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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 28, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from _________ to _________.
Commission file number 1-8402
--------
IRVINE SENSORS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0280334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3001 Redhill Avenue, Costa Mesa, California 92626
(Address of principal executive offices) (Zip Code)
(714) 549-8211
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class: which registered:
Common Stock Boston Stock Exchange Incorporated
Securities registered pursuant to Section 12(g) of the Act: None
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 ninety (90) days.
Yes X No
--- ---
To the extent known by the registrant, the aggregate market value of the Common
Stock held beneficially by non-affiliates of the registrant was approximately
$19,343,100 on December 19, 1997. As the Preferred Stock is not publicly traded
it has not been included in the computation.
As of December 19, 1997, there were 21,241,266 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended September 28, 1997; (Part II); portions of the Registrant's Definitive
Proxy Statement to be used in connection with Registrant's Annual Meeting of
Stockholders to be held on February 27, 1998 (Part III).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy of information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [_].
PART I
Item 1. Business.
General
The Company and its subsidiaries are organized into these primary business
groups.
Irvine Sensors Corporation
- - --------------------------
Irvine Sensors Corporation (the "ISC") is the developer of proprietary
technologies to produce extremely compact packages of solid state
microcircuitry, which offer volume, power, weight and operational advantages
versus less miniaturized alternatives. These advantages result from ISC's
ability to assemble microelectronic chips in a three-dimensional "stack" instead
of alongside each other on a flat surface, as is the case with more conventional
methods. These stacking technologies have also led to ISC's development of
collateral technologies for the design of low power and low noise chips,
thinning of chips and various specialized applications of chips and stacked chip
assemblies in fields ranging from image processing to digital photography.
ISC's core chip-stacking technology was originally conceived and developed as
a means of addressing the demands of space-based surveillance. However, the
degree of miniaturization realizable from ISC's technologies has attracted R&D
sponsorship from various U.S. government funding agencies for a wide variety of
potential military and space applications. Since its inception, ISC has derived
most of its revenues from such funded research and development. Since the early
1990s, ISC has sought to commercially exploit its technologies and has received
an increasing share of its revenues from the sale of commercial products.
During June 1992, ISC entered into a joint development agreement with IBM to
commercialize ISC's chip-stacking technology for computer memory applications.
In April 1996, ISC purchased a memory-stacking line in Essex Junction, Vermont
from IBM, and in October 1997, disposed of that line and consolidated that
sector of its business with its California operation. In October 1995, ISC
formed a subsidiary, Novalog, Inc. ("Novalog"), to commercially exploit its low
power chip technology. In April 1997, ISC formed a subsidiary, MicroSensors,
Inc. ("MSI"), to commercially exploit its technologies for low noise readout
electronics and miniaturized inertial sensors.
Novalog, Inc.
- - -------------
Novalog designs, develops and sells proprietary integrated circuits ("ICs")
for use in wireless infrared communication. Novalog's initial products,
trademarked SIRComm(TM), SIR2(TM), SIRFIR(TM), MiniSIR(TM) and BayBeamer(TM),
enable infrared, line-of-sight data transfer between computers, electronic
organizers, printers, modems and other electronic devices that have compatible
ports. Novalog is an active participant in the standards body of the Infrared
Data Association ("IrDA"), which establishes the hardware and software protocols
for such products. Novalog believes its products have advantages in terms of
power consumption, dynamic range, size and economics as compared to the products
of its competitors. As of September 1997, Novalog has shipped nearly one and
one-half million of its packaged ICs to manufacturers servicing the IrDA
marketplace and, although there can be no assurance, management anticipates
growing demand for such products.
MicroSensors, Inc.
- - ------------------
MSI was formed to develop and sell proprietary micromachined sensors and
related electronics. Micromachining involves the use of semiconductor
manufacturing processes to build electromechanical devices with feature sizes
measured in microns or fractions thereof. As prices have declined for
micromachined devices, such solid-state units have migrated from initial
aerospace and military applications to automotive, industrial process-control
and medical applications. SRI Consulting (Menlo Park, CA) has reported that
some observers expect sensors built in this manner to eventually replace
virtually all electromechanical sensors, creating a market of several billion
dollars annually. MSI has received a U.S. government contract for development
of a proprietary micro gyro with projected performance features heretofore
achievable only at much higher cost. Effective October 1997, MSI has negotiated
its first commercial contract and has commenced development of a multi-channel
readout chip pursuant to that contract. MSI believes, although there can be no
assurance, that these contracts have positioned MSI to effectively compete in
this emerging marketplace.
