treatment protocols as a gentler alternative to conventional photocoagulation treatments. IRIDEX leads the market with core technologies that can accurately deliver controlled doses of laser energy to enable MIP procedures. M I N I M U M I N T E N S I T Y P H O T O C O A G U L A T I O N ( M I P ) I N O P H T H A L M O L O G Y : Since “above all do no harm” is the basic principle for any medical therapy, we believe MIP represents its closest expres- sion in laser therapy. MIP is central to our ophthalmology strategy and our OcuLight SL and OcuLight SLx infrared laser these systems procedures. MIP protocols are now used in many of the AMD and diabetic retinopathy procedures we pursue and support. The potential of MIP is substan- tial and offers benefits for both the patient and the ophthalmologist. The patient benefits because MIP is a gentler, less are optimized for CO N VE N TION A L PH OTOCOA GU LATIO N Patients with Better Vision Patients with Worse Vision PATIENT TREATMENT POOL Disease Process/Progression (TIME) s t n e i t a P f o r e b m u N e s a e s i D e l b a t a e r T h t i w figure 1 l e D w f o h t i i t a P s t n e e s a e s i b a t a e r T r e b m u N Patients with Better Vision MIN IM UM INTENSITY P HO TOCO AGU LATIO N ( MIP ) • Fewer complications • Earlier treatments • Better vision results • More treatable patients damaging and more selective alternative to conventional photocoagulation. For these reasons, MIP may be implemented earlier in the disease process when visual loss is less profound and the treatment outcome is more favorable for the patient. The ophthalmologist benefits from the addition of a larger number of patients with an earlier stage of the disease to the potential treatment pool. This concept is illustrated schematically in Figures 1 and 2. In general, the timing of a treatment intervention is determined by its risk-to- benefit ratio. A treatment option with equal benefit and lower risk (i.e. complications) can ethically be implemented earlier in the disease process, thus benefiting a greater number of patients. Finally, third party reimbursement agencies can also benefit by the substitution of less costly MIP procedures for more invasive, complicated and expensive interventions. Disease Process/Progression (TIME) Patients with Worse Vision PATIENT TREATMENT POOL figure 2 M I N I M U M I N T E N S I T Y P H O T O C O A G U L A T I O N ( M I P ) I N A E S T H E T I C S : MIP technology is equally important for our aesthetics products where skin protection and patient comfort combined with effective outcome are essential. The DioLite 532 treatment parameters are optimized to close small blood vessels and remove pigmented spots quickly and effectively while minimizing injury to the non-target tissue for a “bruise-free” result. We are in the process of introducing the Apex™ 800 laser system for the removal of unwanted hair. The Apex 800 refines the art of laser hair removal by optimizing the right balance of laser parameters with skin cooling protection to effectively and comfortably remove hair to its roots. The Apex 800 will allow IRIDEX to participate in the $2 billion annual hair removal market. We believe that maintaining leadership in MIP will allow us to substantially expand the market size for our products and to provide better long-term value for our customers, their patients and our investors. Thank you for your continued trust and support. Sincerely, T H E O D O R E A . B O U T A C O F F President & CEO P R E S I D E N T ’ S L E T T E R 3 2 0 0 0 A N N U A L R E P O R T Y G O L O M L A H T H P O 4 I R I D E X F O C U S E S O N product devel- opment and clinical procedure validation to assist ophthalmologists in treating the leading causes of legal blindness: glauco- ma, diabetic retinopathy, and age-related macular degeneration (AMD). Over the years, IRIDEX has successfully achieved market leadership by incorporating advanced solid-state technology into IRIS CONVENTIONAL ARGON PHOTOCOAGULATION FOR AMD Medical OcuLight® laser products to treat Immediate Post-Operative these diseases as well as retinopathy of prematurity, ocular tumors, and retinal detachments. IRIDEX is now leading the move- ment toward Minimum Intensity (subthreshold) Photocoagulation (MIP) 2 Months Post-Treatment *Note Burn Progression procedures. The objective is to treat more MIP FOR AMD patients earlier in the disease process with fewer complications and a higher likeli- hood of vision preservation. MIP treatment is so gentle that the patient cannot feel it and doctors cannot see it, yet the treatment the late stages of the disease because t h e i m m e d i a t e vision loss from treatment was con- sidered better than the natural history of the disease. If doctors can provide MIP treat- ment that is so gentle to the eye that it does not cause vision loss, they can treat more patients earlier in the disease progression; therefore preserving better vision. MIP procedures are being developed to treat diabetic retinopathy, a disease that affects half of all Americans with diabetes. This progressive disease damages the retina and leads to blurred vision and often blindness. The longer a person has triggers a biological healing response with minimal complications. Pre-Treatment diabetes, the greater his/her chances of developing retinopathy, A Healthy Eye M A C U L A Over the past eight years, IRIS Medical products have been used as the basis for the development of MIP procedures. One area in particular is in the treatment of AMD at different stages of the disease. AMD is a progressive condition that damages the macula (the area of central vision) and is the leading cause of blindness for persons 65 - 74 years of age. Worldwide, there are an estimated 50 million people affected with AMD. Prior to MIP, conventional argon laser treatment for AMD was performed in 4 Months Post-Treatment *Note No Visible Burns *Burns indicate