UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

[X]     QUARTERLY  REPORT  PURSUANT  TO  SECTION  13  OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2003

[ ]     TRANSITION  REPORT  PURSUANT  TO  SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

For the Transition period from             to

                         Commission File Number: 0-27598

                               IRIDEX CORPORATION

             (Exact name of registrant as specified in its charter)

           Delaware                                        77-0210467
           --------                                        ----------
  (State or other jurisdiction                         (I.R.S. employer
of incorporation or organization)                     identification No.)


                             1212 TERRA BELLA AVENUE
                      MOUNTAIN VIEW, CALIFORNIA 94043-1824
          (Address of principal executive offices, including zip code)

                                 (650) 940-4700
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.

                   (1) Yes [X]  No [ ]; (2) Yes [X]  No [ ]

The  number of shares of common stock, $.01 par value, issued and outstanding as
of  November  5,  2003  was  6,960,095.

Indicate  by  check  mark  whether  the  registrant  is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)  Yes [ ]  No [X]



                               IRIDEX CORPORATION


                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

          Condensed Consolidated Balance Sheets as of September 27,
          2003 and December 28, 2002                                           3

          Condensed Consolidated Statements of Operations for the
          three and nine months ended September 27, 2003 and September
          28, 2002                                                             4

          Condensed Consolidated Statements of Cash Flows for the nine
          months ended September 27, 2003 and September 28, 2002               5

          Condensed Consolidated Statements of Comprehensive Income
          (Loss) for the three and nine months ended September 27,
          2003 and September 28, 2002                                          6

          Notes to Condensed Consolidated Financial Statements                 7

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS                                               13

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK          29

ITEM 4.   CONTROLS AND PROCEDURES                                             30


PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS                                                   30

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS                           31

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                                     31

ITEM 4.   SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                   31

ITEM 5.   OTHER INFORMATION                                                   31

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                    31

SIGNATURE                                                                     33


                                        2



PART I.  FINANCIAL INFORMATION

Item  1.  Condensed  Consolidated  Financial  Statements
- --------------------------------------------------------



                               IRIDEX CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


                                                  SEPTEMBER 27,    DECEMBER 28,
                                                 ---------------  --------------
                                                      2003             2002
                                                 ---------------  --------------
                                                            
                                                   (unaudited)
                         ASSETS
                         ------
Current assets:
  Cash and cash equivalents . . . . . . . . . .  $        7,800   $       9,186
  Available-for-sale securities . . . . . . . .           7,142           2,356
  Accounts receivable, net. . . . . . . . . . .           6,225           8,037
  Inventories . . . . . . . . . . . . . . . . .           9,447          10,725
  Prepaids and other current assets . . . . . .             930             751
                                                 ---------------  --------------
    Total current assets. . . . . . . . . . . .          31,544          31,055
  Property and equipment, net . . . . . . . . .             662             950
  Deferred income taxes . . . . . . . . . . . .           2,267           2,267
                                                 ---------------  --------------
    Total assets. . . . . . . . . . . . . . . .  $       34,473   $      34,272
                                                 ===============  ==============

          LIABILITIES AND STOCKHOLDERS' EQUITY
          ------------------------------------
Current liabilities:
  Accounts payable. . . . . . . . . . . . . . .  $          876   $         657
  Accrued expenses. . . . . . . . . . . . . . .           3,431           3,417
                                                 ---------------  --------------
    Total liabilities . . . . . . . . . . . . .           4,307           4,074
                                                 ---------------  --------------

Stockholders' equity:
  Common stock. . . . . . . . . . . . . . . . .              70              70
  Additional paid-in capital. . . . . . . . . .          23,723          23,631
  Accumulated other comprehensive income (loss)              (1)              3
  Treasury stock. . . . . . . . . . . . . . . .            (430)           (430)
  Retained earnings . . . . . . . . . . . . . .           6,804           6,924
                                                 ---------------  --------------
    Total stockholders' equity. . . . . . . . .          30,166          30,198
                                                 ---------------  --------------
    Total liabilities and stockholders' equity.  $       34,473   $      34,272
                                                 ===============  ==============





    The accompanying notes are an integral part of these condensed consolidated
                              financial statements.


                                        3



                                                    IRIDEX CORPORATION
                                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                       (UNAUDITED)

                                                            THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                       SEPTEMBER 27,    SEPTEMBER 28,     SEPTEMBER 27,    SEPTEMBER 28,
                                                           2003             2002              2003             2002
                                                      ---------------  ---------------  ----------------  ---------------
                                                                                              
Sales. . . . . . . . . . . . . . . . . . . . . . . .  $         8,267  $        6,717   $        22,928   $       21,113
Cost of sales. . . . . . . . . . . . . . . . . . . .            4,678           3,705            12,981           11,895
                                                      ---------------  ---------------  ----------------  ---------------
    Gross profit . . . . . . . . . . . . . . . . . .            3,589           3,012             9,947            9,218
                                                      ---------------  ---------------  ----------------  ---------------

Operating expenses:
  Research and development . . . . . . . . . . . . .              975             919             2,972            3,384
  Sales, general and administrative. . . . . . . . .            2,402           2,098             7,430            6,897
                                                      ---------------  ---------------  ----------------  ---------------
Total operating expenses . . . . . . . . . . . . . .            3,377           3,017            10,402           10,281
                                                      ---------------  ---------------  ----------------  ---------------

Income (loss) from operations. . . . . . . . . . . .              212              (5)             (455)          (1,063)
  Interest and other income (expense), net . . . . .               49             (31)              154               66
                                                      ---------------  ---------------  ----------------  ---------------
Income (loss) before benefit from income taxes . . .              261             (36)             (301)            (997)
  Benefit from income taxes. . . . . . . . . . . . .                0             242               181              549
                                                      ---------------  ---------------  ----------------  ---------------
Net income (loss). . . . . . . . . . . . . . . . . .  $           261             206   $          (120)            (448)
                                                      ===============  ===============  ================  ===============

Basic net income (loss) per common share . . . . . .  $          0.04  $         0.03   $         (0.02)  $        (0.07)
                                                      ===============  ===============  ================  ===============
Diluted net income (loss) per common share . . . . .  $          0.04  $         0.03   $         (0.02)  $        (0.07)
                                                      ===============  ===============  ================  ===============

Shares used in per common share basic
  calculations . . . . . . . . . . . . . . . . . . .            6,933           6,875             6,922            6,858
                                                      ===============  ===============  ================  ===============
Shares used in per common share diluted
  calculations . . . . . . . . . . . . . . . . . . .            7,043           6,938             6,922            6,858
                                                      ===============  ===============  ================  ---------------





  The accompanying notes are an integral part of these condensed consolidated
                              financial statements.


                                        4



                                                  IRIDEX CORPORATION
                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (IN THOUSANDS)
                                                     (UNAUDITED)


                                                                                          NINE MONTHS ENDED
                                                                                     SEPTEMBER 27,     SEPTEMBER 28,
                                                                                         2003              2002
                                                                                   ----------------  ----------------
                                                                                               
Cash flows from operating activities:
  Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $          (120)  $          (448)
  Adjustments to reconcile net loss to net cash provided by operating activities:
    Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .              561               652
    Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . .               35               (56)
    Provision for inventories . . . . . . . . . . . . . . . . . . . . . . . . . .              348                18
    Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .                -              (555)
    Changes in operating assets and liabilities:
      Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .            1,777               832
      Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              930               825
      Prepaids and other current assets . . . . . . . . . . . . . . . . . . . . .             (179)              171
      Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              219              (381)
      Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               14               278
                                                                                   ----------------  ----------------
    Net cash provided by operating activities . . . . . . . . . . . . . . . . . .            3,585             1,336
                                                                                   ----------------  ----------------

Cash flows provided by (used in) investing activities:
  Purchases of available-for-sale securities. . . . . . . . . . . . . . . . . . .           (6,640)           (3,075)
  Proceeds from maturity of available-for-sale securities . . . . . . . . . . . .            1,850             4,489
  Acquisition of property and equipment . . . . . . . . . . . . . . . . . . . . .             (273)             (189)
                                                                                   ----------------  ----------------
    Net cash provided by (used in) investing activities . . . . . . . . . . . . .           (5,063)            1,225
                                                                                   ----------------  ----------------

Cash flows from financing activities:
  Issuance of common stock, net . . . . . . . . . . . . . . . . . . . . . . . . .               92               201
                                                                                   ----------------  ----------------
    Net cash provided by financing activities . . . . . . . . . . . . . . . . . .               92               201
                                                                                   ----------------  ----------------
      Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . .           (1,386)            2,762

Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . .            9,186             4,613
                                                                                   ----------------  ----------------

Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . .  $         7,800   $         7,375
                                                                                   ================  ================


SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
  Change in unrealized losses on available-for-sale securities
                                                                                   $            (4)  $             -
                                                                                   ================  ================





  The accompanying notes are an integral part of these condensed consolidated
                              financial statements.


                                        5



                                           IRIDEX CORPORATION
                    CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                             (IN THOUSANDS)
                                               (UNAUDITED)


                                             THREE MONTHS ENDED                 NINE MONTHS ENDED
                                        SEPTEMBER 27,   SEPTEMBER 28,    SEPTEMBER 27,    SEPTEMBER 28,
                                             2003            2002            2003             2002
                                        --------------  --------------  ---------------  ---------------
                                                                             
Net income (loss). . . . . . . . . . .  $          261  $          206  $         (120)  $         (448)
Other comprehensive income (loss):
  Change in unrealized gain (loss) on
    available-for-sale securities. . .               -               5              (4)               -
                                        --------------  --------------  ---------------  ---------------

Comprehensive income (loss). . . . . .  $          261  $          211  $         (124)  $         (448)
                                        ==============  ==============  ===============  ===============





    The accompanying notes are an integral part of these condensed consolidated
                              financial statements.


                                        6

                               IRIDEX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS  OF  PRESENTATION

     The  accompanying  unaudited condensed consolidated financial statements of
IRIDEX  Corporation  ("the  Company")  have  been  prepared  in  accordance with
generally  accepted  accounting  principles  in the United States of America for
interim  financial information and pursuant to the instructions to Form 10-Q and
Article  10-01  of  Regulation S-X.  Accordingly, they do not include all of the
information  and  footnotes required by generally accepted accounting principles
for  complete  financial  statements.  In  the  opinion  of  management,  all
adjustments,  consisting  of  normal recurring adjustments, considered necessary
for  a  fair  presentation  have  been  included.

     The  condensed  consolidated  financial  statements  should  be  read  in
conjunction  with  the  audited financial statements and notes thereto, together
with  management's discussion and analysis of financial condition and results of
operations,  contained  in  our Annual Report on Form 10-K, which was filed with
the  Securities  and  Exchange  Commission  on  March  28,  2003. The results of
operations for the three and nine month periods ended September 27, 2003 are not
necessarily indicative of the results for the year ending January 3, 2004 or any
future  interim  period.

2.   SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

     The  Company's  significant accounting policies are disclosed in our Annual
Report  on  Form  10-K for the year ended December 28, 2002 which was filed with
the  Securities  and  Exchange  Commission  on  March  28,  2003.  The Company's
significant  accounting policies have not materially changed as of September 27,
2003.