__________
ISC was incorporated in Delaware in January 1988. Pursuant to a merger
effective in May 1988 with a corporation of the same name incorporated in
California in December 1974, the Company succeeded to all of the assets and
liabilities of such predecessor corporation. Its principal executive offices
are located at 3001 Redhill Avenue, Building. 3, Costa Mesa, California 92626,
and its telephone number is (714) 549-8211.
Novalog was incorporated in California in October 1995. Its principal
executive offices are located at 125 Kalmus Drive, #K-1, Costa Mesa, California
92626, and its telephone number is (714) 429-1122. Novalog is a consolidated
subsidiary of ISC.
MSI was incorporated in Delaware in April 1997. Its principal executive
offices are located at 3001 Redhill Avenue, Building 3, Costa Mesa, California
92626, and its telephone number is (714) 444-8729. MSI is a consolidated
subsidiary of ISC.
Products and Technology
The Company has developed a family of standard products consisting of stacked
memory chips, and believes that its chip stacking technology can offer
demonstrable benefits to designers of systems that incorporate numerous
integrated circuits, by improving speed and reducing size, weight and power
usage. In addition, since ISC's technology reduces the number of
interconnections between chips, potential system failure points can also
decrease.
The Company believes that the features achievable with its chip stacking
technology will have application in space and in aircraft in which weight and
volume considerations are dominant, as well as in various other applications in
which portability is required and speed is important. The Company intends to
exploit its potential market by focusing on the sale of the stacked memory
products to high end, high margin government and commercial users to whom the
technical improvement will be most valuable. While these applications tend to
require lower unit volume, the sales are at significantly higher prices than
many applications requiring high volume production. Furthermore, the Company
has existing relationships with some of the potential customers in this market.
Since fiscal 1995, the Company has been shipping quantities of its stacked
memory products to customers for both government and commercial purposes.
However, there is no assurance that the Company will be successful in marketing
such products for widespread applications. The Company also intends to continue
to market infrared sensing devices for surveillance, acquisition, tracking and
interception applications for a variety of Defense Department and NASA missions.
The demand for performance has produced a wide variety of competitors and
competitive systems ranging from various three-dimensional designs to highly
dense two-dimensional designs. Although some competitors are generally believed
to be better financed, more experienced and organizationally stronger, the
Company is not aware of any system in existence or under development that can
stack memory chips more densely than its three-dimensional approach. See
"Competition."
The Company is not aware of any technical disadvantages to its chip stacking
technology. However, until high volume production is achieved, as to which
there is no assurance, the ultimate cost of products utilizing the Company's
chip stacking technology cannot be firmly established. Since the Company
believes cost will be a major factor in determining utility for many market
segments, the Company will remain at a disadvantage in penetrating these
segments until manufacturing volumes reach materially higher levels than have
been achieved.
In addition to its chip stacking technology, the Company has developed a
Serial Infrared Communications chip using elements of its sensor chip design
technology. This device is being used in products which allows computers and
computer peripherals to communicate using infrared transmissions in a manner
similar to that employed by remote control units for televisions and video
cassette recorders. The Company is actively marketing its Serial Infrared
Communications chips through its subsidiary, Novalog, Inc.
In June 1995, the Company commenced production shipments of an integrated
circuit (IC) chip designed to permit mobile units such as notebook computers and
cellular phones to communicate with printers, modems, or other stationary
peripherals by using infrared (IR) signals rather than cables or radio frequency
transmissions.
Potential Product Application
Neural Networks. In 1991, the Company received funding from U.S. Navy's
Office of Naval Research for potential use of its technology in neural networks.
