Will Moore - Chief Executive Officer Jim Mackaness - Chief Financial Officer and Chief Operating Officer Susan Bruce - Executive Administrator.

Sam Bergman - Bayberry Asset Management Larry Haimovitch - HMTC Paul Sweps - Private Investor Stan Mann - Mann Family Investors Raymond Myers - Benchmark.

Greetings, and welcome to the IRIDEX Corporation 2015 Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It’s now my pleasure to introduce your host, Mr.

Will Moore, Please go ahead Mr. Moore..

Thank you, operator. Good afternoon and thank you for joining us as w discuss the results of second quarter of 2015. My name is Will Moore, I am the CEO of IRIDEX and I am joined by Jim Mackaness, our CFO and COO. Jim and I will be delivering some prepared remarks and then we will open the floor for questions.

Before we get started Susan Bruce will read the required Safe Harbor statement.

Susan?.

Thank you, Will. This conference call will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, relating to the effective currency exchange rates and other global and domestic market conditions; on the company’s business.

The products mix composing sales on future periods demand for the company’s products and market acceptance of the company’s new products, the timing and outcome of any steps that the company may take to address supply chain issues, the launch date and adoption of the company’s iClip Closure Device, the adoption, continued development, pricing model and contribution to earnings in future periods of the company’s Cyclo G6 product platform, the impact of these and other new products on the company’s business, trends in the global healthcare marketplace with respect to the treatment of eye diseases such as diabetic macular edema and glaucoma, the company’s growth strategy and growth opportunities including acquisitions, technology investments and strategic relationships, pricing of the company’s products, the company’s operating expense controls and cost reduction programs, and the impact of these controls and program’s on the company’s financial results, the company’s changes in personnel, the company’s share repurchase program, the company’s financial outlook and performance in the second quarter of 2015, fiscal year 2015 and future periods; changes in the company’s margins in future periods regulatory developments and approval for company products and the impact of sales cycles; tax rates and cash requirements related to tax obligations in future periods and other industry like factors affecting the company’s business.

These statements are not guarantees of future performance and actual results may differ materially from those described in these forward-looking statements as a result of a number of factors.

Please see a detailed description of these and other risks contained in our Annual Report on Form 10-K for the fiscal year ended January 2, 2015, filed with the Securities and Exchange Commission. Forward-looking statements contained in this conference call are made as of this date and will not be updated. I will now turn the call back over to Will..

Thank you, Susan. I would like to begin today with an update on our revenue pre announcement. If you did not see the announcement a few weeks ago, we notify the investors that IRIDEX felt the need to delay or halt a number of distributor shipments due to dislocation in the supply chain cause by some quality issues.

I will make two general points in addition to what was in the announcement and we will be happy to answer question in this topic later on in the call. First, the causing a disruption in quarter two revenues, were not on the demand side, I want to make that very clear.

The demand for our product to remain robust and in fact the buzz around our recently introduced laser system for the treatment of glaucoma continues strong and is very encouraging. Second, there is no safety issue, our lasers and all of our ophthalmology devices are built for safety and that has not changed.

I would characterize the issue we faced in the second quarter as straightforward growing pace. IRIDEX success with MicroPulse has taken us from a company generating around $8 million per quarter to a company generating $11 million plus per quarter.

It’s our decision to slow things down in the second quarter we had delivered 10 successive quarters of record revenues. It is not an excuse, and we ought to do, and will do better. I am pleased to say we have identified the causes of the issues that arose and are well into the process of taking corrective actions.

The issues include an RFID antenna, a software glitch and a small motor malfunction. We see fixing these items as a short-term production issue in terms of internal controls and making sure we avoid these issues in the future. We are taking extra steps and adding to administrative and engineering and quality control.

We are implementing additional quality protocols to screen products before we ship to be sure we catch any product before they go out of the door. This means, we are going a little slower, and adding little extra expense in the short term.

Great news is that we are continuing to ship and our new customers are happy also there have been no canceled orders. We expect in a matter of weeks to be back to 100% and filling a growing stream of orders. Our run rate remains very strong, I feel comfortable saying by Q4 we will be back in growth mode with another uptick in our numbers.

Jim will go over the financial details including revenue breakdowns, margins and an update on the stock buyback plan in a moment. But the highlight of the quarter has been our stage launch or controlled launch of our glaucoma product platform, the Cyclo G6 and featuring MicroPulse, we had a very strong start right out of the gate and has continued.

We launched the Cyclo G6 in February with two poster presentations with the American Glaucoma Society Meeting. We spent some time populating the direct sales force with their demos for the Cyclo G6. As of June 30, we had delivered a total of 25 systems including 16 in the second quarter. We are targeting a 100 by the year end.