3.   WARRANTY

     The  Company  accrues  for  an  estimated  warranty  cost  upon shipment of
products  in  accordance with SFAS No. 5, "Accounting for Contingencies." Actual
warranty  costs  incurred  have  not materially differed from those accrued. The
Company's warranty policy is effective for shipped products which are considered
defective  or  fail  to  meet  the  product  specifications.  Warranty costs are
reflected in the statement of operations as a cost of sales. A reconciliation of
the  changes  in  the  Company's  warranty  liability for the nine months ending
September  27,  2003  follows  (in  thousands):



                                               
Balance at the beginning of the period            $ 717
Accruals for warranties issued during the period    483
Settlements made in kind during the period         (513)
                                                  ------
Balance at the end of the period                  $ 687
                                                  ======


4.   BORROWING  ARRANGEMENTS

     In  October  2003,  we  have  extended an existing revolving line of credit
agreement with a bank. The line of credit which expires in October 2004 provides
for  borrowing  of  up  to  $4.0 million at the bank's prime rate. The agreement
contains  restrictive  covenants  including  prohibiting  payments  of dividends
without  the  bank's prior consent. There were no borrowings against the line of
credit  at  September  27,  2003.

5.   COMMITMENTS  AND  CONTINGENCIES

     Lease  Agreements

     We  lease  our  operating facilities under a noncancelable operating lease.
In  September  2003,  we  entered  into  a lease amendment for our facilities in
Mountain  View.  The  original  lease  term  of  this  facility,  which ended in
February  2004,  was  amended  and  extended  until  February  2009.  The  lease
agreement  was  also  amended  to  grant us an option to renew this lease for an
additional  five  year period beginning 2009 until 2014 at a base monthly rental
amount  to  be  negotiated  at  the  time  of  the  renewal.

     Future minimum lease payments under current operating leases are summarized
as  follows  (in  thousands):



     Fiscal Year         Operating Lease Payments
     -----------         ------------------------
                      

         2004                  $   474
         2005                      390
         2006                      402
         2007                      416
         2008 and after            501
                               -------
                               $ 2,183
                               =======



                                        7

6.   ACCOUNTING  FOR  STOCK-BASED  COMPENSATION

     The  Company  accounts  for  stock-based  compensation  arrangements  in
accordance  with  provisions  of  Accounting  Principles  Board  Opinion No. 25,
"Accounting  for  Stock  Issued  to  Employees" ("APB 25") and complies with the
disclosure  provisions  of  Statement of Financial Accounting Standards No. 123,
"Accounting  for  Stock-Based Compensation" ("SFAS 123"), as amended by SFAS No.
148  "Accounting  for  Stock-Based Compensation - Transition and Disclosure - an
Amendment  of  FASB  Statement  No.  123."

     Under  APB 25, compensation expense for grants to employees is based on the
difference,  if  any,  on  the  date of the grant, between the fair value of the
Company's stock and the option's exercise price. SFAS 123 defines a "fair value"
based  method  of  accounting  for  an  employee  stock option or similar equity
investment.  The  pro  forma  disclosure  of the difference between compensation
expense  included  in  net  loss and the related cost measured by the fair value
method  is  presented  in  the table at the end of this note. To comply with pro
forma  reporting  requirements  of SFAS 123, compensation cost is also estimated
for the fair value of Employee Stock Purchase Plan ("ESPP") issuances, which are
included  in  the  pro  forma  totals  below.

     The  Company  accounts  for  equity  instruments issued to non-employees in
accordance  with the provisions of SFAS 123 and Emerging Issues Task Force Issue
("EITF")  No. 96-18, "Accounting for Equity Instruments that are Issued to Other
Than  Employees, or in Conjunction with Selling Goods and Services." Stock-based
compensation  expense  related  to  stock  options  granted  to non-employees is
recognized  on  a  straight-line  basis  as  the  stock  options are earned. The
stock-based  compensation expense will fluctuate as the deemed fair market value
of  the  common  stock  fluctuates.  There  were no equity instruments issued to
non-employees  during  the  three  and  nine  months  ended  September 27, 2003.

     The  following  table provides a reconciliation of net income (loss) to pro
forma  net  (income)  loss  as  if the fair value method had been applied to all
employee  awards  (in  thousands,  except  per  share  data):


                                        8



                                                   Three Months Ended                 Nine Months Ended
                                             --------------------------------  --------------------------------
                                              September 27,    September 28,    September 27,    September 28,
                                             ---------------  ---------------  ---------------  ---------------
                                                  2003             2002             2003             2002
                                             ---------------  ---------------  ---------------  ---------------
                                                                                    
Net income (loss), as reported               $          261   $          206   $         (120)  $         (448)

Add:  Total stock based compensation
expense determined under fair value based
method for all awards to employees                      (83)            (128)            (304)            (408)
                                             ---------------  ---------------  ---------------  ---------------
Pro forma net income (loss)                  $          178   $           78   $         (424)  $         (856)
                                             ===============  ===============  ===============  ===============
Basic and diluted net income (loss) per
common share:

As reported                                  $         0.04   $         0.03   $        (0.02)  $        (0.07)
                                             ===============  ===============  ===============  ===============
Pro forma                                    $         0.03   $         0.01   $        (0.06)  $        (0.12)
                                             ===============  ===============  ===============  ===============



7.   INVENTORIES  (IN  THOUSANDS):

     Inventories  are  stated  at  the lower of cost or market. Cost is based on
     actual  sales  computed  on  a first in, first out basis. The components of
     inventories  consist  of  the  following:




                                      SEPTEMBER 27,  DECEMBER 28,
                                          2003           2002
                                     --------------  -------------
                                       (unaudited)
                                               
Raw materials and work in progress.  $        5,083  $       6,511
Finished goods. . . . . . . . . . .           4,364          4,214
                                     --------------  -------------
Total inventories . . . . . . . . .  $        9,447  $      10,725
                                     ==============  =============



8.   COMPUTATIONS  OF  NET  INCOME  (LOSS)  PER  COMMON  SHARE

     Basic  and  diluted  net  income  (loss)  per  common share are computed by
dividing  net  income  (loss)  for  the period by the weighted average number of
shares  of  common  stock  outstanding  during  the  period.  The calculation of
diluted  net  loss  per  common  share  excludes potential common stock if their
effect  is anti-dilutive.  Potential common stock consists of incremental common
shares  issuable  upon  the  exercise  of stock options. A reconciliation of the
numerator  and  denominator  of net income (loss) per common share is as follows
(in  thousands,  except  share  data):


                                        9



                                                             THREE MONTHS ENDED               NINE MONTHS ENDED
                                                        SEPTEMBER 27,   SEPTEMBER 28,    SEPTEMBER 27,    SEPTEMBER 28,
                                                            2003             2002            2003             2002
                                                       ---------------  --------------  ---------------  ---------------
                                                                 (unaudited)                      (unaudited)
                                                                                             
Numerator
Net income (loss) . . . . . . . . . . . . . . . . . .  $           261  $          206  $         (120)  $         (448)
Denominator - Basic
  Weighted average common stock outstanding . . . . .            6,933           6,875           6,922            6,858
                                                       ===============  ==============  ===============  ===============
Basic income (loss) per share . . . . . . . . . . . .  $          0.04  $         0.03  $        (0.02)  $        (0.07)
                                                       ===============  ==============  ===============  ===============

Denominator - Diluted
  Weighted average common stock outstanding . . . . .            6,933           6,875           6,922            6,858
Effect of dilutive securities
  Weighted average common stock options . . . . . . .              110              63               -                -
                                                       ---------------  --------------  ---------------  ---------------
Total weighted average stock and options outstanding.            7,043           6,938           6,922            6,858
                                                       ===============  ==============  ===============  ===============
Diluted income (loss) per share . . . . . . . . . . .  $          0.04  $         0.03  $        (0.02)  $        (0.07)
                                                       ===============  ==============  ===============  ===============


      During  the  three  months ended September 27, 2003 and September 28, 2002
options  to  purchase  1,238,594 shares and 1,498,924 shares at weighted average
exercise  prices  of  $5.89  and  $5.61 per share were outstanding, but were not
included  in  the  computations  of  diluted  net income (loss) per common share
because  the  exercise  price of the related options exceeded the average market
price of the common shares.  For the nine month periods ended September 27, 2003
and September 28, 2002 options to purchase 2,000,040 shares and 1,751,893 shares
at weighted average prices of $5.25 and $5.15 per share were outstanding but not
included  in the computations of diluted net loss per common share because their
effect  was  antidilutive.  These  options  could  dilute  earnings per share in
future  periods.

9.   BUSINESS  SEGMENTS  (UNAUDITED)

     We  operate  in  two  reportable segments: the ophthalmology medical device
segment  and  the  dermatology  medical  device  segment.  In  both segments, we
develop,  manufacture  and  market medical devices.  Our revenues arise from the
sale  of  consoles,  delivery  devices,  disposables  and  service  and  support
activities.

     Information  on  reportable  segments  for  the three and nine months ended
September  27,  2003  and  September  28,  2002  is  as  follows (in thousands):


                                       10



           Three Months Ended September 27, 2003   Three Months Ended September 28, 2002   Nine Months Ended September 27, 2003
           -------------------------------------   -------------------------------------   ---------------------------------------
           Ophthalmology   Dermatology    Total    Ophthalmology   Dermatology    Total    Ophthalmology   Dermatology     Total
              Medical        Medical                  Medical        Medical                  Medical        Medical
              Devices        Devices                  Devices        Devices                  Devices        Devices
- ---------  --------------  ------------  --------  --------------  ------------  --------  --------------  ------------  ---------
                                                                                              

Sales      $        6,897  $      1,370  $ 8,267   $        5,416  $      1,301  $ 6,717   $       18,640  $      4,288  $ 22,928
- ---------  --------------  ------------  --------  --------------  ------------  --------  --------------  ------------  ---------
Direct
Cost
of Goods
Sold                2,493           835    3,328            1,713           562    2,275            6,506         2,222     8,728
- ---------  --------------  ------------  --------  --------------  ------------  --------  --------------  ------------  ---------
Direct
Gross
Margin              4,404           535    4,939            3,703           739    4,442           12,134         2,066    14,200
- ---------  --------------  ------------  --------  --------------  ------------  --------  --------------  ------------  ---------
Total
Unallo-
cated
Costs                                     (4,678)                                 (4,478)                                 (14,501)
- ---------  --------------  ------------  --------  --------------  ------------  --------  --------------  ------------  ---------
Pre-tax
income
(loss)                                       261                                     (36)                                    (301)
- ---------  --------------  ------------  --------  --------------  ------------  --------  --------------  ------------  ---------


            Nine Months Ended September 28, 2002
           ---------------------------------------
           Ophthalmology   Dermatology     Total
              Medical        Medical
              Devices        Devices
- ---------  --------------  ------------  ---------
                                

Sales      $       16,172  $      4,941  $ 21,113
- ---------  --------------  ------------  ---------
Direct
Cost
of Goods
Sold                5,182         2,163     7,345
- ---------  --------------  ------------  ---------
Direct
Gross
Margin             10,990         2,778    13,768
- ---------  --------------  ------------  ---------
Total
Unallo-
cated
Costs                                     (14,765)
- ---------  --------------  ------------  ---------
Pre-tax
income
(loss)                                       (997)
- ---------  --------------  ------------  ---------


     Indirect  costs  of  manufacturing,  research and development, and selling,
general  and  administrative  costs  are  not  allocated  to  the  segments.

     The  Company's assets and liabilities are not evaluated on a segment basis.
Accordingly, no disclosure on segment assets and liabilities is provided.