After the successful completion of this phase 1 contract, the Company received
two $5,200,000 follow-on contracts from the Navy in June 1993 and January 1997
to further develop the neural networks technology. This phase of the contract
was completed and the Company is presently negotiating a third follow-on
contract under which the Company will deliver demonstration products to the
Navy. Neural networks contain large numbers of sensing nodes which continuously
interact with each other, similar to the way that the neurons of a human brain
interact to process sensory stimuli. Neural networks are the subject of
scientific inquiry because pattern recognition and learning tasks, which humans
perform well, and computers perform poorly, appear to be dependent on such
processing. Neither conventional computers nor advanced parallel processors
have the interconnectivity needed to emulate neural network processing
techniques. The Company believes its chip stacking technology offers a way to
achieve the very high levels of interconnectivity necessary to construct an
efficient artificial neural network. To the
Company's knowledge, no other presently available packaging approaches are
believed to offer this potential. The full embodiment of this technology is not
expected to yield near-term products for the Company, although it is anticipated
to keep the Company actively involved in advanced R&D relevant to the Company's
long-range business interests. However, elements of this technology, including
a proprietary chip set, are currently being developed with a view to early
product utilization.
Development Contract
In April 1980, the Company entered into an agreement with R & D Leasing Ltd.,
("RDL"), a limited partnership in which the Company's Chairman of the Board and
a Senior Vice-President are general partners with beneficial interests, to
design an electronic circuit, to develop certain fabrication processes and to
build equipment for testing electronic integrated circuits. In connection with
the development of the electronic test equipment under the RDL agreement,
certain other proprietary fabrication processes were developed to which RDL
retained ownership. Upon the occurrence of certain specified events, such as
the use of RDL's patented fabrication processes in connection with contracts,
the agreement with RDL provides that the Company will pay RDL a royalty fee of
3.5% of revenues from sales of the basic devices using the processes created
during the development of this equipment. In June 1989, the Board of Directors
approved an agreement with RDL whereby $40,000 of royalty fees were converted to
a long-term note payable and a warrant to purchase shares of the Company's
Common Stock. The note was unsecured, bore no interest and had a due date of
June 30, 1995. The warrant to purchase 200,000 shares of Common Stock at 20
cents per share had an expiration date of June 30, 1995.
In October 1989, the Board of Directors approved an amendment to the RDL
agreement. Under the amendment the Company will pay RDL a royalty of 3.5% of
all Company sales of the basic devices using the processes created during the
development of the RDL equipment. In addition, RDL is entitled to receive an
amount equal to 7% of all royalties earned by the Company from sales of these
products by the Company's sublicensees. The Company's exclusive rights to the
technology extend to all uses, both government and commercial. RDL agreed to
defer its royalty claims and subordinate them with respect to all other
creditors in exchange for options to purchase up to 1,000,000 shares of the
Company's Common Stock, which are exercisable by applying the deferred royalties
to the purchase. The initial 500,000 options vested immediately at the time of
the initial five year deferral period in October 1989. In October 1994, the
remaining 500,000 options vested upon RDL's extended deferral. The 1,000,000
options are exercisable at $1.00 until October 1999. If RDL exercises its
option in whole or in part, title to RDL's technology would transfer to the
Company and all further royalty obligations would cease. If the option expires
unexercised, the subordination provisions would terminate and the accrued
royalties would be due and payable in the same manner as any other corporate
obligation.
In October 1990, the Company and RDL consummated an agreement in which full
settlement of the $40,000 note was arranged. RDL agreed to the cancellation of
the Company's $40,000 debt and surrendered the warrant to purchase 200,000
shares of the Company's stock in exchange for a cash payment of $5,000 and
200,000 unregistered shares of the Company's Common Stock.
As of September 28, 1997, the Company had accrued $613,800 in deferred
royalties. With the exception of the 200,000 unregistered shares of the
Company's Common Stock and the $5,000 cash payment to RDL made in connection
with the cancellation of the Company's $40,000 note in October 1990, no
royalties were paid by the Company during fiscal years 1997, 1996 and 1995. The
Company believes that the terms of the foregoing transactions were no less
favorable to the Company than would have been obtained from a non-affiliated
third party for similar services.
Manufacturing
The Company had been manufacturing stacked memory products at its facilities
in Vermont and California. The Vermont facilities were configured for high
volume production where as the California facility is designed for low volume
and prototype production. At the present time, the Company stacks DRAM, SRAM and
FLASH memory die. The stacking process involves a standard process which
fabricates cubes comprising of approximately 50 die layers along with ceramic
cap and base substrates laminated with an extremely thin adhesive layer and
interconnected with a thin-film bus metalization to bring the chip input/output
signals out to the top surface of the stacks. The cubes are then segmented or
split into subsections as required for the particular product configuration
being built. Finally, the cubes, mini-cubes or short stacks are burned in,
tested, graded, kitted for packaging, out-sourced for packaging and screening,
and returned for final test. The Company has disposed of its manufacturing
operations in Vermont during fiscal 1997.