What is gratifying to us is how physicians are responding, we have seen the agility of the G6 and many are performing multiple cases. Our original projections of $75 million to $100 million annual U.S.

market opportunity anticipate as being able to achieve an average of 10 procedures per month per laser with 2 to 3 lasers being purchased by each surgery site. We already have a number of our early adopters achieve these monthly procedures of volumes and two of the initial sites are in the process of purchasing their second laser.

This is all very early data that gives us strong confidence and the opportunity. The G6 represents a great example of operative and innovation and development capabilities. This is substantial product report from a specialist, and enhances our region to a broader group of ophthalmologist both within US and around the world.

It is also a great example of how we are shaping our business model to increase us the sale of follow on consumables under our razor blade model. Our goal is to develop a reliable, durable recurring revenue stream with this and other systems.

We have sold both capital equipment and consumables but the G6 is our first truly integrated platform and our first laser system designed specifically for glaucoma. At the moment, it includes a dedicated laser and two single use probes including the patented MicroPulse P3 disposable.

Our intention is to introduce another probe for the G6 in 2016 and continue to add to consumable product line on top of the G6 platform. I would also like to add that we continue to actively look for strategic opportunities in the marketplace. We are talking to new potential partners and other small companies that may be synergistic fits for us.

Before I turn the call over I would like to briefly comment on the news from earlier in the week. I would like growth for Jim Mackaness, a few words of thanks for all he has done for IRIDEX. Jim came to IRIDEX, when the company was struggling.

He has played a huge role in building IRIDEX into the commercially oriented company we are today and in creating a tremendous amount of value for our shareholders. Obviously, we hate to see him go. Jim has been a great partner for me and a great start for the company and all shareholders hold Jim some measure of gratitude.

That said the business move on and we have already commenced a search to find a world class CFO to fill his shoes. We look forward to filling the role and to moving towards our goals and continuing the scale this business. With that, I will turn the call over to Jim.

Jim?.

Thanks Will. As we noted in our press release and in Will’s comments, our revenues to Q2 2015 were $9 million compared to $10.6 million in the Q2 2014. Overall, system sales in Q2 2015 were $4.3 million compared to $5.8 million in Q2 2014. Domestic system sales were $2.2 million compared to $2.9 million in the second quarter of last year.

While international system sales were $2.1 million down from $2.9 million in the 2014 second quarter.

The shipment delays we noted in our preannouncement impacted overall revenue with international distributor shipments particularly impacted due to our decision to slow the business down until we had resolved the production challenges as we experienced.

The international system sales also continue to be impacted by the movement in exchange rates although to a lesser extent than we reported last quarter. Recurring revenues were $4.8 million in Q2 2015 consistent with recurring revenues of $4.8 million in the year earlier period.

The launch of the Cyclo G6 system had a positive impact on this year’s second quarter recurring revenues and we expect this to continue as we build on the momentum and carry on with the stage rollout. Gross margins in the 2015 second quarter came in at 46.7% compared to 50.0% for Q2 2014.

Margins were impacted by the lower overall revenues during the quarter and reflect the challenges we faced and with the foreign-currency movement creating some downward pressure on international system prices.

We see opportunities for margin improvements during the second half of this year through volume efficiencies with anticipated revenue increases and anticipated increases in consumables sales associated with the launch of the Cyclo G6 system.

Initially, we launched the Cyclo G6 system with a very disruptive pricing model with the thought of accepting some gross margin compression as we build up the installed base of the Cyclo G6 lasers.

However, due to the reception we have received so far, we have increased the start of package from 14,500 to 18,500 and this is anticipated to largely mitigate any effect on overall gross margin. Operating expenses of Q2 2015 were $5 million up slightly from $4.9 million in Q2 2014.

The growth over last year reflects a variety of investments both commercial and product development for near and long-term strategies to continue growing our market share and to take advantage of opportunities in both retina and glaucoma market.

Consequently, the reported an operating loss in 2015 second quarter of $0.7 million compared with operating income of $0.4 million in the prior year’s second quarter. The net loss for this year’s second quarter was $0.7 million or $0.07 loss per share compared to net income of $0.3 million or $0.03 per diluted share for the prior year period.

For the 2015 third quarter shipments will still be impacted as we complete the fixes and make certain that the outgoing products are free from issues. However, we anticipate revenues to improve over Q2 and come in between $9.7 million and $10 million.