damage to the retina, signifying vision loss. and with insulin, diabetics are living longer and have a greater chance of developing retinopathy. IRIDEX believes MIP procedures hold much promise in halting the progression of sight-threatening diseases and in preserving vision; and will continue its commitment to support research, collaborate with physicians, and develop products, to bring MIP to patients globally. O P H T H A L M O L O G Y 5 2 0 0 0 A N N U A L R E P O R T S C I T E H T S E A 6 S I N C E T H E D E V E L O P M E N T of the first continuous wave CO2 and argon lasers nearly 40 years ago, the aesthetic laser market has virtually exploded. At effective treatment while minimizing injury to non-target tissue. Treatment is also comfortable. Patients are typically treated without anesthesia and feel only a mild “pin prick” sensation during treatment. After treatment, the treated area the cornerstone of this growth are V A S C U L A R L E S I O N S may experience slight swelling or redness which typically lasts products like those produced by IRIDEX. The IRIDEX family of aesthetic lasers use Minimum Intensity Photocoagulation (MIP) technology to provide effective and gentle laser procedures. The DioLite™ 532 for vascular and pigmented lesions, and the Apex™ 800 for the removal of unwanted hair are being used by an expanded group of professionals including only a few hours. Most patients can return immediately to work and social obligations. Pre-Treatment chemical depilatory creams, razors, stinging wax and painful A P E X 8 0 0 : Every year, billions of dollars are spent on electrolysis to remove unwanted hair. The compact, Apex 800 laser system will offer a gentle, effective and long lasting alterna- tive to these tedious and painful methods. general practitioners, gynecologists and Immediate Post-Treatment The state of the art Apex 800 harnesses the principles of other specialists interested in expanding their revenue base and practices. selective photothermolysis to deliver the right balance of wave- length, spot size, energy density and long pulse duration to P I G M E N T E D L E S I O N S effectively injure the follicle while sparing the skin. The Apex 800 D I O L I T E 5 3 2 : The DioLite 532 is a compact semiconductor- based laser system for treating spider-veins, freckles, age spots and other vascular and pigmented skin lesions. Part of the appeal of the DioLite 532 is its ability to treat a vast patient population quickly, gently and with minimal follow-up. Often termed a Pre-Treatment “lunchtime” procedure, the DioLite 532 uses long pulses of laser light to gen- tly heat the vessels, coagu- lating and collapsing them without disrupting them for a bruise-free appear- ance. Treatment spots are optimized to provide fast, 3 Weeks Post-Treatment features the ColdTip™ contact cooling handpiece for unsur- passed patient comfort and protection to the skin. The design of the ColdTip hand- piece and its “subzero” contact cooling protects the skin and provides a cooling anesthetic effect before, during and after the laser pulse. This enhances patient comfort and allows the system to be safely and effectively used on a wide range of skin types. A E S T H E T I C S 7 2 0 0 0 A N N U A L R E P O R T Y R O T C E R I D 8 B O A R D O F D I R E C T O R S E X E C U T I V E O F F I C E R S John M. Nehra Chairman of the Board Managing General Partner Catalyst Ventures General Partner New Enterprise Associates Theodore A. Boutacoff President and Chief Executive Officer IRIDEX Corporation Robert K. Anderson Co-Founder, Former Chairman and Chief Executive Officer Valleylab, Inc. Chairman Meritech, Inc. William A. Boeger, III Chairman Calypte Biomedical Corporation James L. Donovan Vice President, Corporate Business Development IRIDEX Corporation Donald L. Hammond, D.Sc. Former Director Hewlett Packard Laboratories Joshua Makower, M.D. Chairman of the Board and Chief Technical Officer TransVascular, Inc. Theodore A. Boutacoff President and Chief Executive Officer Eduardo Arias Senior Vice President, Worldwide Sales James L. Donovan Vice President, Corporate Business Development Robert Kamenski Vice President, Administration and Chief Financial Officer Timothy Powers Vice President, Operations A N N U A L M E E T I N G IRIDEX Corporation’s 2001 annual meeting of stockholders will be held on: Wednesday, June 6, 2001 2:00 p.m. Pacific Time 1212 Terra Bella Avenue Mountain View, California 94043 C O R P O R A T E H E A D Q U A R T E R S IRIDEX Corporation 1212 Terra Bella Avenue Mountain View, California 94043 Telephone: 650-940-4700 Facsimile: 650-940-4710 C O R P O R A T E C O U N S E L Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 I N D E P E N D E N T A C C O U N T A N T S PricewaterhouseCoopers LLP Ten Almaden Boulevard, Suite 1600 San Jose, California 95113 T R A N S F E R A G E N T A N D R E G I S T R A R Fleet National Bank c/o EquiServe P.O. Box 43010 Providence, RI 02940-3010 Investor Relations Number: 781-575-3400 Internet Address: www.equiserve.com I N V E S T O R R E L A T I O N S Publications of interest to current and potential IRIDEX investors are available without charge upon request. These include the annual report, quarterly earnings releases, and Forms 10-K and 10-Q filed with the Securities and Exchange Commission. In addition, the Company maintains certain financial information on the IRIDEX Web site at http://www.iridex.com. D I R E C T I N Q U I R I E S T O : Investor Relations IRIDEX Corporation 1212 Terra Bella Avenue Mountain View, California 94043 650-940-4700 C O R P O R A T E D I R E C T O R Y I R I D E X C O R P O R A T I O N 1212 Terra Bella Avenue, Mountain View, California 94043 USA P H O N E 650.940.4700 F A X 650.940.4710 W E B www.iridex.com I R I D E X C O R P O R A T I O N 1212 Terra Bella Avenue, Mountain View, California 94043 USA P H O N E 650.940.4700 F A X 650.940.4710 W E B www.iridex.com