The primary components of the Company's non-memory products are integrated
circuits and infrared detectors. The integrated circuits are designed by the
Company for manufacture by others from silicon wafers and other materials
readily available from multiple sources. Due to the ready availability of these
materials, the Company does not have any special arrangements with
suppliers for their purchase. The Company does not produce detectors. However,
the Company has developed a process which enables it to use relatively low cost
and unsophisticated detectors which are generally available from numerous
sources.
Because of the nature of the sophisticated research and development work
performed under its development contracts, the Company designs and assembles
equipment for testing and prototype development. The Company utilizes the
unique capability of this equipment to seek, qualify for and perform additional
contract research and development for its customers. The Company does not have
any manufacturing capability to produce electro-optical or infrared detectors.
Backlog
At December 1, 1997, the Company's funded backlog was $2,110,300 compared to
$5,393,100 at November 24, 1996. The Company anticipates that all of the funded
backlog will be filled in fiscal 1998. In addition, the Company has $2,197,700
of unfunded backlog of contracts which typically is funded when the previously
funded amounts have been expended. The Company is also continuing to negotiate
for additional research contracts and commercial sales, which, if obtained,
could materially increase this backlog. Failure to obtain these contracts in a
timely manner could materially affect the Company's short-term results.
Customers and Marketing
The Company anticipates focusing its sensor product marketing efforts on U.S.
military agencies or contractors to those agencies. The Company is continually
seeking and preparing proposals for additional contracts. The Company has also
begun to develop potential non-military uses of its technology. Potential
commercial applications may include computer-related electronics packaging and a
broad range of industrial recognition devices such as process control devices
and security systems.
In fiscal 1997, contracts with all branches of the U.S. government accounted
for 43 percent of the Company's revenues, the remaining 57 percent of the
Company's revenues was derived from non-government sources. During fiscal 1997,
revenues derived from the U.S. Navy and various divisions of Lockheed Martin
Corporation accounted for approximately 23 percent and 22 percent of total
consolidated revenues, respectively. Loss of these customers would have a
material adverse impact on the Company's short-term results.
Contracts with government agencies may be suspended or terminated by the
government at any time, subject to certain conditions. Similar termination
provisions are typically included in agreements with prime contractors. There
is no assurance the Company will not experience suspensions or terminations in
the future.
The Company presently has limited marketing resources and thus focuses its
efforts in specific areas of interest. The Vice President-Marketing coordinates
the marketing activities of senior and technical management with respect to
government programs. The President and a Marketing Manager direct the marketing
activities of Novalog, Inc. which produces the SIRComm products.
As a result of the post cold-war defense cutbacks, many defense contractors
are experiencing declines in their business base as government agencies' budgets
are reduced. The Company believes that as the defense budget decreases there
will be more emphasis and funds directed to advanced technology systems and
research programs for which the Company is qualified to compete. However, there
can be no assurances that the Company will be successful in competing against
the larger defense contractors for potential programs.
Competition
The demand for high performance semiconductors has produced a wide variety of
competitors and competitive systems, ranging from various three-dimensional
designs to highly dense two-dimensional designs. Some of the Company's
competition is generally believed to be better financed, more experienced and
organizationally stronger than the Company.
The Company is aware of two large companies that have developed competing
approaches to chip stacking. They are Texas Instruments, Inc. (TI) and Thompson
CSF (Thompson). In addition, there are several small companies and divisions of
large companies that have various technologies for stacking a limited number of
chips.
The Company is aware of many companies which are currently servicing the
military focal plane market. These include Santa Barbara Research Center, TI,
Lockheed Martin Corporation, Raytheon, Litton Industries, Infrared Industries,
Inc., EG&G Judson, OptoElectronics-Textron, Inc., Dense Pac Inc., and Boeing
Corporation. The Company believes that many of its competitors have financial,
labor and capital resources greater than those of the Company and there is no
assurance that the Company will be able to compete successfully.