Gross margin is anticipated to be between 47% and 49% and operating expenses are expected to be between $4.9 million to $5.1 million and we anticipate that the fourth quarter should be free of any residual impact from the movement interruptions and back to a more normative pace.

Turning our attention to the stock repurchase program, as of July 20, 2015 we had satisfied our share repurchase program established a year ago by approximately 367,000 shares at an average price of $8.17.

Effective today the board established a new share repurchase program allowing the purchase of up to $2 million worth of company’s common stock over the next 12 months. Finally, I would like to thank Will, the board, all of the employees and all of you for the kind stand-off I received following Tuesday’s announcement of my impending departure.

It’s been a pleasure working with and serving all of you in my role at IRIDEX over the last 7.5 years. I am very confident in the plans and opportunities at IRIDEX. I think the Cyclo G6 is going to be a great growth catalyst and I am certain there are many good things to come in the future for the company and its stakeholders.

And with that, I will turn the call back over to Will..

Thank you, Jim. I would like to conclude by reiterating that the chance that rose in the second quarter and our response that will take us through the third quarter have nothing to do with demand of our products.

We are disappointed that we had to break our string of ten successive record revenue quarters, unfortunately, we are not seeing competitors take business away from us. Demand remains strong and we continue to see a growing rate of orders.

That said, we are in no way taking anything for granted and know we need to maintain our track record of the highest quality and dependability in the field. We have identified the specific issues that effected our production and are only a short term away from winning back to 100%.

We continue to make inroads with our value based management approach from emerging markets which is additive to our growth in the U.S. We continue to develop new products and product platforms like the Cyclo G6 that show a huge potential in the growing glaucoma marketplace.

Our products are a natural fit for this market and we are focused on capturing a large part of it. As we continue to build a recurring revenue stream, there will be removed dopiness from our results. With that, I will turn the call over to the operator for questions.

Operator?.

Thank you. We will now be conducting a question-and-answer session [Operator Instruction] Our first question comes from the line of Sam Bergman with Bayberry Asset Management. Please proceed with your question..

Good afternoon Will or Jim and best of luck Jim on your new indebtedness..

Thank you, Sam..

Well couple of questions, on the product issue, can you tell you how you cited the issues at the end are going to be fixed and how do we know those issues won’t come up in the future, what you do have for protection against all those issues?.

Well first thing we had is our Vice President of Operations formed a steering committee to identify the one issues that came up, we categorize them and then we begin to attack them.

We have hired two new individuals one of which is an RFID expert and within a very short period of time we discovered what the problem was on the RFID antenna issue and that’s really not a scientific issue, it’s simply that the antenna and the tags must work in harmony and when their peak performance values drift a little bit, you know, it’s kind of like a cell phone if you will, you start to lose package you lost communication, and Howard [ph] the new gentleman discovered that, went back to the vendor and they tightened up the speck and that’s what we are seeing improvements there.

In regards to software things, that this is just working a way through that you find a little bug and you go back and you deal with it and the last one I would say the malfunction on the motor, that was simply a using trimp pods that with for some reason we are drifting shipment, we can change that to fix resistors and then put this back in place.

I don’t think these specific problems will arise again but again any manufacturer can have little glitch here and there but I think the big piece is procedures and policies have been put in place to prevent us from letting those kind of vendor issues drift and cause us some problem in the supply chain..

Okay, got….

No, no go ahead..

So going through all these the ten quarters that you had all this growth, none of these quality issues arose at all at that point or at any point during the ten quarters, I am just wondering who was the IM, on the ball to have those happen, I mean this doesn’t make a whole lot of sense, you had all those issues in one quarter?.

I think it’s like the perfect storm and I don’t think we really took the eye off the ball in that regard, Sam. My interest is fixing the problem and solving it and then putting corrective action in place. I will give you some examples of what is going to happen.

You have a vendor shipping you something on a regular basis for years and it just drift a little bit out of spec, okay you catch it, you solve it, it drifts a little bit, we don’t catch and that is what it happens.

But the problem that happened, we have issues and we’ve had since the day I have been here little problems that come and go, you never know about them.

Okay, but what happened approximately six weeks ago as we watch the what I will call it the complaint ratio go from the 2% to 3% range jumped overnight and all that means is something got in the production line and there was a problem and that’s when we said, hold back, let’s identify it, let’s fix it and deal with it and that’s what was done..

Okay, going to the second feat, let me ask you that product line, the G6, how many modules do you have of that now?.

Well, we delivered through the quarter 25 to new customers, these are not our investigative customers, these are new customers and we put our demos in the U.S., the U.S. sales force now is totally outfitted with demos, we have revenue up 25 and demos has another, I would say 18 or something of that nature as we’ve got somewhat in the independence.

