Executive Officers Board of Directors Annual Meeting Barry G. Caldwell President and Chief Executive Officer Eduardo Arias Senior Vice President, International Sales and Business Development James L. Donovan Vice President Corporate Business Development Timothy S. Powers Vice President, Operations Larry Tannenbaum Sr. Vice President and Chief Financial Officer Donald J. Todd Vice President, Marketing Theodore A. Boutacoff Chairman of the Board Co-Founder, Former President and Chief Executive Officer IRIDEX Corporation Robert K. Anderson Co-Founder, Former Chairman and Chief Executive Officer Valleylab, Inc. Chairman Meritech, Inc. Barry G. Caldwell President and Chief Executive Officer IRIDEX Corporation James L. Donovan Vice President Corporate Business Development IRIDEX Corporation Sanford Fitch Director, Ozone International Director, FoxHollow Technologies, Inc. Garrett A. Garrettson, Ph.D. CEO Fresco Technologies, Inc. Managing Partner daVinci Consulting LLC Donald L. Hammond, D.Sc. Former Director Hewlett-Packard Laboratories IRIDEX Corporation’s 2006 annual meeting of stockholders will be held on Thursday, June 8, 2006 at 10:00 a.m. Pacific Time at 1212 Terra Bella Avenue, Mountain View, California 94043. Corporate Headquarters IRIDEX Corporation 1212 Terra Bella Avenue Mountain View, California 94043 Telephone: 650-940-4700 Facsimile: 650-940-4710 Corporate Counsel Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Independent Registered Public Accountants PricewaterhouseCoopers LLP Ten Almaden Boulevard, Suite 1600 San Jose, California 95113 Transfer Agent and Registrar Computershare Trust Company, N.A. P.O. Box 43023 Providence, RI 02940-3023 Stockholder Inquiries: 781-575-2879 Internet Address: www.computershare.com Investor Relations 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 website at www.iridex.com. Please direct inquiries to: Investor Relations IRIDEX Corporation 1212 Terra Bella Avenue Mountain View, California 94043 Telephone: 650-940-4700 Executive Management Team Barry G. Caldwell– President and CEO, Deborah Tomasco– VP, Product Innovation, Timothy S. Powers– VP Operations, Donald J. Todd– VP, Marketing, Kenneth R. Bice– VP, Sales USA, Eduardo Arias– Sr. VP, International Sales and Business Development, David M. Buzawa– VP, Research, Larry Tannenbaum– Sr. VP and CFO IRIDEX Corporation, 1212 Terra Bella Avenue, Mountain View, California Phone: 650.940.4700 Fax: 650.940.4710 Web: www.iridex.com I R I D E X A n n u a l R e p o r t 0 5 o p h t h a l m o l o g y d e r m a t o l o g y Leading the industry in laser therapies that treat eye diseases and conditions of the skin l e t t e r t o o u r i n v e s t o r s f i n a n c i a l h i g h l i g h t s To Our Investors, It is with great enthusiasm that we report to you our progress during 2005, which in several ways was a record year for IRIDEX. We have created the vision for our future growth and began to see encouraging results during 2005: • Revenue grew by 13% to a record level of $37 million. • Ophthalmology revenues increased by 11% and dermatology by 26%. • Domestic sales grew by 14% while international sales grew by 11%. • Gross margins increased by nearly four percentage points. This was based primarily on the impact of our increased sales of disposable products and cost reduction programs. • Balance sheet metrics improved, including reduced inventory levels with better inventory turns and additional reductions in our days sales outstanding. • Cash flow generated $3.4 million. • In 2005 we earned $1.7 million in net income or $0.21 per share. We exited the year with a record $21.4 million in cash, which was the highest in our history and represented a 19% improvement over year-end 2004. . i n t r o d u c t i o n s . 2 0 0 5 p r o d u c t . Within dermatology, we introduced two new products in 2005: the DioLiteXP which is a 532 nm wavelength laser with enhanced power and the ScanLiteXP which allows customers to treat a larger area more efficiently. In addition, we had a full year in sales of our VariLite™ 532/940 nm dual wavelength laser console. In ophthalmology, we expanded our console product line with the introduction of the OcuLight® OR laser for both ophthalmic and otological applications. We also introduced several new dispos- able EndoProbes® during the year including a new series of Stepped EndoProbes. . . i n v e s t i n g i n o u r t e a m . A strong IRIDEX marketing drive is an important stimulus to our future growth strategy. A very experienced marketing executive joined the team as our Vice President of Marketing and we have added new market managers for the ophthalmology and dermatology segments. We have also reorganized our product innovation team under the leadership of our new Vice President of Product Innovation who brings many years of experience in rapid product development processes and developing and managing high performance teams. Our seventeen engineers have an average of 22 years experience in medical devices and we believe that we can significantly improve our delivery of new products focused on the unmet needs of our customers. In addition, we have expanded our domestic ophthalmic sales team in order to increase our share of disposable revenues. . . w e l . Our stated goal is to reach $100 million in annual revenues before 2010. There are three legs to our growth strategy: p o s i t i o n e d f o r g r o w t h l • Earn double digit percentage growth in our core business. This will be accomplished with new sales and marketing focus on increasing our market share in console sales and disposables. Our recurring revenues (disposables and service) represented 36% of our total sales in 2005, which was an increase over the 33% in 2004. Our goal is to reach over 40% in recurring revenues in the next few years on an increasing revenue base. • Customer focused new product introductions. With our restructured Product Innovation Group (PIG) combined into one united group under new leadership, we believe that our percentage of revenues derived from new product introductions will significantly increase. • New focus on external growth. A new team has been established to focus on additional OEM opportunities with our technology and strategic acquisitions which can enhance our overall growth rate. . . t r a n s i t i o n y e a r . This has been an exciting year for me to join the IRIDEX team and to build my understanding of the opportunities to grow our business. At midyear, Ted Boutacoff stepped down after having served 17 years as our CEO. Ted and the other co-founders are to be credited for creating the strong foundation from which we have to grow. Ted became the Chairman of the Board as Don Hammond who has served on the Board for 16 years stepped down from the Chairman’s role, but remained on the Board. The Company very much appreciates the past contributions and future participation of both Ted and Don, as well as the other members of our Board. We will not lose sight of our shareholders who have been key to our success in the past and will continue to be so in the future. While pleased with our progress in 2005, we look forward with great confidence to what our new team can achieve in the coming years. Our success comes from our people, who have embraced change and will diligently work to exceed our growth expectations. Thank you. Barry G. Caldwell President and Chief Executive Officer (Dollar and share amounts in thousands except per share data) Sales to Customers $37,029 $32,810 $31,699 $30,634 $27,275 Net Income (loss) $1,671 $(402) $371 $150 $(601) 13% 516% 4% -208% 2005 2004 2003 2002 2001 ‘05 v ‘04 ‘04 v ‘03 Earnings per share $0.21 $(0.06) $0.05 $0.02 $(0.19) 450% -220% Cash* (cash, cash equivalents and available-for-sale securities) Total Assets Working Capital Cash* per Share Market Price (year-end close) $21,434 $18,028 $16,292 $11,542 $9,102 19% 11% $41,104 $39,053 $35,839 $34,272 $33,788 $32,330 $25,342 $28,462 $28,072 $26,374 $2.72 $7.86 $2.50 $4.24 $2.30 $5.40 $1.67 $2.84 $1.35 $4.21 5% 28% 9% 85% 16% 11% 9% -21% 2 0 0 5 r e v e n u e s product revenues geographic revenues Derm Lasers 15% Growth Rate 2005 over 2004 Derm Lasers 26% Recurring 21% Ophth Lasers 4% Growth Rate 2005 over 2004 Domestic International 11% 14% Ophth Lasers 49% Recurring 36% International 39% Domestic 61% 25 20 15 10 5 0 120 90 60 30 0 2.5 2.0 1.5 1.0 0.5 0.0