The Company is aware of several companies which currently service the market
for serial infrared detectors. They include Hewlett-Packard, Temic, Sharp, and
IBM, among others, all of whom have financial, labor and capital resources
greater than those of the Company.
Research and Development
The Company believes government and commercial research contracts will provide
the major portion of funding necessary for continuing development of its
products. However, the manufacture of stacked circuitry modules in volume will
require substantial additional funds, which may involve additional equity or
debt financing or a joint venture, license or other arrangement. There can be
no assurance that sufficient funding will be available from government or other
sources or that the Company's products will be successfully developed for volume
production.
The Company's expenditures for research and development for the fiscal years
ended September 28, 1997, September 29, 1996, and October 1, 1995 were
$1,616,600, $2,009,700, and $1,280,000, respectively. These expenditures of
Company funds were in addition to the Company's cost of revenues associated with
its customer-sponsored research and development activities. The spending levels
of Company funds on research and development compared to its overall expenses
are indicative of the Company's resolve to maintain its competitive advantage by
developing new products and improving upon its existing technology.
The Company has funded its research and development activities primarily
through contracts with the federal government, with research and development
limited partnerships and with funds from the Company's public and private stock
and bond offerings.
Patents, Trademarks and Licenses
The Company has a policy of protecting its investment in technology by seeking
to obtain, where practical, patents on the inventions made by its employees. As
of September 28, 1997, forty one U.S. and foreign patents have been issued and
other U.S. patent applications are pending. Foreign patent applications
corresponding to several of the U.S. patents and patent applications are also
pending. There is no assurance that additional patents will issue in the U.S.
or elsewhere. Moreover, the issuance of a patent does not carry any assurance
of successful application, commercial success or adequate protection. There is
no assurance that the Company's existing patents or any other patent that may
issue in the future would be upheld if the Company seeks enforcement of its
patent rights against an infringer or that the Company will have sufficient
resources to prosecute its rights, nor is there any assurance that patents will
provide meaningful protection from competition.
The Company has been advised by its patent counsel, Thomas Plante, Esq., that
no adverse patent has been found which might create an infringement problem in
the marketing of the Company's HYMOSS and line array focal planes. If others
were to assert that the Company is utilizing technology covered by patents held
by them, the Company would evaluate the necessity and desirability of seeking a
license from the patent holder. There is no assurance that the Company is not
infringing on other patents or that it could obtain a license if it were so
infringing.
Those products and improvements which the Company develops under government
contracts are generally subject to royalty-free use by the government for
government applications. However, the Company has negotiated certain "non-
space" exclusions in government contracts and has the right to file for patent
protection on commercial products which may result from government-funded
research and development activities.
The Company has exclusive rights to technology developed under an agreement
with R & D Leasing, Ltd. ("RDL"), a limited partnership. Under the agreement,
the Company will pay royalties of 3.5% of all direct sales, by the Company, of
the basic devices using the technology. RDL will also receive 7% of all income
earned by the Company from sublicensees. The Company's Chairman of the Board
and a Senior Vice-President have a beneficial interest in RDL. See "Development
Contracts."
Environmental matters
The Company believes that it is substantially in compliance with all
regulations concerning the discharge of materials into the environment, and such
regulations have not had a material effect on the capital expenditures or
operations of the Company.
Employees
As of September 28, 1997, the Company had 65 full-time employees and 4
consultants. Of the full-time employees, 49 were engaged in engineering,
production and technical support, 3 in sales and marketing and 13 in finance and
administration. None of the Company's employees is represented by a labor union
and the Company has experienced no work stoppages due to labor problems. The
Company considers its employee relations to be excellent.