There is nothing outside the U.S. on that product at this point in time..

How much of a market is there outside the U.S.

at this, I mean even though you haven’t put any out there?.

A general rule of thumb in the medical device business you look outside the U.S. and you say its equivalent to the U.S. market..

So, if you look at what you do with your other products it seems like the ratio of 60:40 or 55:45 overseas U.S.

when should we expect some overseas in terms of alliances with the partners to bring that product there?.

Well, I think that has more to do with our ops department, every time you bring out a brand new product you are going to run into little glitches or bugs when you start, so as Ron, our VP of OPs goes through this, he will give me the green light that says, we can produce – going from 20 or 30 a month to a 100 is relatively straightforward but going from 0 to 20 or 30 is the difficulty.

Once he says, green light then we will deliver. I suspect that sometimes towards the end of the year, first of the year.

The other part of that is Sam, we have to create, we know the science and this works well, but there is limited art or technique on how you use it and you want to make sure that the doctors get into using it correctly, so that if it doesn’t give him the results they want, they know that it’s there, issue not the products to use and as we build that community and Ron tells us that he has got the ability to gear up, we will expand and do the same thing outside the U.S..

I see.

So, it will become a terrific product once you start reaching those hundred plus numbers?.

Well, I think you are a great model builder, you can look at it and say it how many sites there is roughly 1500 to 1800 sites in the U.S. that are doing this type of treatment, each one doing one to three lasers and each laser doing 10 plus probes per month that are price point between 150 and 200 each probe, you can see how it works..

And the last question is on R&D what’s your expectations on R&D the rest of the year?.

I don’t understand the question, what do you mean by expectations?.

In terms of low growth increase in R&D, I mean do you have any numbers for us on that?.

Expenditures wise?.

Expenditure wise, right..

Sam, I will give you, I think probably we got two mitigating forces which means probably end of it, little bit level, in other words having finished off the Cyclo G6, we got a couple of the other probes that we are looking to ramp up is ultimately you want more probes that will see a little bit of diminishment in the expenditures but at the same time back to one of Will’s earlier comments, we are looking to increase a little bit of the bench strength and it gets back to your comment about how we are going to make sure that we don’t end up with these types of sort of spec issues on our products going forward, so the net of it is probably it will be somewhat flat through the next couple of quarters..

And just the glaucoma product with illumination, what is that expected to be out?.

It’s really awaiting FDA clearance.

In other words, we have all of the componentry, we’re just finishing up on the illuminated probe, one of the illuminated probes but we really think the gating item is that is with the FDA and as you know that’s a little bit difficult for us to forecast but we anticipate putting our submission in very shortly and then just see how long the review process is to get it out.

We don’t think it’s a high risk because it is just really getting the clearance on the illumination concept but we do have to go through that process to make sure we got everything lined up..

Thank you very much..

Thank you, our next question comes from the line of Larry Haimovitch with HMTC. Please proceed with your question..

Thank you, operator. Hi, Jim. All the best in your new position..

Thank you, Larry..

We are going to miss you.

Checking with some of the doctors the feedback I have been receiving on the glaucoma initiative is very positive, I am wondering, if you can share some of your own experiences, I know you get out in the field, I know you talk to doctors pretty regularly, what kinds of feedback are you getting both good and or bad regarding the product itself at this point?.

Okay Larry, I’m going to answer it in two parts, one is just a general statement from a physician and then I will give you a three different patient data points.

A local physician here has said from the beginning he has achieved a success rate of approximately 70 to 75% reduction in IOPs to a level that he is satisfied with and that has improved to about 80% as his experience has gone up.

He says this is compared to about a 50% success rate with SOC over six to twelve month period, that’s pretty exciting for me, on one side now if I look at the patients just give you kind of an array of patients, patient one was the patient that had a risk of incisional surgery, it’s a 52-year-old man in New York presented with IOP of approximately of 32 on max meds, he was prone to heavy bleeding thus the risk with the surgery.

To form the MP3 the pressure was decreased to 19 and reduced to two meds.

Another female patient presented herself with excessive eye pain caused from high-pressure, she was from Ohio, presented with an IOP of 38 and a massive pain on max meds, performed the MP3, IOP reduced to 23 in the first day and she felt much better and it has reduced her pain from the pressure eye.