10.  RECENT  ACCOUNTING  PRONOUNCEMENTS

     In  January  2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. ("FIN") 46, Consolidation of Variable Interest Entities,
an  Interpretation  of  ARB  No.  51.  FIN 46 requires certain variable interest
entities  to  be  consolidated  by  the primary beneficiary of the entity if the
equity  investors in the entity do not have the characteristics of a controlling
financial  interest  or  do not have sufficient equity at risk for the entity to
finance  its  activities  without additional subordinated financial support from
other  parties.  FIN  46 was effective immediately for all new variable interest
entities  created  or  acquired  after  January  31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must  be applied for the first interim or annual period beginning after June 15,
2003.  In  October  2003, the FASB deferred the implementation date by which all
public  companies must apply FIN 46. The FASB agreed to provide this deferral to
allow  time  for  certain  implementation  issues  to  be  addressed through the
issuance  of  a  modification  to FIN 46, and indicated that it expects to issue
this  modification  in final form prior to the end of 2003. We do not expect the
adoption of FIN 46 to have a material impact on our financial position or on our
results  of  operations.

     In  April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS")  No.  149, "Amendment  of  Statement  133 on Derivative Instruments and
Hedging  Activities,"  SFAS  No.  149


                                       11

requires  that  contracts  with  comparable  characteristics  be  accounted  for
similarly.  In  particular,  SFAS  No.  149 clarifies under what circumstances a
contract  with  an  initial  net  investment  meets  the  characteristic  of  a
derivative,  clarifies  when a derivative contains a financing component, amends
the  definition  of  an  underlying  to  conform  it  to language used in FIN 45
Guarantor's  Accounting  and  Disclosure Requirements for Guarantees,  Including
Indirect Guarantees of Indebtedness of Others, and amends certain other existing
pronouncements. SFAS No. 149 is effective for contracts entered into or modified
after  June  30,  2003,  and for hedging relationships designated after June 30,
2003.  In  addition, provisions of SFAS No. 149 should be applied prospectively.
We  do  not expect the adoption of SFAS No. 149 to have a material impact on our
financial  position  or  on  our  results  of  operations.

     In  May  2003,  the  FASB  issued  SFAS  No.  150,  "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No.  150 establishes standards for how an issuer classifies and measures certain
financial  instruments with characteristics of both liabilities and equity. SFAS
No.  150  requires that an issuer classify a financial instrument that is within
its  scope  as  a  liability, or an asset in some circumstances. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at  the  beginning  of  the  first interim period
beginning  after  June  15, 2003. SFAS No. 150 is to be implemented by reporting
the  cumulative  effect  of  a  change  in an accounting principle for financial
instruments  created before the issuance date of SFAS No. 150 and still existing
at  the  beginning  of  the  interim  period  of  adoption.  Restatement  is not
permitted. We do not expect that the adoption of SFAS No. 150 to have a material
impact  on  our  financial  position  or  on  our  results  of  operations.


                                       12

ITEM 2.

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This  Quarterly  Report  on  Form  10-Q  contains  trend analysis and other
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as  amended, such as statements relating to levels of future sales and operating
results;  expectations for future sales growth, generally, and the potential for
production  cost  decreases  and  higher  gross  margins;  anticipated inventory
reductions  and  improvements  from  asset  management efforts; levels of future
investment  in  research  and development efforts; favorable Center for Medicare
and  Medicaid coverage decisions regarding AMD procedures that use our products;
results  of  clinical  studies;  development and introduction of new products to
market,  expected  increases  in  competition  and  declines  in average selling
prices;  general economic conditions and levels of international sales.  In some
cases,  forward-looking  statements  can  be  identified by terminology, such as
"may,"  "will,"  "should,"  "expects,"  "plans,"  "anticipates,"  "believes,"
"estimates,"  "predicts," "intends," "potential," "continue," or the negative of
such  terms or other comparable terminology.  These statements involve known and
unknown  risks,  uncertainties  and  other  factors  which  may cause our actual
results,  performance  or achievements to differ materially from those expressed
or  implied  by  such  forward-looking  statement,  including as a result of the
factors  set  forth under "Factors That May Affect Future Operating Results" and
other  risks detailed in our Annual Report on Form10-K filed with the Securities
and  Exchange Commission on March 28, 2003 and detailed from time to time in our
reports  filed  with  the  Securities  and  Exchange  Commission.  The reader is
cautioned not to place undue reliance on these forward-looking statements, which
reflect  management's  analysis  only  as  of  the  date  of this Form 10-Q.  We
undertake  no  obligation  to update such  forward-looking statements to reflect
events  or  circumstances  occurring  after  the  date  of  this  report.



RESULTS  OF  OPERATIONS

     The  following  table  sets forth certain operating data as a percentage of
sales  (unaudited)  for  the  periods  indicated.



                                            THREE MONTHS ENDED               NINE MONTHS ENDED
                                      -------------------------------  ------------------------------
                                        SEPTEMBER 27,   SEPTEMBER 28,   SEPTEMBER 27,   SEPTEMBER 28,
                                            2003            2002            2003            2002
                                       --------------  --------------  --------------  --------------
                                                                           
Sales . . . . . . . . . . . . . . . .          100.0%          100.0%          100.0%          100.0%
Cost of sales . . . . . . . . . . . .           56.6            55.2            56.6            56.3
                                       --------------  --------------  --------------  --------------
  Gross profit. . . . . . . . . . . .           43.4            44.8            43.4            43.7
                                       --------------  --------------  --------------  --------------
Operating expenses:
  Research and development. . . . . .           11.8            13.7            13.0            16.0
  Sales, general and administrative .           29.0            31.2            32.4            32.7
                                       --------------  --------------  --------------  --------------
    Total operating expenses. . . . .           40.8            44.9            45.4            48.7
                                       --------------  --------------  --------------  --------------

Income (loss) from operations . . . .            2.6            (0.1)           (2.0)           (5.0)
  Interest and other income, net. . .            0.6            (0.4)            0.7             0.3
                                       --------------  --------------  --------------  --------------
Loss before benefit from income taxes            3.2            (0.5)           (1.3)           (4.7)
Benefit from income taxes . . . . . .            0.0             3.6             0.8             2.6
                                       --------------  --------------  --------------  --------------
Net income (loss) . . . . . . . . . .            3.2%            3.1%          (0.5)%          (2.1)%
                                       ==============  ==============  ==============  ==============



                                       13

     The  following  table  sets  forth  for the periods indicated the amount of
sales  for  our  operating  segments  and  sales as a percentage of total sales.



                                 Three Months Ended                               Nine Months Ended
                   ----------------------------------------------  ----------------------------------------------
                     September 27, 2003      September 28, 2002      September 27, 2003      September 28, 2002
                   ----------------------  ----------------------  ----------------------  ----------------------
                    Amount    Percentage    Amount    Percentage    Amount    Percentage    Amount    Percentage
                               of total                of total                of total                of total
                                sales                   sales                   sales                   sales
                   --------  ------------  --------  ------------  --------  ------------  --------  ------------
                                                                             
    Domestic       $  5,222         63.2%  $  4,471         66.6%  $ 14,442         63.0%  $ 13,214         62.6%

    International     3,045         36.8%     2,246         33.4%     8,486         37.0%     7,899         37.4%

Total              $  8,267        100.0%  $  6,717        100.0%  $ 22,928        100.0%  $ 21,113        100.0%

Ophthalmology:

    Domestic       $  4,061         49.1%  $  3,175         47.3%  $ 11,111         48.5%  $  9,212         43.6%

    International     2,836         34.3%     2,241         33.3%     7,529         32.8%     6,960         33.0%

Total              $  6,897         83.4%  $  5,416         80.6%  $ 18,640         81.3%  $ 16,172         76.6%

Dermatology:

    Domestic       $  1,161         14.1%  $  1,296         19.3%  $  3,331         14.5%  $  4,002         19.0%

    International       209          2.5%         5          0.1%       957          4.2%       939          4.4%

Total              $  1,370         16.6%  $  1,301         19.4%  $  4,288         18.7%  $  4,941         23.4%


Combined  Ophthalmology  and  Dermatology

Sales

     Sales  for  the three months ended September 27, 2003 increased by 23.1% to
$8.3  million  from  $6.7 million for the corresponding three month period ended
September  28,  2002.  Ophthalmology  sales  increased  by  $1.5  million  while
dermatology sales increased by $0.1 million for the three months ended September
27,  2003.  Sales for the nine months ended September 27, 2003 increased 8.6% to
$22.9  million  from $21.1 million for the nine months ended September 28, 2002.
For  the  nine  month  period  the  overall increase in sales of 8.6% was driven
primarily  by an increase in sales of our ophthalmology products of $2.5 million
offset  by  a  $0.7  million  decrease  in  sales  of  our dermatology products.

     Domestic  sales  increased 16.8% to $5.2 million for the three month period
ended  September  27,  2003  from  $4.5 million for the three month period ended


                                       14

September  28, 2002. For the nine months ended September 27, 2003 domestic sales
increased 9.3% to $14.4 million from $13.2 million. The overall increase for the
nine  month  period  was driven mainly by $1.9 million in increased sales of our
ophthalmology  products  offset  by  a  $0.7  million  decrease  in sales of our
dermatology  products.

     International  sales  increased  35.6% to $3.0 million for the three months
ended  September  27,  2003  from  $2.2  million  for  the comparable prior year
three-month  period  as  a  result  of  $0.6  million  in increased sales of our
ophthalmology  products  and  $0.2 million in increased sales of our dermatology
products.  For  the  nine  months  ended  September 27, 2003 international sales
increased  7.4%  to  $8.5  million  from  $7.9 million for the nine months ended
September  28,  2002. The increase in international sales during this period was
driven  mainly by $0.6 million in increased sales of our ophthalmology products.

     We  continue  to  face challenges marketing and selling our products in the
current  difficult  economic environment, both domestically and internationally,
and  expect  to  face these challenges for the foreseeable future. See "-Factors
That May Affect Future Results - Our Business has been Adversely Impacted by the
Worldwide  Economic  Slowdown  and  Related  Uncertainties."

Ophthalmology  Sales

     Ophthalmology  sales  increased  27.3% to $6.9 million for the three months
ended  September 27, 2003 from $5.4 million for the three months ended September
28,  2002.  For  the  nine  months  ended September 27, 2003 ophthalmology sales
increased  15.3%  to  $18.6  million from $16.2 million for the comparable prior
year  nine-month  period.  Domestic  ophthalmology sales increased 27.9% to $4.1
million  for the three months ended September 27, 2003 from $3.2 million for the
comparable  prior year three-month period. The increase in domestic sales during
this  period occurred mainly as a result of $0.3 million in increased unit sales
of  visible  laser  systems,  including the Millennium Endolase module, which is
incorporated  as  a  component  of  Bausch  and  Lomb's Millennium Microsurgical
System,  $0.2  million  in  increased unit sales of infrared laser systems, $0.4
million  in  increased  unit  sales  of  delivery  devices and increased service
revenue.  For  the  nine  months ended September 27, 2003 domestic ophthalmology
sales  increased  20.6%  to  $11.1  million from $9.2 million for the comparable
prior year nine month period. Domestic ophthalmology sales increased during this
period  mainly  as  a  result of $1.1 million in increased unit sales of visible
laser  systems,  including  the  Millennium  Endolase  module,  $0.8  million in
increased  unit  sales  of  delivery  devices  and  increased  service  revenue.
International  ophthalmology sales increased 26.6% to $2.8 million for the three
months  ended September 27, 2003 from $2.2 million for the comparable prior year
three-month  period.  The increase in international ophthalmology sales for this
period  was  due  mainly  to $0.5 million in increased unit sales of our visible
laser  systems,  $0.3 million in increased unit sales of delivery devices offset
by  $0.2  million in decreased unit sales of our infrared laser systems. For the
nine  month  period  ended  September 27, 2003 international ophthalmology sales
increased  8.2%  to  $7.5  million  from  $7.0 million for the nine months ended
September  28,  2002.  The  increase in international ophthalmology for the nine
month  period  was  due  primarily  to  $0.6  million in increased unit sales of
visible laser systems, $0.3 million in increased unit sales of delivery devices,
offset  by  $0.4  million  in  decreased  unit  sales of infrared laser systems.

     Dermatology  Sales

     Dermatology sales increased 5.3% to $1.4 million for the three months ended
September  27,  2003  from $1.3 million for the three months ended September 28,
2002.  Domestic  dermatology sales decreased 10.4% to $1.2 million for the three
month  period  ended  September  27,  2003 from $1.3 million for the three month
period  ended September 28, 2002. The decrease in domestic dermatology sales was
due  primarily  to  a  $0.2  million  decrease in unit sales and average selling
prices  of  dermatology  products.  International dermatology sales increased to
$0.2 million for the three month period ended September 27, 2003 from $5,000 for
the  three  months  ended  September  28,  2002  due  to increased unit sales of
dermatology  products.  For  the  nine  months  ended


                                       15

September  27,  2003 dermatology sales decreased 13.2% to $4.3 million from $4.9
million  for  the  comparable prior year nine-month period. Domestic dermatology
sales  decreased  16.8%  to $3.3 million for the nine months ended September 27,
2003  from  $4.0  million  for  the comparable prior year nine-month period. The
decrease  in domestic dermatology sales for this period was due mainly to a $0.4
million  decrease  in average selling prices and a $0.3 million decrease in unit
sales  of  products.  International  dermatology sales for the nine months ended
September 27, 2003 remained at approximately the same level when compared to the
corresponding  nine  month  period  ended  September  28,  2002.

     Gross  Profit.  Gross  margin decreased to 43.4% for the three months ended
September 27, 2003 from 44.8% for the comparable three month period in 2002. The
decrease  in  gross  margin  for this period was due to an unfavorable impact of
1.1% associated with lower average selling prices, an unfavorable impact of 0.6%
related to products costs and overhead and an unfavorable impact of 0.3% related
to warranty charges offset by a favorable impact of 0.6% related to product mix.
For  the  nine  months ended September 27, 2003, gross profit as a percentage of
net  sales  decreased  slightly to 43.4% as compared to 43.7% for the comparable
nine  month  period.  For  the  nine  month period ended September 27, 2003, the
decrease  in  gross  profit as a percentage of net sales was primarily due to an
unfavorable impact of 0.8% related to product mix, an unfavorable impact of 0.7%
related  to  lower average selling prices, an unfavorable impact of 0.2% related
to  product costs and overhead offset by favorable impacts of 1.4% for decreased
warranty  costs.  Although  increasing  competition  has  continued to result in
reduced  average  selling prices for some of our products, we intend to continue
our  efforts  to  reduce  inventory  and  the  overall cost of manufacturing and
thereby  mitigate  the  impact  of  price  reductions  on our gross profit.  See
"-Factors  that  May  Affect  Future  Results  - If We Cannot Increase Our Sales
Volumes,  Reduce  Our  Costs  or  Introduce  Higher  Margin  Products  to Offset
Anticipated  Reductions  in  the Average Unit Selling Price of our Products, Our
Operating Results May Suffer."    Overall, we expect our gross profit margins to
continue to fluctuate due to changes in the relative proportions of domestic and
international  sales,  mix of sales of existing products, pricing, product costs
and  a variety of other factors.  See "-Factors That May Affect Future Results -
Our  Operating  Results May Fluctuate from Quarter to Quarter and Year to Year."

     Research  and  Development.  For the three months ended September 27, 2003,
our  research and development expenses of $1.0 million increased by $0.1 million
or  6.1%  from  $0.9  million  for  the  three  months ended September 28, 2002.
However,  research  and  development  expenses  decreased as a percentage of net
sales  to 11.8% for the three months ended September 27, 2003 from 13.7% for the
comparable  prior  year  three-month  period.  The  increase  in  research  and
development  expense  in  absolute  dollars  for  the  three  month period ended
September  27,  2003  was due primarily to $0.1 million in increased spending on
new  projects.  The  decrease in research and development as a percentage of net
sales  was due to the fact that the increase in sales for the three month period
ended  September  27,  2003  exceeded  the  increase in research and development
expense.  For  the  nine  month  period  ended  September  27, 2003 research and
development  expense  was $3.0 million, a decrease of 12.2% or $0.4 million from
the comparable nine month period in the prior year. The decrease in research and
development expense was due to $0.2 million in reduced payroll costs as a result
of  the  reduction  in  force in June 2002, which resulted in lower research and
development  expenses  for  the  remaining three months of the nine month period
ended  September  28,  2002 and for the entire nine month period ended September
27,  2003, $0.1 million in reduced clinical spending and $0.1 million in reduced
project  spending. As a percentage of net sales research and development expense
decreased  to  13.0% from 16.0% for the comparable prior year nine month period.
The  decrease  in  research and development expense as a percentage of sales for
the nine month period ended September 27, 2003 was due primarily to the increase
in  revenue.

     Sales,  General  and  Administrative. Our sales, general and administrative
expenses increased by 14.5% to $2.4 million for the three months ended September


                                       16

27,  2003  from $2.1 million for the three months ended September 28, 2002. As a
percentage of net sales, sales, general and administrative expenses decreased to
29.0%  for  the  three  months  ended  September  27,  2003  from  31.2% for the
comparable  prior  year  three-month  period. The increase in sales, general and
administrative  expense  in  absolute  dollars for the three month period ending
September 27, 2003 was due primarily to $0.2 million in increased non-commission
related  selling  activities  and  a $0.1 million net increase in administrative
spending, which consisted primarily of insurance. The decrease in sales, general
and administrative expense as a percentage of net sales was driven mainly by the
increase  in  revenue  relative  to  the  increase  in  sales,  general  and
administrative  expense.  For  the  nine months ended September 27, 2003, sales,
general  and administrative expenses increased by 7.7% to $7.4 million from $6.9
million  for  the  comparable  period in 2002. Sales, general and administrative
expenses  as  a percentage of net sales decreased slightly to 32.4% for the nine
months  ended  September  27, 2003 from 32.7% for the comparable period in 2002.
The  increase  in absolute dollars for the nine month period ended September 27,
2003  was  due  primarily  to  $0.4  million in increased non-commission related
selling  activities  and  $0.2  million  in  increased  administrative  spending
associated  mainly  with  consulting and insurance costs. The decrease in sales,
general  and  administrative  expenses as a percentage of net sales for the nine
month  period was due mainly to the increase in revenue relative to the increase
in  sales,  general  and  administrative  expense.

     Interest  and  Other  Income, net. For the three months ended September 27,
2003,  we  realized  net  interest  and other income of $49,000 as compared with
$31,000 in net interest expense for the comparable quarter in 2002. For the nine
months  ended  September 27, 2003, net interest and other income was $154,000 as
compared  with  $66,000 for the comparable nine month period ended September 28,
2002.

     Income Taxes.  The  effective income tax rates for the three and nine month
periods  ended  September  27,  2003 were lower for periods where we had pre-tax
income  and  higher for periods where we had pre-tax losses than the Federal and
State  combined  statutory rate of 40% primarily because of certain tax benefits
associated  with  tax  credits for research and development activities. Based on
our year to date tax liability, no tax expense was recorded in the third quarter
of  2003.


LIQUIDITY  AND  CAPITAL  RESOURCES

     At  September  27, 2003, our primary sources of liquidity included cash and
cash  equivalents  and  available-for-sale securities in the aggregate amount of
$14.9  million.  In addition, we have available $4.0 million under our unsecured
line  of  credit  which  bears  interest at the bank's prime rate and expires in
October  2004.  As  of  September 27, 2003, no borrowings were outstanding under
this  credit  facility.  We  expect  to renew the line of credit in October 2004
assuming  that  the  terms  continue  to  be  acceptable.

     During  the  nine  months ended September 27, 2003, we used $1.4 million in
cash  and  cash  equivalents.  During this period, operating activities provided
$3.6  million  of  cash.  Sources  of  cash from operating activities included a
decrease  in  net  accounts  receivable  of  $1.8  million,  a  decrease  in net
inventories  of  $1.3  million,  depreciation  of  $0.6  million, an increase in
combined  accounts payable and accrued expenses of $0.2 million, offset in part,
by uses of cash including a net loss of $0.1 million, and an increase in prepaid
expenses  of  $0.2 million.  The decrease in accounts receivable and inventories
resulted  from  focused  asset management efforts to increase our cash position.
We  will  continue  to  place a high priority on our asset management efforts to
further  increase  our  cash  position.


                                       17

     Investing  activities used $5.1 million in cash and cash equivalents during
the  nine  months  ended  September  27, 2003, primarily due to net purchases of
available  for  sale  securities  of  $4.8  million  and  $0.3  million  for the
acquisition  of  property  and  equipment.

     Net  cash  provided  by  financing  activities during the nine months ended
September 27, 2003 was $92,000 which resulted from the issuance of common stock.

     Our  operating  facilities  are  located  in 37,000 square feet of space in
Mountain  View, California. In September 2003, we entered into a lease amendment
for  our  facilities in Mountain View. The original lease term of this facility,
which  ended in February 2004, was amended and extended until February 2009. The
lease  agreement  was also amended to grant us an option to renew this lease for
an  additional  five  year  period  beginning  2009 until 2014 at a base monthly
rental  amount  to  be  negotiated  at the time of the renewal. A summary of our
future  minimum  commitments  under  this  lease  is  presented  in  Note  4  -
"Commitments and Contingencies" in the Notes to Condensed Consolidated Financial
Statements.

     We believe that, based on current estimates, our cash, cash equivalents and
available-for-sale  securities  together with cash generated from operations and
our credit facility will be sufficient to meet our anticipated cash requirements
for  the  next  12 months. However, we may require or desire additional funds to
support  our  operating expenses and capital requirements or for other purposes,
such  as  acquisitions,  competitive reasons or for new product development, and
may  seek  to  raise  such  additional  funds  through  public or private equity
financing or from other sources. Our liquidity could be negatively affected by a
decline  in  demand  for  our  products,  the  need  to  invest  in  new product
development  or  reductions  in  spending  by  our  customers as a result of the
continuing  economic  downturn  or other factors. There can be no assurance that
additional  debt  or  equity  financing  will  be available when required or, if
available,  can  be  secured on terms satisfactory to us. See "-Factors That May
Affect  Future  Results  -  We  May  Need  Additional  Capital, which May Not Be
Available,  and  Our  Ability  to  Grow  may  be  Limited  as  a  Result."

CRITICAL  ACCOUNTING  POLICIES

     The  Company's  significant accounting policies are disclosed in our Annual
Report  on  Form  10-K for the year ended December 28, 2002 which was filed with
the  Securities  and  Exchange  Commission  on  March  28,  2003.



RECENT ACCOUNTING PRONOUNCEMENTS

     In  November  2002,  the  Emerging  Issues  Task  Force, or EITF, reached a
consensus  on  Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.
EITF  Issue  No. 00-21 provides guidance on how to account for arrangements that
involve the delivery or performance of multiple products, services and/or rights
to  use  assets.  The  provisions  of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. We do
not expect the adoption of EITF Issue No. 00-21 to have a material impact on our
financial  position  or  on  our  results  of  operations.

     In  January  2003,  the  FASB issued FASB Interpretation No. 46, or FIN 46,
Consolidation  of  Variable  Interest Entities, an Interpretation of ARB No. 51.
FIN  46  requires  certain  variable interest entities to be consolidated by the
primary  beneficiary  of the entity if the equity investors in the entity do not
have  the  characteristics  of  a  controlling financial interest or do not have
sufficient  equity  at  risk  for  the  entity to finance its activities without
additional  subordinated  financial  support  from  other  parties.  FIN  46 was
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to  February  1,  2003,  the  provisions of FIN 46 must be applied for the first
interim  or  annual  period  beginning after June 15, 2003. In October 2003, the


                                       18

FASB  deferred  the implementation date by which all public companies must apply
FIN  46.  We  must  apply FIN 46 no later than the first reporting period ending
after  December 15, 2003. The FASB agreed to provide this deferral to allow time
for  certain  implementation  issues  to  be addressed through the issuance of a
modification to FIN 46, and indicated that it expects to issue this modification
in  final form prior to the end of 2003. We do not expect the adoption of FIN 46
to  have  a  material  impact  on  our  financial  position or on our results of
operations.

     In April 2003, the FASB issued Statement No. 149 Amendment of Statement 133
on  Derivative Instruments and Hedging Activities, or SFAS No. 149. SFAS No. 149
requires  that  contracts  with  comparable  characteristics  be  accounted  for
similarly.  In  particular,  SFAS  No.  149 clarifies under what circumstances a
contract  with  an  initial  net  investment  meets  the  characteristic  of  a
derivative,  clarifies  when a derivative contains a financing component, amends
the  definition  of  an  underlying  to  conform  it  to language used in FIN 45
Guarantor's  Accounting  and  Disclosure  Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and amends certain other existing
pronouncements. SFAS No. 149 is effective for contracts entered into or modified
after  June  30,  2003,  and for hedging relationships designated after June 30,
2003.  In  addition, provisions of SFAS No. 149 should be applied prospectively.
We  do  not expect the adoption of SFAS No. 149 to have a material impact on our
financial  position  or  on  our  results  of  operations.

     In  May  2003,  the  FASB  issued  Statement No. 150 Accounting for Certain
Financial  Instruments  with  Characteristics of both Liabilities and Equity, or
SFAS  No.  150.  SFAS No. 150 establishes standards for how an issuer classifies
and  measures  certain  financial  instruments  with  characteristics  of  both
liabilities  and  equity.  SFAS  No.  150  requires  that  an  issuer classify a
financial  instrument  that  is  within its scope as a liability, or an asset in
some  circumstances. SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. SFAS No. 150 is to be
implemented  by  reporting  the  cumulative  effect of a change in an accounting
principle for financial instruments created before the issuance date of SFAS No.
150  and  still  existing  at  the  beginning of the interim period of adoption.
Restatement is not permitted. We do not expect that the adoption of SFAS No. 150
to  have  a  material  impact  on  our  financial  position or on our results of
operations.


FACTORS THAT MAY AFFECT FUTURE RESULTS

     We  Rely  on  Continued  Market Acceptance of Our Existing Products and Any
Decline  in  Sales  of Our Existing Products Would Adversely Affect Our Business
and  Results  of  Operations.  We  currently  market  visible and infrared light
semiconductor-based  photocoagulator  medical  laser  systems  to the ophthalmic
market.  We  also  market  visible  and  infrared  light  semiconductor-based
photocoagulator  medical  laser  systems  to the dermatology market.  We believe
that  continued  and  increased sales, if any, of these medical laser systems is
dependent upon a number of factors including the following:

          -    Product  performance,  features,  ease  of  use,  scalability and
               durability;

          -    Recommendations and opinions by ophthalmologists, dermatologists,
               clinicians,  plastic  surgeons  and  their  associated  opinion
               leaders;

          -    Price  of  our  products  and  prices  of  competing products and
               technologies;


                                       19

          -    Availability  of competing products, technologies and alternative
               treatments;

          -    Willingness  of ophthalmologists and dermatologists to convert to
               semiconductor-based  or  infrared  laser systems from alternative
               technologies;  and

          -    Level  of  reimbursement  for  treatments  administered  with our
               products.

In  addition,  we  derive  a meaningful portion of our revenues from the sale of
delivery  devices  and  from service revenues. Our ophthalmology and dermatology
medical  laser  consoles  are  not  designed to exclusively utilize our delivery
devices  and  can  be  used  with  the  delivery devices of our competitors. Our
ability  to  increase  revenues  from  the  sale of delivery devices will depend
primarily  upon  the  feature, ease of use and prices of our products, including
relative  to  the  prices  of  competing  delivery devices. The level of service
revenues  will depend on our quality of care, responsiveness and the willingness
of  our  customers  to  request  our  services  rather than purchase a competing
product  or  services.  Any  significant  decline  in  market  acceptance of our
products  or  our  revenues  derived  from the sales of laser consoles, delivery
devices  or  services  would  have  a  material  adverse effect on our business,
results  of  operations  and  financial  condition.

     We  Face  Strong  Competition  in  Our  Markets  and  Expect  the  Level of
Competition  to  Grow  in  the Foreseeable Future. Competition in the market for
devices  used  for  ophthalmic  and  dermatology  treatments  is  intense and is
expected  to  increase.  Our competitive position depends on a number of factors
including  product  performance, characteristics and functionality, ease of use,
scalability, durability and cost. Our principal competitors in ophthalmology are
Lumenis  Ltd.,  Nidek,  Inc.,  Carl  Zeiss, Inc., Alcon Inc. and Quantel. All of
these  companies  currently offer a competitive semiconductor-based laser system
in  ophthalmology.  Our  principal  competitors in dermatology are Lumenis Ltd.,
Laserscope,  Candela Corporation and Altus Medical Inc and Palomar Technologies.
Some  competitors  have  substantially  greater  financial, engineering, product
development,  manufacturing,  marketing and technical resources than we do. Some
companies  also  have  greater  name  recognition  than  we do and long-standing
customer  relationships.  In  addition  to  other  companies  that  manufacture
photocoagulators,  we compete with pharmaceuticals, other technologies and other
surgical techniques. Some medical companies, academic and research institutions,
or  others, may develop new technologies or therapies that are more effective in
treating  conditions  targeted  by  us or are less expensive than our current or
future  products.  Any such developments could have a material adverse effect on
our  business,  financial  condition  and  results  of  operations.

     Our  Future  Success  Depends  on  Our  Ability to Develop and Successfully
Introduce  New  Products  and  New Applications. Our future success is dependent
upon,  among  other  factors, our ability to develop, obtain regulatory approval
of,  manufacture  and  market  new  products.  In October 2002, we announced the
introduction  of  a  number  of new products, specifically the OcuLight Symphony
multi-wavelength laser delivery system, an expanded EndoProbe product line and a
5  mm  Large  Spot  Slit Lamp Adapter. We also announced the Millennium Endolase
module  in  2002,  which  we  manufacture  to  be  included  in  Bausch & Lomb's
Millennium Microsurgical System. Successful commercialization of these and other
new  products  and  new  applications  will require that we effectively transfer
production  processes  from  research  and  development  to  manufacturing  and
effectively  coordinate  with  our  suppliers. In addition, we must successfully
sell and achieve market acceptance of new products and applications and enhanced
versions  of  existing  products.  The  extent  of,  and  rate  at which, market
acceptance and penetration are achieved by future products is a function of many
variables.  These  variables  include  price,  safety,  efficacy,  reliability,
marketing  and  sales  efforts,  the  development  of new applications for these
products,  the availability of third-party reimbursement of procedures using our
new  products,  the  existence  of  competing  products  and  general  economic
conditions  affecting  purchasing  patterns.  Our ability to market and sell new


                                       20

products may also be subject to government regulation, including approval by the
United  States  Food  and  Drug  Administration,  or FDA, and foreign government
agencies.  Any  failure in our ability to successfully develop and introduce new
products or enhanced versions of existing products and achieve market acceptance
of new products and new applications could have a material adverse effect on our
operating results and would cause our net revenues to decline.

     Our Business Has Been Adversely Impacted By the Worldwide Economic Slowdown
and  Related  Uncertainties. The overall weak economic conditions worldwide have
resulted in reduced demand for some of our products, particularly demand for our
dermatology  products.  Continued  political and social turmoil in Iraq or other
parts  of  the  world  or  terrorist  acts  may adversely impact global economic
conditions. These political, social and economic conditions and related economic
uncertainties  make  it  difficult for us, our customers and our distributors to
forecast orders and sales of our products and, accordingly, plan future business
activities. This level of uncertainty strongly challenges our ability to operate
profitably  or  grow our business. If the economic or market conditions continue
to further deteriorate, this may have a material adverse impact on our financial
position,  results  of  operation  and  cash  flows.

     If  We  Cannot  Increase  Our  Sales Volumes, Reduce Our Costs or Introduce
Higher  Margin  Products  to  Offset  Anticipated Reductions in the Average Unit
Price  of  Our  Products,  Our operating Results May Suffer. We have experienced
declines  in  the  average  unit price of our products and expect to continue to
suffer  from  declines in the future. The average unit price of our products may
decrease  in  the  future  in  response  to  changes in product mix, competitive
pricing  pressures,  new product introductions by us or our competitors or other
factors.  If  we  are  unable  to offset the anticipated decrease in our average
selling  prices  by increasing our sales volumes, our net revenues will decline.
In  addition,  to  maintain  our  gross  margins, we must continue to reduce the
manufacturing  cost  of our products. Further, should average unit prices of our
current products decline, we must develop and introduce new products and product
enhancements  with  higher margins. If we cannot maintain our gross margins, our
business could be seriously harmed, particularly if the average selling price of
our  products decreases significantly without a corresponding increase in sales.

     We  Face  Risks  of  Manufacturing.  The  manufacture  of  our infrared and
visible  light  photocoagulators  and  the  related delivery devices is a highly
complex  and precise process.  We assemble critical subassemblies and all of our
final  products at our facility in Mountain View, California.  We may experience
manufacturing  difficulties,  quality  control  issues  or assembly constraints,
particularly  with  regard to new products that we may introduce.  We may not be
able  to  manufacture  sufficient  quantities of our products, which may require
that  we  qualify  other  manufacturers  for  our products.  We do not currently
intend to utilize any external manufacturers for our products.   Furthermore, we
may  experience  delays,  disruptions,  capacity  constraints or quality control
problems  in our manufacturing operations and, as a result, product shipments to
our  customers could be delayed, which would negatively impact our net revenues.

     We  Depend  on  Sole  Source  or Limited Source Suppliers. We rely on third
parties to manufacture substantially all of the components used in our products,
including  optics,  laser  diodes and crystals. We have some long term or volume
purchase  agreements  with  our suppliers and currently purchase components on a
purchase  order  basis.  Some  of  our  suppliers  and manufacturers are sole or
limited  source.  In  addition,  some  of  these  suppliers are relatively small
private  companies  that may discontinue their operations at any time. There are
risks  associated  with  the  use  of  independent  manufacturers, including the
following:


                                       21

          -    unavailability  of,  shortages  or  limitations on the ability to
               obtain  supplies of components in the quantities that we require;

          -    delays  in  delivery  or failure of suppliers to deliver critical
               components  on  the  dates  we  require;

          -    failure  of  suppliers  to  manufacture  components  to  our
               specifications,  and  potentially  reduced  quality;  and

          -    inability  to  obtain  components  at  acceptable  prices.

Our  business  and  operating  results  may  suffer from the lack of alternative
sources  of supply for critical sole and limited source components.  The process
of  qualifying  suppliers  is  complex,  requiring  extensive  testing  and
interoperability  with  our  products,  and  may be lengthy, particularly as new
products  are  introduced.  New  suppliers  would  have  to  be  educated in our
production  processes.  In addition, the use of alternate components may require
design  alterations to our products and additional product testing under FDA and
relevant  foreign  regulatory  agency  guidelines,  which  may  delay  sales and
increase  product  costs.  Any  failures  by  our  vendors  to adequately supply
limited  and sole source components may impair our ability to offer our existing
products,  delay  the  submission  of  new  products for regulatory approval and
market  introduction,  materially  harm our business and financial condition and
cause  our  stock  price  to  decline.  Establishing  our  own  capabilities  to
manufacture these components would be expensive and could significantly decrease
our  profit  margins.  We  do  not  currently intend to manufacture any of these
components.  Our  business,  results of operations and financial condition would
be  adversely  affected if we are unable to continue to obtain components in the
quantity  and  quality  desired  and  at  the  prices  we  have  budgeted.

     We Depend on International Sales for a Significant Portion of Our Operating
Results.  We  derive,  and  expect to continue to derive, a large portion of our
revenue from international sales. For the three months ended September 27, 2003,
our international sales were $3.0 million or 36.8% of total sales. We anticipate
that  international  sales will continue to account for a significant portion of
our  revenues  in the foreseeable future. None of our international revenues and
costs  has  been  denominated in foreign currencies. As a result, an increase in
the  value  of the U.S. dollar relative to foreign currencies makes our products
more  expensive and thus less competitive in foreign markets. The factors stated
above  could have a material adverse effect on our business, financial condition
or  results of operations. Our international operations and sales are subject to
a  number  of  risks  including:

          -    longer  accounts  receivable  collection  periods;

          -    impact  of  recessions in economies outside of the United States;

          -    foreign  certification  requirements, including continued ability
               to  use  the  "CE"  mark  in  Europe;

          -    reduced or limited protections of intellectual property rights in
               jurisdictions  outside  the  United  States;

          -    potentially  adverse  tax  consequences;  and


                                       22

          -    multiple protectionist, adverse and changing foreign governmental
               laws  and  regulations.

Any  one  or  more  of  these factors stated above could have a material adverse
effect  on  our  business,  financial  condition  or results of operations.  For
additional  discussion  about  our  foreign  currency  risks,  see  Item  3,
"Quantitative  and  Qualitative  Disclosures  About  Market  Risk."

     We  Depend on Sales of Our Ophthalmology Products for a Significant Portion
of  Our  Operating Results. We derive, and expect to continue to derive, a large
portion of our revenue and profits from sales of our ophthalmology products. For
the  three  months ended September 27, 2003, sales of our ophthalmology products
were  $6.9 million or 83.4% of total sales and contributed $4.4 million to total
direct  gross  margins of $4.9 million for the three month period. We anticipate
that  sales  of  our  ophthalmology  products  will  continue  to  account for a
significant  portion of our revenues in the foreseeable future as we continue to
introduce  new ophthalmology products, such as the previously announced OcuLight
Symphony multi-wavelength laser delivery system, expanded EndoProbe product line
and  5 mm Large Spot Slit Lamp Adapter, and support clinical trials in the field
of  ophthalmology, including the TTT4CNV clinical trial for the treatment of wet
AMD.

     Our  Operating  Results May be Adversely Affected by Changes in Third Party
Coverage  and  Reimbursement  Policies  and any Uncertainty Regarding Healthcare
Reform Measures.  Our ophthalmology products are typically purchased by doctors,
clinics,  hospitals and other users, which bill various third-party payers, such
as  governmental  programs  and  private  insurance  plans,  for the health care
services  provided  to  their  patients.  Third-party  payers  are  increasingly
scrutinizing  and  challenging  the  coverage  of  new products and the level of
reimbursement for covered products.  Doctors, clinics, hospitals and other users
of  our  products  may not obtain adequate reimbursement for use of our products
from  third-party  payers.  While we believe that the laser procedures using our
products  have  generally  been  reimbursed,  payers  may  deny  coverage  and
reimbursement  for  our  products  if  they  determine  that  the device was not
reasonable  and  necessary  for the purpose used, was investigational or was not
cost-effective.  In  addition,  third  party payers may not initiate coverage of
new  procedures  using  our  products for a significant period.  For example, in
September  2000,  the Center for Medicare and Medicaid Services, or CMS, advised
that claims for reimbursement for certain age related macular degeneration (AMD)
procedures  which  use  our  OcuLight  SLx  laser system, could be submitted for
reimbursement,  with  coverage and payment to be determined by the local medical
carriers  at  their  discretion.  To  date,  only three carriers-Noridian Mutual
Insurance,  which  is  the  CMS  Part  B  Carrier for Alaska, Arizona, Colorado,
Hawaii,  Iowa,  Nevada,  North  Dakota,  Oregon,  South  Dakota,  Washington and
Wyoming;  Cigna,  which  is the carrier for North Carolina, Tennessee and Idaho;
and  National  Heritage Insurance, which is the carrier for California-have made
coverage decisions approving the use of the Transpupillary Thermotherapy, or TTT
protocol  for  the  treatment  of  wet  AMD.  No  other  carriers  have approved
reimbursement  of such AMD procedures using the OcuLight SLx, and domestic sales
of the OcuLight SLx laser system continue to be limited until more local medical
carriers  reimburse for performing such AMD procedures or until CMS advises that
claims  for  these  procedures  may be submitted directly to CMS at the national
level.

     Changes  in  government legislation or regulation or in private third-party
payers'  policies toward reimbursement for procedures employing our products may
prohibit  adequate  reimbursement.  There  have been a number of legislative and
regulatory  proposals  to  change  the  healthcare  system,  reduce the costs of
healthcare  and  change  medical  reimbursement  policies.  Doctors,  clinics,
hospitals  and  other users of our products may decline to purchase our products
to the extent there is uncertainty regarding reimbursement of medical procedures
using  our  products  and  any  healthcare  reform  measures.  Further  proposed


                                       23

legislation,  regulation  and policy changes affecting third party reimbursement
are  likely.  We  are  unable to predict what legislation or regulation, if any,
relating  to  the health care industry or third-party coverage and reimbursement
may  be enacted in the future, or what effect such legislation or regulation may
have  on us. However, denial of coverage and reimbursement of our products would
have  a  material  adverse  effect  on  our  business, results of operations and
financial  condition.

     We  are  Dependent  on  the  Successful  Outcome  of Clinical Trials of Our
Products  and  New  Applications  Using Our Products. Our success will depend in
part  on  the  successful  outcome  of  clinical  trials of our products and new
applications  using  our  products.  Clinical  trials  are  long,  expensive and
uncertain  processes.  We  are  currently  supporting  several  ongoing clinical
trials, including, for example, the TTT4CNV clinical trial. The TTT4CNV clinical
trial  is  a  multi-center,  prospective,  placebo-controlled,  randomized trial
conducted  at  22  centers  in  the United States. This clinical trial is a post
marketing study performed within the FDA cleared indications of the OcuLight SLx
and  is  being  conducted  to  determine  whether  TTT laser treatment using our
OcuLight  SLx  infrared laser system and Large Spot Slit Lamp Adapter can reduce
the  risk  of  vision  loss  for patients with wet AMD. In order to successfully
commercialize  the  use  of our OcuLight SLx for TTT procedures, we must be able
to,  among  other  things,  demonstrate  with  substantial  evidence  from
well-controlled  clinical  trials  where  TTT  procedures using the Oculight SLx
product are both safe and effective. This process may take a number of years. In
March  2003,  we announced that the Executive Committee for the TTT4CNV clinical
trial accepted the recommendations of the independent Data and Safety Monitoring
Committee  that  an  adequate  number  of  patients  were  enrolled  to detect a
clinically relevant difference between outcomes in TTT-treated eyes and patients
not  being treated. In June 2003, we announced the publication of two additional
clinical  studies, which also support the effectiveness of TTT for the treatment
of  wet  age-related  macular  degeneration.  Both  studies  were  prospective,
non-randomized,  non-masked  case  series that were performed using our OcuLight
SLx  laser  and  Large  Spot  Size  Slit Lamp Adapter. We cannot assure you that
results  from  the  TTT4CNV  clinical  trial will prove to be successful. If the
future  results  of  the  TTT4CNV  clinical  trial  or  any other clinical trial
regarding  our  products  fails  to  validate  the  safety  and effectiveness of
treatments  using  our  products,  our  ability  to  generate  revenues from new
products  or new applications using our products would be adversely affected and
our  business  would  be  harmed.

     Our  Operating  Result  May  Fluctuate  from Quarter to Quarter and Year to
Year.  Our  sales  and  operating results may vary significantly from quarter to
quarter  and from year to year in the future. Our operating results are affected
by  a  number  of  factors,  many  of  which  are  beyond  our  control. Factors
contributing  to  these  fluctuations  include  the  following:

     -    General  economic  uncertainties  and  political  concerns;

     -    The  timing of the introduction and market acceptance of new products,
          product  enhancements  and  new  applications;

     -    Changes  in demand for our existing line of dermatology and ophthalmic
          products;

     -    The  cost  and availability of components and subassemblies, including
          the  ability  of  our  sole  or  limited  source  suppliers to deliver
          components  at  the  times  and  prices  that  we  have  planned;

     -    Fluctuations  in  our  product  mix between dermatology and ophthalmic
          products  and  foreign  and  domestic  sales;


                                       24

     -    The effect of regulatory approvals and changes in domestic and foreign
          regulatory  requirements;

     -    Introduction  of  new  products,  product  enhancements  and  new
          applications  by  our  competitors,  entry of new competitors into our
          markets,  pricing  pressures  and  other  competitive  factors;

     -    Our  long  and  highly  variable  sales  cycle;

     -    Decreases  in  the  prices  at  which  we  can  sell  our  products;

     -    Changes  in customers' or potential customers' budgets as a result of,
          among  other things, reimbursement policies of government programs and
          private  insurers  for  treatments  that  use  our  products;  and

     -    Increased  product  development  costs.

In  addition to these factors, our quarterly results have been, and are expected
to  continue  to  be,  affected  by  seasonal  factors.

Our  expense  levels  are  based,  in  part, on expected future sales.  If sales
levels  in  a  particular  quarter do not meet expectations, we may be unable to
adjust  operating  expenses  quickly  enough  to compensate for the shortfall of
sales, and our results of operations may be adversely affected.  In addition, we
have historically made a significant portion of each quarter's product shipments
near  the end of the quarter.  If that pattern continues, any delays in shipment
of  products  could  have a material adverse effect on results of operations for
such  quarter.  Due  to  these  and  other  factors,  we believe that quarter to
quarter  and  year  to year comparisons of our past operating results may not be
meaningful.  You  should  not  rely on our results for any quarter or year as an
indication  of our future performance.  Our operating results in future quarters
and  years  may be below expectations, which would likely cause the price of our
common  stock  to  fall.

We  Rely  on Our Direct Sales Force and Network of International Distributors to
Sell  Our  Products  and  any  Failure  to  Maintain  Our Direct Sales Force and
Distributor  Relationships  Could  Harm  Our  Business.  Our ability to sell our
products  and  generate  revenue  depends upon our direct sales force within the
United States and relationships with independent distributors outside the United
States.  As  of  September  27,  2003  our  direct  sales  force consisted of 15
employees  and  we  maintained  relationships  with  50 independent distributors
internationally selling our products into 107 countries.  We generally grant our
distributors  exclusive  territories  for  the sale of our products in specified
countries.  The  amount and timing of resources dedicated by our distributors to
the  sales  of  our products is not within our control.  Our international sales
are  entirely  dependent  on  the  efforts  of  these  third  parties.  If  any
distributor  breaches  or  fails  to  generate  sales of our products, we may be
forced to replace the distributor and our ability to sell our products into that
exclusive  sales  territory  would  be  adversely  affected.

We do not have any long-term employment contracts with the members of our direct
sales  force.  We may be unable to replace our direct sales force personnel with
individuals  of  equivalent  technical  expertise  and qualifications, which may
limit  our  revenues  and our ability to maintain market share.  The loss of the
services  of  these  key  personnel  would  harm  our  business.  Similarly, our
distributorship  agreements are generally terminable at will by either party and
distributors  may  terminate their relationships with us, which would affect our
international  sales  and  results  of  operations.


                                       25

     We  Depend  on Collaborative Relationships to Develop, Introduce and Market
New  Products,  Product Enhancements and New Applications.  We have entered into
collaborative  relationships  with  academic  medical  centers and physicians in
connection  with  the  research  and  development  and  clinical  testing of our
products.  We  plan  to  collaborate  with  third  parties  to  develop  and
commercialize  existing  and  new  products.  In  October 2002, we announced our
collaboration  with  Bausch & Lomb to design and manufacture a solid-state green
wavelength (532 nm) laser photocoagulator module, called the Millennium Endolase
module.  The  Millennium Endolase module is designed to be a component of Bausch
&  Lomb's  ophthalmic  surgical suite product offering and is not expected to be
sold  as  a  stand-alone  product.  Sales  of the Millennium Endolase module are
dependent  upon  the  actual order rate from and shipment rate to Bausch & Lomb,
which  depends  on  the  efforts  of  our partner and is beyond our control.  We
cannot  assure  you  that  our  relationship  with  Bausch & Lomb will result in
further  sales  of  our  Millennium  Endolase module.  Our collaborators may not
pursue  further  development  and  commercialization  of products resulting from
collaborations  with  us or may not devote sufficient resources to the marketing
and  sale  of  such  products.  Our reliance on others for clinical development,
manufacturing  and  distribution  of  our  products  may  result  in  unforeseen
problems.  Further, our collaborative partners may develop or pursue alternative
technologies  either  on  their  own  or  in  collaboration  with  others.  If a
collaborator  elects to terminate its agreement with us, our ability to develop,
introduce,  market and sell the product may be significantly impaired and we may
be  forced  to  discontinue  altogether  the  product  resulting  from  the
collaboration.  We  may  not  be  able  to  negotiate  alternative collaboration
agreements on acceptable terms, if at all.  The failure of any current or future
collaboration  efforts  could  have  a material adverse effect on our ability to
introduce  new  products  or  applications  and  therefore could have a material
adverse  effect  on our business, results of operations and financial condition.

     We  Rely  on  Patents  and  Proprietary  Rights to Protect our Intellectual
Property  and  Business. Our success and ability to compete is dependent in part
upon  our  proprietary  information.  We rely on a combination of patents, trade
secrets,  copyright  and  trademark  laws,  nondisclosure  and other contractual
agreements  and  technical measures to protect our intellectual property rights.
We  file  patent applications to protect technology, inventions and improvements
that  are  significant  to  the development of our business. We have been issued
thirteen  United  States  patents  and  one  foreign  patent on the technologies
related  to  our  products  and  processes. We have approximately eleven pending
patent  applications  in  the  United  States  and  nine  foreign pending patent
applications  that have been filed. Our patent applications may not be approved.
Any  patents  granted  now  or  in  the future may offer only limited protection
against  potential  infringement and development by our competitors of competing
products.  Moreover,  our  competitors, many of which have substantial resources
and  have  made  substantial  investments in competing technologies, may seek to
apply  for  and  obtain  patents  that will prevent, limit or interfere with our
ability  to  make,  use  or  sell our products either in the United States or in
international  markets.

     In  addition  to patents, we rely on trade secrets and proprietary know-how
which  we  seek  to protect, in part, through proprietary information agreements
with  employees,  consultants  and  other  parties.  Our proprietary information
agreements  with  our  employees  and  consultants  contain  industry  standard
provisions  requiring  such  individuals  to  assign  to  us  without additional
consideration  any  inventions  conceived  or  reduced to practice by them while
employed  or  retained  by  us,  subject  to  customary exceptions.  Proprietary
information  agreements  with employees, consultants and others may be breached,
and  we  may not have adequate remedies for any breach.  Also, our trade secrets
may  become  known  to  or  independently  developed  by  competitors.

     The  laser  and  medical  device  industry  is  characterized  by  frequent
litigation  regarding  patent and other intellectual property rights.  Companies
in the medical device industry have employed intellectual property litigation to


                                       26

gain  a  competitive  advantage.  Numerous patents are held by others, including
academic  institutions  and our competitors.  Until recently patent applications
were  maintained  in  secrecy  in  the  United  States until the patents issued.
Patent  applications  filed  in  the United States after November 2000 generally
will  be published eighteen months after the filing date.  However, since patent
applications  continue  to  be maintained in secrecy for at least some period of
time,  both  within  the  United States and with regards to international patent
applications,  we  cannot  assure  you that our technology does not infringe any
patents  or  patent  applications  held by third parties.  We have, from time to
time, been notified of, or have otherwise been made aware of, claims that we may
be  infringing  upon patents or other proprietary intellectual property owned by
others.  If  it  appears necessary or desirable, we may seek licenses under such
patents  or proprietary intellectual property.  Although patent holders commonly
offer  such  licenses,  licenses under such patents or intellectual property may
not  be  offered  or  the  terms  of any offered licenses may not be reasonable.

     Any  claims,  with  or  without  merit,  and  regardless  of whether we are
successful  on  the merits, would be time-consuming, result in costly litigation
and  diversion  of  technical and management personnel, cause shipment delays or
require  us  to  develop  noninfringing  technology  or to enter into royalty or
licensing agreements.   An adverse determination in a judicial or administrative
proceeding  and  failure  to  obtain  necessary  licenses  or  develop alternate
technologies could prevent us from manufacturing and selling our products, which
would  have a material adverse effect on our business, results of operations and
financial  condition.

     We  Are  Subject  To  Government  Regulation Which May Cause Us to Delay or
Withdraw  the Introduction of New Products or New Applications for Our Products.
The  medical  devices  that  we  market and manufacture are subject to extensive
regulation  by  the FDA and by foreign and state governments.  Under the Federal
Food,  Drug  and Cosmetic Act and the related regulations, the FDA regulates the
design, development, clinical testing, manufacture, labeling, sale, distribution
and  promotion  of  medical devices.  Before a new device can be introduced into
the  market,  the  product  must  undergo  rigorous  testing  and  an  extensive
regulatory  approval process implemented by the FDA under federal law.  A device
manufacturer  must  obtain  market clearance through either the 510(k) premarket
notification  process  or  the lengthier premarket approval application process.
Depending  upon the type, complexity and novelty of the device and the nature of
the  disease  or disorder to be treated, the FDA process can take several years,
require extensive clinical testing and result in significant expenditures.  Even
if regulatory approval is obtained, later discovery of previously unknown safety
issues  may  result  in restrictions on the product, including withdrawal of the
product  from  the  market.  Other  countries  also  have  extensive regulations
regarding  clinical  trials and testing prior to new product introductions.  Our
failure  to  obtain  government  approvals  or  any  delays  in  receipt of such
approvals  would  have  a  material  adverse  effect on our business, results of
operations  and  financial  condition.

     The FDA imposes additional regulations on manufacturers of approved medical
devices.  We  are  required to comply with the applicable FDA good manufacturing
practice  regulations,  which  include  quality  control  and  quality assurance
requirements,  as  well  as  maintenance  of  records  and  documentation.  Our
manufacturing  facilities are subject to ongoing periodic inspections by the FDA
and corresponding state agencies, including unannounced inspections, and must be
licensed  as  part  of  the  product  approval process before being utilized for
commercial  manufacturing.  Noncompliance  with  the applicable requirements can
result  in,  among  other things, fines, injunctions, civil penalties, recall or
seizure  of  products,  total or partial suspension of production, withdrawal of
marketing approvals, and criminal prosecution. The FDA also has the authority to
request  repair,  replacement or refund of the cost of any device we manufacture


                                       27

or  distribute.  Any  of these actions by the FDA would materially and adversely
affect  our  ability  to  continue operating our business and the results of our
operations.

     In  addition,  we  are also subject to varying product standards, packaging
requirements,  labeling  requirements,  tariff  regulations,  duties  and  tax
requirements.  As  a  result of our sales in Europe, we are required to have all
products  "CE"  registered,  an  international  symbol  affixed  to all products
demonstrating  compliance  with  the  European  Medical Device Directive and all
applicable  standards.  While  currently  all  of  our released IRIS Medical and
IRIDERM  products  are  CE  registered,  continued  registration  is  based  on
successful  review  of the process by our European Registrar during their annual
audit.  Any  loss  of  registration  would have a material adverse effect on our
business,  results  of  operations  and  financial  condition.

     If  Product  Liability  Claims are Successfully Asserted Against Us, We may
Incur  Substantial Liabilities That May Adversely Affect Our Business or Results
of  Operations. We may be subject to product liability claims in the future. Our
products  are  highly  complex and some are used to treat extremely delicate eye
tissue  and  skin  conditions on and near a patient's face. Although we maintain
product liability insurance with coverage limits of $11.0 million per occurrence
and  an  annual  aggregate  maximum  of  $12.0  million,  our  coverage from our
insurance  policies  may  not  be  adequate.  Product  liability  insurance  is
expensive.  We  might  not  be able to obtain product liability insurance in the
future  on acceptable terms or in sufficient amounts to protect us, if at all. A
successful  claim  brought  against us in excess of our insurance coverage could
have  a  material  adverse  effect  on  our  business, results of operations and
financial  condition.

     If  We  Fail  to  Accurately  Forecast Demand For Our Product and Component
Requirements For the Manufacture of Our Product, We Could Incur Additional Costs
or  Experience Manufacturing Delays and May Experience Lost Sales or Significant
Inventory Carrying Costs.  We use quarterly and annual forecasts based primarily
on  our  anticipated  product  orders  to  plan  our  manufacturing  efforts and
determine  our  requirements for components and materials.  It is very important
that  we  accurately  predict both the demand for our product and the lead times
required  to  obtain  the  necessary  components  and materials.  Lead times for
components  vary  significantly  and  depend  on numerous factors, including the
specific  supplier,  the  size  of  the order, contract terms and current market
demand  for  such components.  If we overestimate the demand for our product, we
may have excess inventory, which would increase our costs. Over the past several
quarters,  we  have  placed  a high priority on our asset management efforts to,
among  other  things,  reduce  overall  inventory  levels  and increase our cash
position.  If  we  underestimate  demand  for our product and, consequently, our
component  and  materials  requirements, we may have inadequate inventory, which
could  interrupt  our  manufacturing,  delay  delivery  of  our  product  to our
customers  and  result  in the loss of customer sales.  Any of these occurrences
would  negatively  impact  our  business  and  operating  results.

     If  We  Fail  to Manage Growth Effectively, Our Business Could Be Disrupted
Which Could Harm Our Operating Results. We have experienced, and may continue to
experience  growth  in our business. We have made and expect to continue to make
significant investments to enable our future growth through, among other things,
new  product  development and clinical trials for new applications and products.
We  must  also  be  prepared to expand our work force and to train, motivate and
manage  additional  employees  as  the need for additional personnel arises. Our
personnel,  systems,  procedures and controls may not be adequate to support our
future  operations. Any failure to effectively manage future growth could have a
material  adverse  effect  on  our business, results of operations and financial
condition.

     If  Our  Facilities  Were  To  Experience Catastrophic Loss, Our Operations
Would  Be Seriously Harmed. Our facilities could be subject to catastrophic loss


                                       28

such  as  fire,  flood  or  earthquake.  All  of  our  research  and development
activities,  manufacturing,  our  corporate  headquarters  and  other  critical
business  operations  are located near major earthquake faults in Mountain View,
California. Any such loss at any of our facilities could disrupt our operations,
delay  production,  shipments  and revenue and result in large expense to repair
and  replace  our  facilities.

     We May Need Additional Capital, which May Not Be Available, and Our Ability
to Grow May be Limited as a Result.  We believe that our existing cash balances,
available-for-sale  securities,  credit  facilities and cash flow expected to be
generated  from  future  operations  will  be  sufficient  to  meet  our capital
requirements  at least through the next 12 months.  However, we may be required,
or  could elect, to seek additional funding prior to that time.  The development
and  marketing  of  new  products  and  associated  support personnel requires a
significant  commitment  of  resources.  If  cash  from  available  sources  is
insufficient,  we  may  need  additional  capital, which may not be available on
favorable  terms,  if  at all.  If we cannot raise funds on acceptable terms, we
may  not  be  able  to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
Any  inability  to  raise  additional capital when we require it would seriously
harm  our  business.

     Our  Stock Price Has Been and May Continue to be Volatile and an Investment
in  Our  Common  Stock Could Suffer a Decline in Value. The trading price of our
common  stock  has been subject to wide fluctuations in response to a variety of
factors, some of which are beyond our control, including quarterly variations in
our operating results, announcements by us or our competitors of new products or
of  significant  clinical  achievements,  changes  in market valuations of other
similar companies in our industry and general market conditions. We receive only
limited attention by securities analysts and may experience an imbalance between
supply  and  demand  for our common stock resulting from low trading volumes. In
addition,  the  stock  market has experienced extreme volatility in the last few
years  that has often been unrelated to the performance of particular companies.
These  broad  market  fluctuations could have a significant impact on the market
price  of  our  common  stock  regardless  of  our  performance.


ITEM 3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURE  ABOUT  MARKET  RISK

QUANTITATIVE  DISCLOSURES

     We  are  exposed  to  market  risks  inherent  in our operations, primarily
related  to  interest  rate  risk  and  currency  risk.  These  risks arise from
transactions  and  operations entered into in the normal course of business.  We
do  not  use derivatives to alter the interest characteristics of our marketable
securities  or  our  debt  instruments.  We  have  no  holdings of derivative or
commodity  instruments.

     Interest  Rate Risk. We are subject to interest rate risks on cash and cash
equivalents,  available-for-sale  marketable securities and any future financing
requirements.  Interest  rate risks related to marketable securities are managed
by  managing  maturities  in  our  marketable  securities  portfolio. We have no
long-term  debt  as  of  September  27,  2003.

     The  fair  value of our investment portfolio or related income would not be
significantly  impacted  by  changes  in  interest  rates  since  the marketable
securities  maturities do not exceed fiscal year 2004 and the interest rates are
primarily  fixed.


                                       29

QUALITATIVE  DISCLOSURES

     Interest  Rate  Risk.  Our  primary interest rate risk exposures relate to:

          -    The  available-for-sale  securities  will fall in value if market
               interest  rates  increase.

          -    The  impact  of  interest rate movements on our ability to obtain
               adequate  financing  to  fund  future  operations.

     We  have  the  ability  to  hold  at  least  a  portion of the fixed income
investments  until maturity and therefore would not expect the operating results
or  cash  flows  to  be affected to any significant degree by a sudden change in
market  interest  rates  on  its  short-  and  long-term  marketable  securities
portfolio.

     Management evaluates our financial position on an ongoing basis.

Currency  Rate  Risk.

     We  do  not  hedge  any balance sheet exposures against future movements in
foreign  exchange  rates.  The exposure related to currency rate movements would
not  have  a  material  impact  on  future  net  income  or  cash  flows.

ITEM 4.   CONTROLS  AND  PROCEDURES

EVALUATION  OF  DISCLOSURE  CONTROLS  AND  PROCEDURES

     Our  management have evaluated, with the participation of our President and
Chief  Executive  Officer, who is our principal executive officer, and our Chief
Financial  Officer  and  Vice  President,  Administration,  who is our principal
financial officer, the effectiveness of our "disclosure controls and procedures"
(as  defined  in  Rules 13a-15(e) and 15(d)-15(e) of the Securities and Exchange
Act  of  1934, as amended) as of the end of the period covered by this Quarterly
Report on Form 10-Q. Based on that evaluation, our President and Chief Executive
Officer  and  our  Chief  Financial  Officer  and  Vice President Administration
concluded  that  our  disclosure controls and procedures are effective to ensure
that  information  we are required to disclose in reports that we file or submit
under  the  Securities  and  Exchange  Act  of  1934,  as  amended, is recorded,
processed,  summarized  and  reported  within  the time periods specified in the
Securities  Exchange  Commission  rules  and  forms.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING


     There  was  no change in our internal control over financial reporting that
occurred  during  the  period covered by this Quarterly Report on Form 10-Q that
has  materially  affected,  or  is  reasonably  likely to materially affect, our
internal  control  over  financial  reporting.

PART II. OTHER  INFORMATION

ITEM 1.   LEGAL  PROCEEDINGS
None.


                                       30

ITEM 2.   CHANGES  IN  SECURITIES  AND  USE  OF  PROCEEDS
None.

ITEM 3.   DEFAULTS  UPON  SENIOR  SECURITIES
None.

ITEM 4.   SUBMISSION  OF  MATTERS  TO  VOTE  OF  SECURITY  HOLDERS
None.


ITEM 5.   OTHER  INFORMATION

In  accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as
added  by  Section  202  of  the  Sarbanes-Oxley  Act of 2002, the Registrant is
responsible  for  disclosing  the  non-audit  services approved by the Company's
Audit  Committee  to  be  performed by PricewaterhouseCoopers LLP, the Company's
independent  auditor.  Non-audit  services  are  defined  in the law as services
other  than  those  provided  in  connection  with  an  audit or a review of the
financial  statements  of  the  Company.  The  additional  engagement  of
PricewaterhouseCoopers  LLP  for the matters listed below are each considered by
the  Company  to  be  audit-related  services  that  are  closely related to the
financial  audit  process.  During  the quarterly period covered by this filing,
the  Audit  Committee  approved  the  additional  engagements  of
PricewaterhouseCoopers  LLP  for  certain  tax  matter consultations and for the
review  of  the  Company's filings under the Securities Act of 1933, as amended.



ITEM 6.   EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a) Exhibits

     10.1   Lease  Agreement  dated  December  6, 1996, by and between Zappetini
     ----   --------------------------------------------------------------------
            Investment  Co. and the Registrant, as amended by that certain Lease
            --------------------------------------------------------------------
            Amendment  and  Extension,  dated  September  15,  2003.
            -------------------------------------------------------

     31     Certifications  of  Chief  Executive  Officer  and  Chief  Financial
     --     --------------------------------------------------------------------
            Officer pursuant  to Rules 13a-14(a) and 15d-14(a) promulgated under
            --------------------------------------------------------------------
            the  Securities Exchange Act of 1934, as adopted pursuant to Section
            --------------------------------------------------------------------
            302 of the  Sarbanes-Oxley  Act  of  2002.
            -----------------------------------------

     32     Certifications  of  Chief  Executive  Officer  and  Chief  Financial
     --     --------------------------------------------------------------------
            Officer pursuant  to  18 U.S.C. Section 1350, as adopted pursuant to
            --------------------------------------------------------------------
            Section 906  of  the  Sarbanes-Oxley  Act  of  2002.
            ---------------------------------------------------


(b) Reports  on  Form  8-K


     The  Company  filed  a report on Form 8-K on October 21, 2003 relating to a
press  release  regarding the Company's financial results for the fiscal quarter
ended  September  27,  2003.


                                       31

TRADEMARK  ACKNOWLEDGMENTS
- --------------------------

IRIDEX,  the  IRIDEX  logo,  IRIS  Medical, Oculight, EndoProbe and Apex are our
- --------------------------------------------------------------------------------
registered  trademarks, IRIDERM and Britelight product names are our trademarks.
- --------------------------------------------------------------------------------
All other trademarks or trade names appearing in this Form 10-Q are the property
- --------------------------------------------------------------------------------
of  their  respective  owners.
- -----------------------------


                                       32

SIGNATURE

Pursuant  to  the  requirements  of  the  Securities  Exchange  Act of 1934, the
Registrant  has  duly  caused  this  report  to  be  signed on its behalf by the
undersigned  thereunto  duly  authorized.

                               IRIDEX Corporation
                                  (Registrant)

Date:  November 12, 2003       By: /s/   Larry Tannenbaum
                                  -----------------------
                                   Larry Tannenbaum
                                   Chief Financial  Officer,
                                   Senior  Vice  President  of  Finance  and
                                   Administration  and  Secretary
                                   (Principal Financial and Principal
                                   Accounting Officer)



                                  EXHIBIT INDEX
                                 --------------


EXHIBIT
- -------
NUMBER      DESCRIPTION
- ------      -----------



10.1  Lease  Agreement  dated  December  6,  1996,  by  and  between  Zappetini
- ----  -------------------------------------------------------------------------
      Investment  Co.  and  the  Registrant,  as  amended  by that certain Lease
      --------------------------------------------------------------------------
      Amendment  and  Extension,  dated  September  15,  2003.
      -------------------------------------------------------

31    Certifications of  Chief  Executive  Officer  and  Chief Financial Officer
- --    --------------------------------------------------------------------------
      pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities
      --------------------------------------------------------------------------
      Exchange  Act  of  1934,  as  adopted  pursuant  to  Section  302  of  the
      --------------------------------------------------------------------------
      Sarbanes-Oxley Act  of  2002.
      ----------------------------

32    Certifications of  Chief  Executive  Officer  and  Chief Financial Officer
- --    --------------------------------------------------------------------------
      pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      --------------------------------------------------------------------------
      the  Sarbanes-Oxley  Act  of  2002.
      ----------------------------------


                                       33