Item 2. Properties
The following table sets forth information with respect to the Company's
facilities:
Location Square Feet Lease Expiration
---------------------- ----------- ----------------
Advanced Technology Operations Costa Mesa, California 19,000 July 1998
Computer Products Operations Burlington, Vermont 20,200 December 1998
Novalog, Inc. Costa Mesa, California 4,100 April 1999
Corporate Costa Mesa, California 6,400 July 1998
The facilities used by Advanced Technology Operations include laboratories
containing clean rooms for operations requiring a working environment with
reduced atmospheric particles. The Company believes that its facilities are
adequate for their respective operations, and that the facilities of the Company
are maintained in good repair.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The following table sets forth the range of representative high and low bid
prices of the Company's Common Stock (Nasdaq SmallCap Market symbol: IRSN) in
the over-the-counter market for the periods indicated, as furnished by NASD,
Inc. These prices represent prices among dealers, do not include retail
markups, markdowns or commissions, and may not represent actual transactions:
Common Stock
Bid Prices
----------------------
High Low
--------- ---------
Fiscal Year Ended September 28, 1997:
First Quarter $ 1 1/2 $ 0 27/32
Second Quarter $ 1 9/16 $ 1
Third Quarter $ 1 5/32 $ 0 31/32
Fourth Quarter $ 1 9/16 $ 1 7/32
Fiscal Year Ended September 29, 1996:
First Quarter $ 9 1/2 $ 5 1/4
Second Quarter $ 6 1/4 $ 4 5/8
Third Quarter $ 7 7/8 $ 4 5/8
Fourth Quarter $ 5 1/8 $ 2 1/4
On December 19, 1997, the closing bid and asked prices for the Company's
Common Stock were $1.00 and $1 1/32, respectively.
On December 19, 1997, there were approximately 823 stockholders of record
and 7,200 beneficial holders based on information provided by the Company's
transfer agent.
The Company has not paid cash dividends on any class of its stock since its
incorporation. Under Delaware law there are certain restrictions which limit
the Company's ability to pay cash dividends in the future.
Item 6. Selected Financial Data.
The following table summarizes certain selected consolidated financial data
and is qualified by the more detailed Consolidated Financial Statements
incorporated herein by reference (see Item 8, below):
FISCAL YEAR ENDED
----------------------------------------------------------------------------
September 28, September 29, October 1, October 2, October 3,
1997 1996 1995 1994 1993
------------- ------------- ----------- ----------- -----------
Consolidated Statement of Operations Data:
- - ------------------------------------------
Total revenues $ 13,693,200 $ 12,024,200 $ 8,041,400 $ 5,139,400 $ 4,286,300
Loss from operations (14,809,200) (11,154,700) (3,071,500) (2,629,500) (1,552,100)
Net loss (14,875,600) (15,914,700) (4,137,500) (2,463,900) (1,507,600)
Loss per common and
common equivalent share $ (0.73) $ (0.94) $ (0.28) $ (0.18) $ (0.12)
------------ ------------ ----------- ----------- -----------
Weighted average number of
shares outstanding 20,475,100 16,874,300 14,966,500 14,141,500 12,865,800
------------ ------------ ----------- ----------- -----------
Loss per common and common equivalent shares includes, where applicable,
cumulative dividends on Preferred Stock which have not been declared or paid.
September 28, September 29, October 1, October 2, October 3,
1997 1996 1995 1994 1993
-------------- ------------- ----------- ----------- ----------
Consolidated Balance Sheet Data:
- - --------------------------------
Current assets $ 6,637,200 $ 9,648,200 $ 9,927,500 $ 6,795,500 $2,135,900
Current liabilities $ 7,395,600 $ 5,787,100 $ 3,545,400 $ 1,355,400 $ 739,000
Working capital $ (758,400) $ 3,861,100 $ 6,382,100 $ 5,440,100 $1,396,900
Total assets $ 9,449,300 $21,742,200 $15,609,200 $10,355,400 $3,897,500
Long-term debt $ 1,207,000 $ 3,165,600 $ 201,200 $ 81,100 $ 62,600
Shareholders' equity $(2,939,900) $ 8,312,700 $ 9,494,100 $ 8,800,400 $2,977,400
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
The information required by Item 7 of this report is set forth on pages
2 through 4 of the Company's 1997 Annual Report to Stockholders and is
incorporated by reference in this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the report thereon of Price
Waterhouse LLP dated December 16, 1997 appearing on pages 5 through 18 of the
Company's 1997 Annual Report to Stockholders are incorporated by reference in
this Annual Report on Form 10-K. With the exception of the aforementioned
information and the information incorporated in Item 7, the 1997 Annual Report
to Stockholders is not to be deemed filed as part of this Annual Report on Form
10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
The following items included in the Company's Definitive Proxy
Statement dated January 23, 1998 to be used in connection with the Company's
Annual Meeting of Stockholders to be held on February 27, 1998 are incorporated
herein by reference:
Pages in Proxy Statement
------------------------
Item 10. Directors and Executive Officers of the Registrant. 2-5
Item 11. Executive Compensation. 7-10
Item 12. Security Ownership of Certain Beneficial Owners
and Management. 7-8
Item 13. Certain Relationships and Related Transactions. 15
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements:
Pages in
Annual Report*
--------------
Consolidated Balance Sheet 5
Consolidated Statement of Operations 6
Consolidated Statement of Shareholders' Equity 7
Consolidated Statement of Cash Flows 8
Notes to Consolidated Financial Statements 9-17
Report of Independent Accountants 18
* Incorporated by reference from the indicated pages of the 1997 Annual
Report to Stockholders.