A third patient had a cornea donor, the patient in New York presented with an IOP of 44 on three meds, previous [indiscernible] removal and penetrating donor cornea from the MP3 pressure decreased significantly to 18 without disturbing the donor cornea and nor creating any intraocular information, I think those kind of responses are just a sample and I can go through a number of them but I think that’s what give me the excitement, the product works, the product delivers results and doctors seem to be very happy..

And as you get more mature in that product line the disposables become a much bigger part of the mix and I am assuming those disposables would carry considerably better margins, gross margin, manufacturing margins than you do on your capital equipment..

Well I think first part of that question is absolutely correct, we have a few customers now that are in excess of the 10 probes per month so I believe that that is working fine. I will let Jim answer the question on the margins..

Yes, Larry, you are absolutely correct. The launch we have is on the probe side as we have very healthy, that we come in at the top end of our range on our margin product so that makes it very exciting for us..

So this product line as it grows in importance overtime lifts up over all corporate margin..

Yes I mean if you, if you have seen any of our investor presentation you will notice that within the financial goals we have stated idea of being able to get ourselves to a target of greater than 55% on the long-term gross margin and drivers have always been the first foremost the volume, recently up until the last quarter we saw the benefit of that, we have done little but of cost reduction which is helping and the third component was always the growth on the consumable part of the business and I think now we are starting to be at a show to the external world what we meant by that statement and so Larry to your comment, yes, one would anticipate that that would drive us to a more heavier mix on the consumables to capital in the same presentation, it kind of looked to the 60:40 mix and net of that is it’s pretty self-apparent if you grow the highest margin contributing product line you would anticipate your overall average margin to continue to move up..

Great, I have one more question and I will jump back in the queue, well you are going to ship a 100 this year that’s the target, I am assuming that next year you could do better than that given that you wouldn’t be in a controlled launch is that a reasonable assumption that you could easily do much better than a 100 next year and by the end of next year, you could have well over 200 installed base, is that, am I thinking correctly here?.

You are thinking correctly..

Yes and…..

Are you working for a guidance number or the idea is….

No, that was a very turn centered, you want to give me a little more on that?.

Okay, I will try to answer your question..

[Indiscernible].

I would say we are going to do 100 units within the U.S. with our sales force here and we should be in full operation early 2016 on a global basis. I don’t see why the U.S. can’t duplicate what they are doing this year, and I don’t see why we can’t be equivalent on an international basis for 2016..

And the international business model would be the same it would be still all the disposable you know capital equipment first followed by an unarmed growing consumable?.

Now, we haven’t talked about it but the issue with the probes in the past we produced very high quality probes that would last for example the G-probe they would use it 10, 15, 20 plus times, these new probes have a like to the – that would assure us that they can only use them a few times for their discard it and they get another one..

Okay. So, in fact it’s just a onetime use and thinking about my model I was thinking 10 probes per month would be 10 procedures but you are saying that could actually be more than 10 procedures..

Yes, I think it’s possible Larry, I mean, I think what’s going to, this is conjecture opinion is that physician A is going to buy them and treat patients one at a time, it’s normal way one a time and then here she is going to say, I am going to have a IRIDEX G6 day and I am going to line patients up and that probe has a life of….

90 minutes..

90 minutes before it dies..

Oh I see, okay..

I can do three or four patients that day and then I want to do another one..

I see okay. That’s how you could get more than one, you saw the probe as you line up several patients and go from patient to patient and do it..

That’s the only way you are going to get it and I think doctors will try to figure out when to do so..

Sure..

Yes, I hope they don’t but that’s my belief what’s probably going to happen..

So I will keep it a secret, we won’t tell anyone..

Alright, or maybe tell you..

Okay, doctors don’t read the transcript, so we are okay. Thanks..

Alright. Well, thank you, Larry..

Thank you. Our next question comes from the line of Paul Sweps, a Private Investor. Please proceed with your question..

Thank you. Half a dozen questions, but brief answers will be fine.

You folks stress the fact that there were no safety issues involved, does that also mean that there was no requirement to notify the FDA of whatever recall you did?.

First of all, we did not recall and the reason I saw there is no safety issues is because the instruments performed as described and if they did not receive appropriate communication they would not turn on..

Got it.

And second thing is the expenses for replacement on units in the field already are and I am just looking for, just a rough ratio, most of them in this quarter will there be some expenses in next quarter, how should we look at it?.

They have been bleeding through, so most of the impacted units have already come back in and being repaired, one way of looking at your question, one way we looked at here is with regards to the warrant reserve, the good news with all of this with in that context is because of the nature of what the issue is it’s a relatively low cost fix, in other words component parts and the labor involved are very, very minimal.

So we’ve really been work through with any customer complaint real time and as you can see to-date, we’ve really not see any really material impact on the cost side..

I see.

So you treated this as a repair issue?.

Yes..

And the third question is the – and I was going to ask this relative to international sales but its looks like you haven’t gotten there yet and that was the impact on the quarter of the strength in the dollar?.

Well, the strength in the dollar has impacted us, Jim mentioned it on his remarks that quality had a bigger impact that the currency exchange rate had a lesser impact but the issue comes from variety of things, one, we all know about the euro being getting closer and closer parity to the dollar which gave our European competitor a pricing advantage of 25 plus percent or so, the yen is doing the same type of things and we have a Japanese competitor that also is enjoying a little bit of a benefit and we have an Australian competitor and when the commodity issues took place in China began to buy less or sell less than the Aussie dollar, the Canadian dollar, they all dropped, so it has an impact and I would feel better next quarter, we have the quality issue behind us to give you a better understanding of what that impact is because it’s kind of hidden into this quality issue but it does have an impact..

So you feel your differential advantage in the marketplace will overcome the additional expense people are looking at?.

I think there is couple of answers to that Paul one of which is when we talk about MicroPulse, yes I do believe that. When we talk about legacy lasers that’s a difficult answer, when it comes to our existing customers buying probes, it’s not a factor..

I understand.

And the other and the last question has to do with the new probes because I haven’t had an opportunity to really look and understand about it, but if they are going to be reused, are these devices that need to be sterilized each time, they will reuse?.

No, so the probes on the Cyclo G6 are FDA approved for single use, so they are in a single use and there is no IFB voiding concept with the idea of how to sterilize frequency.

The comment Will alluded to a little bit based on Larry’s question was the way we if you like sort of facilitate the single use of it, we have a 90 minute expiration clock but it’s all set up with the idea of allowing the doctor sufficient time to go ahead and take and treat one patient..

Well and Jim thank you for your service here, I know you guys made a very good team and I appreciate the communication over time..

Well, thank you Paul. It’s very kind..

Thank you. Our next question comes from the line of Stan Mann with Mann Family Investors. Please proceed with your question..

Hello..

Hi Stan..

Hi Stan..

Yes, I have several questions, one cash on hand, I don’t have the sheet in front of me, is it $9 million, $10 million?.

It should be 12 point I am looking at it right now, $12.2 million..

Okay.

Can you kind of give me a frame on plans for usage other than stock buybacks?.

Stan, it’s going to be the same as we said, that’s one, I am very predictable, we will use it as a buyback, I just said when we think it’s undervalued, otherwise, it’s there and it will be used for development and it will be used for opportunistic acquisitions if they come about..

Okay.

My question is Jim has done a great job and we don’t have great depth, so my question is how to plan to handle the transition and keeping the accounting and everything going which Jim leaving I think after this call?.

Well, I asked the question in a couple of ways, one, we have great depth in the financial department, Jim has done a great job in his group, and our controller has been with us for quite a while, I don’t want to take anything away from Jim, but Romea [ph] produces the Qs, the Ks and the proxies and everything comes out on time without issue.

Where I will have a hold is on the forward-looking planning session, the financial modeling in that area. We had an individual in this week, he is coming back to see Jim next week and he will be a tip as to deal with that part of the modeling side.

I have no issues with his ability to do so, and it will be a short term fix while we go through the CFO search. Now, Jim may have another comment, I want him to respond if he has..

I just want to say, thank you, Stan..

Okay. I have a couple more questions. One we are thinking of a larger company and it seems to me we need to add some depth to our team and experience, can you talk to that Will, what you see as you know the building of a team so we are back up, we can grow to $100 or plus million..

Sure. I mean, we don’t disagree. Howard came in, he is a PhD at Caltech, where research in Bell Labs has been in the view other medical device companies and he joined us six weeks ago..

In R&D well..

Engineering R&D..

Okay..

And he will be responsible for the continuation of advancement in our current laser systems, he is a systems engineer.

RFID expert, and so then we’ve hired, recent hired a fellow by the name of Jeff Smith who has become the head of our software development team and as you know in our products there is always a lot of embedded software and he has been in the medical device business for quite a while, so we have been adding bench like that, we have added to the sales department, we have gone from having, we are up to 11 indirect and now I think we are 19 independent, so we are nearly 30 people in the field, you know, so and we’ve added people in marketing, so the OpEx goes up for a reason and there is your bench streak one of them, as we have been adding…..