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statements
Schedules for the fiscal years ended September 28, 1997, September 29,
1996, and October 1, 1995:
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable,
or not required, or because the required information is included in
the financial statements or notes thereto which have been incorporated
herein by reference.
3. Exhibits - The following is a list of the exhibits to this report:
Exhibit
Number Exhibit Description
- - ------- -------------------
3.1 Certificate of Incorporation, as amended to date. (8)
3.2 By-Laws, as amended to date. (14)
4.1 Specimen Common Stock certificate. (8)
4.2 Form of Representative's Warrants. (9)
10.1 (A) 1981 Incentive Stock Option Plan and 1981 Nonstatutory
Stock Option Plan, as amended to date, and (B) Form of Stock
Option Agreement. (1)(2)
10.2 Lease Agreements for the premises at 3001 Redhill Avenue,
Building III, Costa Mesa, California. (11)
10.3 Employee Stock Bonus Plan and Trust Agreement dated
June 29, 1982 effective December 31, 1982 (3), Amendment
dated December 14, 1982. (4)
10.4 Amendment to Employee Stock Bonus Plan and Trust Agreement
dated September 25, 1990. (8)
10.5 Master Trust Agreement for Employee Deferred Benefit Plans dated
August 22, 1990. (5)
10.6 Agreement with R&D Leasing, Ltd. and Note Payable dated
June 23, 1989. (6)
10.7 License Agreement with R&D Leasing, Ltd. dated October 20, 1989. (6)
10.8 Agreement with R&D Leasing, Ltd. dated October 1, 1990. (7)
10.9 Contract between the Company and U.S. Army Strategic Defense
Command dated September 28, 1990. (7)
10.10 1991 Stock Option Plan, as adopted by the Board of Directors December
9, 1991. (8)
10.11 Form of Stock Option Agreement for 1991 Stock Option Plan. (9)
10.12 Contract between the Company and Office of Naval Research dated July
8, 1993. (10)
10.13 Amendment to Employee Stock Bonus Plan and Trust agreement
dated October 4, 1993. (12)
10.14 Lease Agreement for the premises at 1 Green Tree Park, South
Burlington, Vermont. (12)
10.15 Contract between the Company and Naval Air Warfare Center dated March
31, 1995. (12)
10.16 License Agreement with Unitrode Integrated Circuits Corporation dated
May 30, 1995. (12)
10.17 Purchase Order from Cray Research, Inc. dated May 8, 1995. (12)
10.18 Subcontract between the Company and Lockheed Sanders, Inc. dated June
30, 1995. (12)
10.19 Office, Manufacturing Facility, and Equipment Lease with International
Business Machines Corporation (13)
10.20 Form of 8% Series A Convertible Subordinated Debentures Due 1998 (13)
10.21 Form of 8% Convertible Subordinated Debentures Due 1998 (13)
10.22 Contract between the Company and Nasa Management Office - JPL dated
March 12, 1996 (14)
10.23 Contract between the Company and Office of Naval Research dated July
19, 1996 (14)
10.24 Contract between the Company and Wright-Patterson Air Force Base dated
August 12, 1996 (14)
10.25 Purchase Order from Loral Federal Systems Co. dated
April 26, 1996 (14)
11 Statement re Computation of Per Share Earnings.
13 Portions of Registrant's Annual Report to Stockholders for the
fiscal year ended September 28, 1997.
21 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
23.2 Consent of Thomas Plante, Esq., Patent Counsel
27 Financial Data Schedule
_________________________
(1) Incorporated by reference to Part II of Registrant's Registration Statement
on Form S-18 filed with the Commission's Los Angeles Regional Office on
December 23, 1981 (Registration No. 2-75512-LA)(the-"S-18 Registration
Statement").
(2) Incorporated by reference to Part II of Pre-effective Amendment No. 1 to
the S-18 Registration Statement filed with the Commission's Los Angeles
Regional Office on February 10, 1982; 1987 amendment filed by amendment to
Form 10-K for the fiscal year ended September 27, 1987.
(3) Incorporated by reference to Part II of Pre-effective Amendment No. 3 to
the S-18 Registration Statement filed with the Commission's Los Angeles
Regional Office on May 27, 1982.
(4) Incorporated by reference to Part II of Registrant's Registration Statement
on Form S-1 filed with the Commission on March 23, 1983 (Registration No.
2-82596) (the "S-1 Registration Statement").
(5) Incorporated by reference to Part II of Pre-effective Amendment No. 3 to
the Form S-2 filed with the Commission on March 3, 1987 (Registration No.
33-10134).
(6) Incorporated by reference to Part IV of Registrant's Annual Report on Form
10-K for the fiscal year ended October 1, 1989.
(7) Incorporated by reference to Part IV of Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1990.
(8) Incorporated by reference to Part IV of Registrant's Annual Report on Form
10-K for the fiscal year ended September 29, 1991.
(9) Incorporated by reference to Part II of Pre-effective Amendment No. 2 to
the Form S-2 filed with the Commission on July 9, 1992 (Registration No.
33-47977).
(10) Incorporated by reference to Part IV of Registrant's Annual Report on Form
10-K for the fiscal year ended October 3, 1993.
(11) Incorporated by reference to Part IV of Registrant's Annual Report on
Form 10-K for the fiscal year ended October 2, 1994.
(12) Incorporated by reference to Part IV of Registrant's Annual Report on
Form 10-K/A for the fiscal year ended October 1, 1995.
(13) Incorporated by reference to Registrant's Form 8-K dated April 19, 1996.
(14) Incorporated by reference to Part IV of Registrant's Annual Report on
Form 10-K/A for the fiscal year ended September 28, 1996.
(b) Reports on Form 8-K:
No report on Form 8-K was filed by the Company with respect to the
quarter ended September 28, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
IRVINE SENSORS CORPORATION
By: /s/ James Alexiou
-------------------------------
James Alexiou
Chairman of the Board
Date: January 2, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
/s/ James Evert /s/ Thomas H. Lenagh
- - -------------------------------- ------------------------------------
James Evert Thomas H. Lenagh, Director
Chief Executive Officer Date: January 2, 1998
(Principal Executive Officer)
Date: January 2, 1998
/s/ John C. Carson /s/ John J. Stuart, Jr.
- - -------------------------------- ------------------------------------
John C. Carson, Director John J. Stuart, Jr.
Date: January 2, 1998 Chief Financial Officer
(Principal Accounting Officer)
Date: January 2, 1998
/s/ Joanne S. Carson /s/ Frank P. Ragano
------------------------------- ------------------------------------
Joanne S. Carson, Director Frank P. Ragano, Director
Date: January 2, 1998 Date: January 2, 1998
/s/ Marc Dumont /s/ Vincent F. Sollitto, Jr.
- - -------------------------------- ------------------------------------
Marc Dumont, Director Vincent F. Sollitto, Jr., Director
Date: January 2, 1998 Date: January 2, 1998
/s/ Walter E. Garrigan
- - --------------------------------
Walter E. Garrigan, Director
Date: January 2, 1998
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions of Year
---------- ---------- ---------- ----------
Year ended September 28, 1997:
- - ------------------------------
Allowance for doubtful accounts $ 10,000 $ - $ - $ 10,000
Inventory reserves 2,043,700 1,156,100 1,015,000 2,184,800
Year ended September 29, 1996:
- - ------------------------------
Allowance for doubtful accounts $ 10,000 $ - $ - $ 10,000
Inventory reserves 380,800 1,662,900 - 2,043,700
Year ended October 1, 1995:
- - ---------------------------
Allowance for doubtful accounts $ 10,000 $ - $ - $ 10,000
Inventory reserves - 380,800 - 380,800