I would like to see the OpEx move up more to get our sales and products, I have one other comment, it may disturb you, but my experience in investing is that for some reason laser companies, laser companies even ones with good products like Cimarron or elos do not get high PEs, and the ones that have devices, I think I have communicated with you a like stent there are very few companies with devices for glaucoma, so can you kind of talk to us about what you see in your vision on expanding us into an area that will kind of give us a better value, is that the way to put it, so you know what I am talking about because I think you are not….

I think our value in our PE was pretty darn good before we stop our test, and I agree with you on the comments about the PE and laser companies but the ones you are talking about are in esthetics or in dental.

The big issue with laser product is you build something, you sell it once to the doctor, the doctor gets tremendous value that day and it gets better for him or her as they go over time because they keep using it more and more and more and we receive none of that residual value.

We have changed the model and Jim has said in his piece, we are going to get the margins up because we are going to keep building more and more high margin disposables, the glaucoma is a perfect example of that and where you will start to see that PE or that valuation metric increase is when we can show that we have expediential growth caused by the use of those probes on an ever increasing install base.

What has happened over the years at IRIDEX, we had a small, I won’t say, I shouldn’t say small, we had a reasonable disposable business but every year we had to start over and start selling hardware again and what we need to do is increase the number of disposable products that are predictable and high margin and augment that with hardware versus the other way around..

Okay.

So, you don’t see an opportunity with all our cash to do anything in spreading beyond lasers and the model you have, that’s a long pass?.

That is not what I am, and I am sorry if I left you with that impression. No, we have made the change here from being a laser company to an ophthalmology company, it’s not clear to the outside world yet, but to an ophthalmology company that works in both retina and glaucoma..

Okay..

Very different then just being a laser company trying to find new markets for lasers, we have come out with the green chips, we sell a few million dollar a year of those, we continue to find ways to expand and deliver new products to those two customer bases, we are not looking for new customers, we are looking for, we are not looking for new markets and new customers, we are looking for new customers in our existing markets and we are looking for widgets, gadgets, and small and inexpensive hardware that we can sell to that customer..

And you can vision us over a $100 million near-term you know reasonable term your vision?.

Give me what reasonable is..

Well I don’t know, I am just trying to see what you think we can be, that’s all, I mean….

Well I can, some of you may know from previous slides, I just don’t think hundreds enough, so there you go..

So I just have one another question and I think you have done an amazing job both of you Jim and you Will as a team, so what do you do with this Australian and Japanese competition since we both know there are no borders any more worldwide?.

Well, I think that the issue is on our legacy lasers we will see some margin compression due to the currency issues, the pricing and therefore you have to come out with newer products that have defensible niches, so you can get your margins back..

So you think that your products are more innovative, better and can hold market share worldwide, I mean in Japan?.

Yes, I can tell you, G6 is innovative and no one is doing what we are doing. MicroPulse is innovative and we are able to maintain our position on that.

All blind continuous wave lasers that we have been making for 20 years, there is a number of people fighting it out on a daily basis for those customers and we will do we can to maintain that business because it does and generates a disposable revenue, so we are going to focus on finding newer little technologies and newer markets or newer products who have taken to our markets that is defensible with higher margins, I mean we operate in a business where there is a couple of really giant people and with Jim and I talk about as try to operate between the elephant’s toes with highly defensible, high margin niches and we will continue to do that..

Okay, thank you and thank you Jim for the great job you have done overall with creative time..

Thank you, Stan..

Very well. Thank you..

[Operator Instructions] Our next question comes from the line of Raymond Myers with Benchmark. Please proceed with your question..

Thanks gentleman. And Jim, I would like to reiterate what others have said. Thank you for your services, it’s been – talking with you over the years..

Thank you, Ray. Thank you very much..

So kind of question that’s discussing two related factors, one was the visibility to customer demand following this interruption in production and, I don’t know if Will maybe you can talk about that in terms of some sort of an order backlog or something and how that relates to the currency issue and the potential for software demand due to that, so let’s start with visibility to customer demand?.

I am trying to formulate that question Ray, I think I have it, I can, what I like to, let me get the currency thing out of the way first, I don’t know that I agree with you on software demand on currency, what I think I see is a demand remains but pressure on us to reduce prices to be able to stay in there and so I don’t think it’s not a software demand, now when it comes to visibility on how that affects us going forward, as I said earlier, we are better able to say that one is a quality issues completely out of the picture.

Now when it comes to timing of when we saw the problem is that….

I guess the crux of it is making sure that we are not missing a loss of whether it is customer demand or pricing issues where customers may take your business elsewhere but you may not see it because of the interruption in manufacturing.

Do you have visibility that those orders are firm and in place?.

I mean, we always lose some business here and there to a competitor. I haven’t seen an uptick on that, I mean our guys are really good and this are – many of them have been with us for quite a while and they, I mean there is only first of all in the U.S.

there is only a few thousand doctors and you have 30 people roaming the streets and talking to them, you know quite real fast when something changes, so I’m not worried about what you are talking about, I mean, sure we lose a few and there to Quantal [ph] or an Idec or LX or something that’s just kind of normal operation, we stay in that 28% kind of market share range on legacy stuff that has been the same for years..

That sounds good. Just checking.

Next, on the other side of this margin point you are increasing price of the Cyclo G6 starting pack and can you elaborate a little as to why the increased price is up, because the demand is there to support a higher price or you just need the higher margin due to currency or other factors?.

No, I will take first swing of that Ray, the whole premise coming down with the Cyclo G6 was to launch this with a compelling bundle package opportunity, you can buy the lasers as standalone and you would be paid typical laser prices, but the idea was given that we really value to the recurring business stream, the decision was hey let’s not make the purchase, the laser necessarily be that much of an impediment to get into the recurring procedural site, so right at the gate we thought okay, how low basically can get the laser price to make sure we are stimulating that demand, hence we went out with 45 and you know honestly we were marginally covering the cost of the laser which is why in the package it wasn’t too bad but it was overall still a little bit lower than our norm which is why we sort of said, hey, if we stay here we may send up seeing some gross margin compression, we were very pleasantly surprised by the strength of demand and we continue to do that, we talked to the sales guys last night, one guy you just got his demo unit has ten demos lined up coming up in the upcoming months and that’s just one of the sales guys.

So recognizing that we sort of seem to have a pretty strong demand coming in from the customer, which is okay, we still want to stay with the philosophy which is really we really don’t want to make the laser that much of an impediment in the buying decision but let’s take 45 up to 85 because by doing that we’ve now got ourselves into little bit more normative margins and the package itself it has started to look healthy, so that’s where we move to two, it doesn’t seem to have impacted you know anything with regards to customer demand, so we seemed to have nailed that and as I said there are ongoing discussions about whether we should move it up even further but I think at the moment the bias is winning is again, why would we want to get an extra couple of thousand dollars upfront on the laser when the real name of this game is to get laser out there in a generation to procedure volume.

So, 85 is where it is and we think that’s the right place for it for now..

Well, that sounds like a positive dynamic, thank you.

And then finally maybe I will just maybe nitpicking but I have to ask the share buyback is about the same as it has been roughly in part over the years and with the stock where it is, I think the question why not do something more dramatic?.

Well, I think it’s been like it is and I understand your question about being more dramatic.

But I think when you go through these discussions, our viewpoint came to the point, we had the discussion around what do we do with tender again, that was one discussion, and you know what we just kind of came back to this point of saying, look we got a plan, let’s just keep extending it, it’s very simple, you don’t have to do any more, SEC or stuff, do you don’t have to do anything else, just add an addendum or amendment to it and you just keep going and I think where Jim and I are at this point in time, our focus is, I mean the buyback is great but our focus is on getting the quality behind us and the growth going and that’s where it is..

Good, that looks good, yes, thanks and I got one other question which was the old legacy lasers where you do see the margin compression, I understand those are not really not your focus but can you help us to quantify what proportion of your revenue is in that more commoditized bucket?.

My just trying to think, I am going to, I look at some of these numbers, just have to pull that off me, I would say, let me just give you some color, I think what we see is particularly in the U.S.

it’s a relatively small component, what we are seeing obviously is that technology refresh opportunity with MicroPulse but I think where we stay there and we focus because we like it but it is, if you like the poster chart of this dynamic is the tenders on the international side because typically the tenders are coming in where you got a health system that is looking for just getting in the game if you like, so it’s looking for a fully featured all style laser and looking for good price.

So that is historically made up, a reasonable proportion of the international business and that’s probably where we see the challenge the most..

Yes, I think Ray, if you look at just, Jim, I am looking at this different numbers, we got lots of skews but take it in rough things, it’s a small portion of our U.S. business which is about half our business, but maybe its 10% in the U.S. and then the other half outside the U.S.

is it could reach as much as maybe 25% of that, so you probably on an overall basis maybe 15, maybe 20% at most I think..

That’s great. Thanks guys..

Thanks Ray..

Thanks Ray..

I would now like the call – turn the call over to management for any closing remarks..

Thank you, operator. I appreciate everybody’s time and attention today and we hope that we continue earning your trust and we will be back on the record string of quarters going forward, look forward to talking to you on the next call. Thank you..

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation..