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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 27, 1998
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
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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
$36,106,900 on January 7, 1999. As the Preferred Stock is not publicly traded it
has not been included in the computation.
As of December 19, 1998, there were 28,457,763 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended September 27, 1998 (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 26, 1999 (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 [_].
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Except for historical information contained herein, this annual report on +
+Form 10-K contains forward-looking statements within the meaning of Section +
+27A of the Securities Act of 1933 and Section 21E of the Securities Exchange +
+Act of 1934. The forward-looking statements contained herein are subject to +
+certain risks and uncertainties, including those discussed herein and in other+
+public disclosures of the Company, which could cause actual results to differ +
+materially from those projected or discussed. Investors are cautioned not to +
+place undue reliance on these forward-looking statements, which reflect +
+management's analysis only as of the date hereof. See "Factors that may affect+
+Future Results.". +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PART I.
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Item 1. Business
GENERAL
The Company and its subsidiaries are organized into the following primary
business groups:
Irvine Sensors Corporation
- --------------------------
Irvine Sensors Corporation ("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 wireless infrared transmission to 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 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 consolidated revenues from commercial sales of its
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 the field of wireless infrared data communications. In
April 1997, ISC formed a subsidiary, MicroSensors, Inc. ("MSI"), to commercially
exploit its technologies for low noise readout electronics and miniaturized
inertial sensors. In June 1998, ISC formed a subsidiary, Imagek, Inc.
("Imagek") to commercially exploit its digital photography technologies.
Novalog, Inc.
- -------------
Novalog is a privately financed subsidiary of ISC which designs, develops and
sells proprietary integrated circuits ("ICs") for use in wireless infrared
communication. Novalog's initial products, trademarked SIRComm(TM), SIR2(TM),
MiniSIR(TM), MiniSIR2(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 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. Novalog has shipped more than five
million units of its products to manufacturers servicing the IrDA marketplace.
In fiscal 1998, Novalog accounted for approximately 11% of the Company's
consolidated revenues.
MicroSensors, Inc.
- ------------------
MSI is a wholly-owned subsidiary of ISC that 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 supported a U.S. government
contract conducted by ISC for development of a proprietary microgyro with
projected performance features heretofore achievable only at much higher cost.
Subsequent to the completion of this contract, MSI has demonstrated functional
units of the MicroRing Gyro. Effective October 1997, MSI negotiated its first
commercial contract and has commenced development and shipment of engineering
samples of a multi-channel readout chip pursuant to that contract. Production
shipments pursuant to this contract are scheduled to begin in fiscal 1999. MSI
accounted for approximately 3% of the Company's consolidated revenues in fiscal
1998.
Imagek, Inc.
- ------------
Imagek Inc. is a subsidiary of ISC which designs, develops and intends to sell
proprietary electronic film systems and other digital imaging products and
services. Although dependent on completion of required financing, the success of
which cannot be assured, Imagek is planning to introduce in fiscal 1999 the EFS-
1(TM) Electronic Film System that includes a self contained, compact, battery-
powered cartridge that fits into the film cavity of a 35mm camera thus offering
the flexibility to switch between conventional film and digital photography.
Other collateral products and services are planned for introduction subsequent
to the EFS-1(TM).
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) 444-8831. MSI is a consolidated subsidiary of
ISC.
Imagek was incorporated in Delaware in June 1998. Its principal executive
offices are located at 3001 Redhill Avenue, Building 3, Costa Mesa, California
92626, and its telephone number is (714) 444-8723. Imagek is a consolidated
subsidiary of ISC.
Products and Technology
- -----------------------
The Company has developed a variety of 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 is presently
seeking to exploit its potential market by focusing on the sale of chip stacking
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 Department of Defense ("DOD") and
NASA missions.
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
higher density chip stacking technology cannot be firmly established,
potentially placing the Company's stacked chip products at a cost disadvantage.
Accordingly, in fiscal 1998, the Company expanded its product offerings to
include lower-density stacked electronics that the Company believes could be
more price competitive.
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. Novalog has been shipping such devices since 1995.
The Company also has chip design technology relating to electronic readouts that
it is exploiting through its MSI subsidiary. In fiscal 1998, MSI entered into
its first contractual relationship based on this technology, i.e., a contract to
develop and subsequently ship production quantities of its readout chip for EG&G
Astrophysics, Inc. ("EG&G") to be utilized in airport security systems. MSI
successfully completed the development phase of EG&G's contract in fiscal 1998,
and will commence production shipments under the contract in fiscal 1999. MSI
has also developed a proprietary Silicon MicroRing Gyro intended to provide an
inexpensive means to measure angular motion for a wide variety of potential
applications. The Silicon MicroRing Gyro is presently being packaged for
evaluation by potential customers. Commercial exploitation of this product is
expected to be paced by the product design-in lead times required by such
customers. As a result, the Company does not project material contributions to
its consolidated revenues from this product during fiscal 1999.
In June 1998, the Company formed its Imagek subsidiary to commercially explore
its proprietary technologies, focused on miniaturized digital cameras. Imagek is
presently developing the production version of its initial product, the
EFS-1(TM), which is an electronic film system including a cartridge that can be
inserted into an existing film camera allowing that camera to take digital
pictures without modification to the camera itself. Imagek is seeking private
financing to introduce this product and support its business plan. Imagek
believes that its proprietary EFS technology has value advantages to potential
customers with substantial investment in conventional 35MM camera equipment that
inhibits the adoption by those consumers of self-contained digital cameras. By
utilizing the optics of existing cameras, Imagek believes that the EFS product
will be economically competitive to comparable resolution digital cameras.
Potential Product Applications
- ------------------------------
Neural Networks. In 1991, the Company received initial funding from the U.S.
Navy's Office of Naval Research for potential use of its technology in neural
networks. After the completion of this exploratory phase, the Company received
various add-on and collateral contracts aggregating over $9 million, through
fiscal 1998, to further develop the neural network technology. The Company is
presently pursuing additional contracts, under which the Company expects to
deliver demonstration products to various branches of the DOD. 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 currently have the interconnectivity
needed to fully emulate neural network processing techniques. The Company
believes its chip stacking technology could offer 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 product utilization, although
there can be no assurances as to the potential success of such development.
Wearable Computers. In fiscal 1998, the Company commenced exploration of a
technology to stack chips of different functionality and dimensions within the
same chip stack. The Company refers to this new technology as NeoStack. The
Company is using its NeoStack technology to support a government program
undertaken by the Boeing Corporation ("Boeing"), to develop a wearable computer.
The Company believes that its NeoStack approach could offer advantages in terms
of compactness and power consumption to developers of wearable computer systems.
However, because of remaining developmental requirements, the Company is
presently unable to forecast when or if such technology will be incorporated in
commercial products and, because of product design lead times, does not
anticipate such incorporation during fiscal 1999.
Development Contracts
- ---------------------
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
develop certain processes and technology related to chip stacking. The Company
has exclusively licensed this technology from RDL. The Company's exclusive
rights to the technology extend to all uses, both government and commercial.
Since entering into the licensing agreement, the Company has accrued royalty
obligations to RDL at the rate of 3.5% of all Company sales of chip stacks using
the licensed technology. In addition, RDL is entitled to receive an amount
equal to 7% of all royalties earned by the Company from sales of any such
products by the Company's sublicensees, although to date, no such sublicensee
royalty income has been earned.
In October 1989, 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 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.
As of September 27, 1998, the Company had accrued $826,200 in deferred royalties
pursuant to this agreement. Due to the RDL subordination, royalties accrued,
but none were paid by the Company during fiscal years 1998, 1997 and 1996.
Manufacturing
- -------------
At the present time, the Company stacks DRAM, SRAM and FLASH memory die
purchased from commercial sources into cube-shaped assemblies at its own
facility. The cubes are then either packaged or segmented into subsections as
required for the particular product configuration being built. Outside vendor
support is utilized for packaging. During fiscal 1998, the Company introduced
products involving the stacking of pre-packaged die using widely-available
fabrication technologies. The Company uses outside third party qualified source
vendors for the manufacturing of these products.
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.
Backlog
- -------
At December 13, 1998, the Company's funded backlog was $3,468,600 compared to
$2,263,200 at December 14, 1997. The Company anticipates that all of the funded
backlog will be filled in fiscal 1999. In addition, the Company has substantial
unfunded backlog on contracts which typically are funded when the previously
funded amounts have been expended. The Company is also continuing to negotiate
for additional research contracts and commercial product sales, which, if
obtained, could materially increase its backlog. Failure to obtain these
contracts in a timely manner could materially affect the Company's short-term
results.
Customers and Marketing
- -----------------------
The Company's Advanced Technology Division ("ATD") focuses its product marketing
efforts on U.S. military agencies or contractors to those agencies. The
Company is continually seeking and preparing proposals for additional contracts.
As a result of the post cold war defense cutbacks, many defense contractors have
experienced declines in their business base as government agencies' budgets are
reduced. However, even if this trend continues, the Company believes there will
be more emphasis and funds directed toward advanced technology systems and
research programs for which the Company believes it 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.
The Company's Novalog subsidiary supports Original Equipment Manufacturers
("OEM's") supplying infrared communications devices complying with the standards
of the Infrared Data Association ("IrDA"). Novalog's active participation in
IrDA facilitates its marketing to those customers.
MSI directs its marketing toward three commercial areas: (i) Customers with a
need for Application Specific Integrated Circuits ("ASICs") such as the type
developed for EG&G; (ii) OEMs that have a need for the cost and performance
features that could be provided by MSI's Silicon MicroRing Gyro, with particular
emphasis toward manufacturers of electronic toys and games, industrial
monitoring equipment, medical instrumentation and automotive markets; and (iii)
the manufacturers of micromachined sensors who may be able to utilize MSI's
Universal Capacitive Readout(TM) ("UNICAP(TM)") general purpose ASIC designed to
support a variety of sensors requiring high accuracy capacitive readout and
control electronics.
Imagek is a consumer product focused enterprise. Both the structure and
staffing of Imagek was developed to bring digital imaging products to the
consumer market. The initial product of Imagek, the Electronic Film System
("EFS") is designed to enable 35mm camera owners to shoot digital or
traditional photography with equipment they currently own. The initial target
market, termed "prosumers", are defined as high end hobbyists and business
photographers who have made a significant investment in their camera systems.
The EFS is being positioned as a camera accessory, leveraging off the growing
adoption of digital cameras and related infrastructure.
Imagek is planning a limited roll out of the initial EFS-1(TM) product, largely
through direct follow-up of inquiries from potential customers it has received,
and expects to follow with an expansion of distribution, reseller channels and
value-added resellers for broad and vertical markets. Imagek plans to service
its customers with a sophisticated electronic commerce site, an 800 access
number, and a customer web site information vehicle.
In fiscal 1998, contracts with all branches of the U.S. government accounted for
54% of the Company's consolidated revenues, the remaining 46% of the Company's
revenues was derived from non-government sources. During fiscal 1998, revenues
derived from the U.S. Army and the various divisions of the Boeing Corporation
accounted for approximately 13% and 14% of total consolidated revenues,
respectively. Loss of these customers would have a material adverse impact on
the Company's 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. From
time to time, the Company has experienced such suspensions or terminations, and
there is no assurance the Company will not experience such suspensions or
terminations in the future.
The Company focuses its marketing in specific areas of interest in order to best
utilize its relatively limited marketing resources. Each operating unit or
subsidiary has a designated individual to direct that unit's marketing efforts.
The Company is presently recruiting for a senior management executive to
coordinate these activities corporate-wide.
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. For most commercial
applications, the principal competitive factor for such products is the cost
premium over less densely packaged electronics. For some application in which
volume and weight are critical, such as space or avionics, density becomes the
principal competitive factor. Many of the Company's competitors are believed to
be better financed, more experienced and organizationally stronger than the
Company. Accordingly, there can be no assurances that the Company can
successfully compete in such markets.
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 market for electro-optical sensors of the type which the Company's
products are also designed to support. The principal competitive factor in this
business area is the performance sensitivity and selectivity achievable by
alternative sensor approaches and designs. Competitors to the Company include
Santa Barbara Research Center, TI, Lockheed Martin Corporation, Raytheon, Litton
Industries, Infrared Industries, Inc., EG&G Judson, OptoElectronics-Textron,
Inc., and Boeing Corporation. The Company believes that most of its competitors
in this area 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 of the type sold by Novalog. For battery-powered
applications, the principal competitive factors are power consumption and cost.
For desktop applications, the principal competitive factor is the speed of data
transmission achievable. Novalog believes that it has competitive advantages in
the battery-powered applications. Competitors to Novalog include Hewlett-
Packard, Temic, Sharp, and IBM, among others, all of whom have financial, labor
and capital resources greater than those of Novalog.
MSI is competing in a market populated with several larger competitors as
relates to its Silicon MicroRing Gyro, including such companies as Delco
Electronics, Motorola, Bosch Corporation, Siemens and Systron-Donner. The
principal competitive factor for these applications is believed to be cost. MSI
has no present knowledge of competitors planning to introduce ASICs competitive
to its planned UNICAP product, but given the widespread availability of
integrated circuit design capabilities in the electronics industry, the
emergence of competitive products is believed to be likely.
Imagek is not aware of any direct competitors to its contemplated EFS product
line and believes that its intellectual property will act as a barrier to
competitors seeking to offer identical products, although there can be no
assurances of that result. However, the EFS system itself is expected to face
competition from increasingly sophisticated generations of digital camera
equipment. Peripheral equipment and services which Imagek intends to offer to
complement its EFS products are also likely to attract strong competition if the
EFS product line receives significant market acceptance.
Research and Development
- -------------------------
The Company believes government and commercial research contracts will provide
the major portion of funding necessary for continuing development of some 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. Furthermore, the development of the products of its subsidiaries
are likely to require such external funding. There can be no assurance that
sufficient funding will be available from government or other sources or that
new products of the Company or its subsidiaries will be successfully developed
for volume production.
The Company's consolidated expenditures for research and development for the
fiscal years ended September 27, 1998, September 28, 1997, and September 29,
1996 were $1,609,500, $1,616,600 and $2,009,700, 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 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 27, 1998, 50 U.S. and foreign patents have been issued and assigned
to the Company or its subsidiaries and other U.S. and foreign patent
applications are pending. There is no assurance that additional patents
assignable to the Company will be issued 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 products. 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 world-wide 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."
The Company has exclusive world-wide rights to U.S., United Kingdom and Japanese
patents covering the basic concept of the EFS pursuant to an agreement executed
in October 1997 with I. Sapir, a foreign individual ("Sapir"). Under this
agreement the Company issued 30,000 shares of common stock, and assumed an
obligation to pay a non-refundable $35,000 to Elba Systems LTD, a prior holder
of rights under the patent. Imagek is the successor to the rights and
obligations of this licensing agreement pursuant to which EFS sales will bear a
3% royalty payable to Sapir on the gross sales price up to $50 million sales per
annum and a 1% royalty thereafter.
The company has entered into an Assignment of Patent and Intellectual Rights
(the "Assignment") with F. L. Eide, ("Eide") a Vice-President of the Company. As
part of his employment agreement, Eide has assigned to the Company all rights
and interests to five (5) U.S. Provisional Patent applications owned by him. In
consideration for this Assignment, Eide will receive a 1% royalty on the gross
sales revenues of any products incorporating elements of the assigned technology
for the lifetime of any patents resulting from the Provisional Patent
Applications. This Assignment was executed in February 1998.
The Company entered into a sale and licensing of intellectual property rights
related to the EFS to Advanced Technology Products, LLC ("ATPL"), a related
party which funded early development of this technology for which the Company's
Chief Technical Officer serves as Managing Member. In September 1998, the
Company assigned the rights and royalty obligations of the ATPL license to
Imagek. Concurrent with this assignment, ATPL reduced its royalty entitlements
under the license in consideration of the issuance of 1,221,875 shares of Imagek
common stock. ATPL retains a royalty entitlement of 2% of the first $30 million
of EFS sales, declining thereafter as a function of sales volume.
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 27, 1998, the Company, including its consolidated subsidiaries,
had 68 full-time employees and 10 consultants. Of the full-time employees, 46
were engaged in engineering, production and technical support, 4 in sales and
marketing and 18 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.
The Year 2000
- -------------
The year 2000 issue is the result of computer programs using two digits, rather
than four to define the applicable year. Programs that have time-sensitive
software may recognize a date using "00" as the calendar year 1900 rather than
the calendar year 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail.
The Company views the year 2000 problem as an important business issue that
could affect its business, as well as that of its suppliers and customers.
Until the last several years, the Company's business has primarily been R&D, and
its more recent business activities have not involved the shipment of products
or components with embedded controllers that might be affected by the Year 2000
problem. However, Irvine Sensors' customers may have integrated the Company's
devices into higher level products or systems affected by the Year 2000 problem,
and, to the extent that its customers' business may be disrupted, the Company's
business and that of its subsidiaries is also subject to potential disruptions
from such a cause.
In addition, the Company does utilize a number of computerized information
systems to accurately process date-sensitive information across its operation,
and any of these programs or computer systems are potential sources of year 2000
system failures. Irvine Sensors is working to identify and resolve such
potential impacts on the Company's computerized systems. The Company has been
advised by its vendors that their systems will be compliant with year 2000
issues in a timely manner.
Finally, the Company's general business operations could be adversely impacted
were there to be material interruptions either in the country's banking or
financial systems or the procurement activities of its customers. Irvine
Sensors has not completed its assessment of the full scope of these risks and
the actions necessary to address them, but the Company currently believes that
costs of addressing these issues will not have a material adverse impact on the
Company's financial position. Nevertheless, if Irvine Sensors and third parties
upon which it relies are unable to address this issue in a timely manner, it
could result in a material financial risk to the Company. In order to mitigate
the various risks associated with the Year 2000 problem, Irvine Sensors is
working with its suppliers and customers, including the disclosure and exchange
of relevant information, to proactively manage the calendar transition.
Factors that may affect Future Results
- --------------------------------------
The future operating results of the Company are highly uncertain, and the
following factors should be carefully reviewed in addition to the other
information contained in this annual report on Form 10-K and in other public
disclosures of the Company.
Shift in Business Focus. Since commencing operations, ISC has developed
technology, principally under government research contracts, for various
defense-based applications. Since 1992, ISC has been implementing a fundamental
shift in its business, broadening its focus to include commercial exploitation
of its technology. This shift has been manifested by the purchase and later shut
down of the IBM cubing line, the "carve-out" of the Novalog, MSI and Imagek
subsidiaries and the development of various stacked-memory products intended for
military and aerospace markets. To date, these changes have developed new
revenue sources but have not yet produced sustained profitability. Because of
this limited and not-yet successful history, there can be no assurances that
ISC's present and contemplated future products will be widely accepted in
commercial marketplaces.
Financing Needs. Although the Company believes that it has adequate
liquidity for its present level of operations, ISC and its subsidiaries have
developed business plans for several emerging product areas based on its
technologies. The product development and market introduction costs of these
products cannot presently be fully funded from internal cash flow. There can be
no assurances that ISC or its subsidiaries will be able to locate external
financing for their business plans on acceptable terms.
Nasdaq Listing Requirements. ISC's Common Stock is publicly traded on the
Nasdaq SmallCap Market. Effective February 23, 1998, new and more restrictive
standards became effective for listing maintenance on this market. Prior to the
implementation of these new regulations, ISC briefly dropped below the pending
standards due to the loss associated with its Vermont plant closure and had to
establish to the satisfaction of the Nasdaq staff that it had met the new
standards in order to retain its listing. While the Company was able to meet
this requirement, there can be no assurances that the Company will be able to
maintain its compliance in the future. If ISC were to fail to meet the
maintenance requirements for listing on Nasdaq in the future and the price of
ISC's Common Stock was below $5 at such time, such securities would come within
the definition of "penny stock" as defined in the Securities Exchange Act of
1934, as amended (the "Exchange Act") and be covered by Rule 15g-9 of the
Exchange Act. That Rule imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors. From transactions covered by Rule 15g-9, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, Rule 15g-9, if it were to become applicable, would affect
the ability or willingness of broker-dealers to sell ISC's securities and
therefore would affect the ability of shareholders to sell their securities in
the public market and the Company's ability to finance its business plans.
Dependence on Defense Contract Revenues. Although ISC has been shifting
its focus to include commercial exploitation of its technology, it expects to
continue to be dependent upon research and development contracts with federal
agencies and their contractors for a substantial, but diminishing portion of its
revenues for the foreseeable future. General political and economic conditions,
which cannot be accurately predicted, directly and indirectly affect the
quantity and allocation of expenditures by federal agencies. Even the timing of
incremental funding commitments to existing, but partially-funded contracts can
be affected by such factors. Therefore, cutbacks in the federal budget could
have a material adverse impact on ICS's results of operations as long as
research and development contracts remain an important element of its business.
Market Acceptance of New Products. Both ISC and its subsidiaries are
focused on markets that are emerging in nature and potentially subject to rapid
growth. Market reaction to new products in such circumstances can be difficult
to predict. There can be no assurance that the present or future products of
ISC or its subsidiaries will be favorably accepted by such markets on a
sustained basis. In addition, because ISC has a limited history of competing in
the intensely competitive commercial electronics industry, there is no assurance
that it will successfully be able to develop, manufacture and market additional
commercial product lines or that such product lines will be accepted in the
commercial marketplace.
Patents and Proprietary Right Protection; Infringement. ISC believes that
its ultimate success, and that of its subsidiaries, will depend, in part, on the
strength of its existing patent protection and the additional patent protection
that it and its subsidiaries may acquire in the future. As of the date hereof,
ISC owns 41 U.S. patents and 9 foreign patents and has other patent applications
pending before the U.S. Patent and Trademark Office as well as various foreign
jurisdictions. Although ISC believes many of these patents to be
fundamental in nature, there can be no assurance that any existing or future
patents will survive a challenge or will otherwise provide meaningful protection
from competition. Furthermore, there is also no assurance that ISC or its
subsidiaries will have the financial resources to provide vigorous defense or
enforcement of patents.
Protection of Proprietary Information. ISC and its subsidiaries treat
technical data as confidential and rely on internal nondisclosure safeguards,
including confidentiality agreements with employees, and on laws protecting
trade secrets, to protect proprietary information. There can be no assurance
that these measures will adequately protect the confidentiality of the
proprietary information of ISC or its subsidiaries or that others will not
independently develop products or technology that are equivalent or superior to
those of ISC or its subsidiaries. ISC or its subsidiaries may receive in the
future communications from third parties asserting that the products of ISC or
its subsidiaries infringe the proprietary rights of third parties. There can be
no assurance that any such claims would not result in protracted and costly
litigation. There can be no assurance that any particular aspect of the
technology owned by ISC or its subsidiaries will not be found to infringe the
products of other companies. Other companies may hold or obtain patents or
inventions or may otherwise claim proprietary rights to technology useful or
necessary to ISC's or its subsidiaries' business. The extent to which ISC or
its subsidiaries may be required to seek licenses under such proprietary rights
of third parties and the cost or availability of such license, cannot be
predicted. While it may be necessary or desirable in the future to obtain
licenses relating to one or more of its proposed products or relating to current
or future technologies, there can be no assurance that ISC or its subsidiaries
will be able to do so on commercially reasonable terms.
Government Rights. Whatever degree of protection, if any, is afforded ISC
or its subsidiaries through its patents, proprietary information and other
intellectual property, this protection will not extend to government markets
that utilize certain segments of ISC's technology. The government has the right
to royalty-free use of technologies which ISC has developed under government
contracts, including portions of ISC's stacked circuitry technology. ISC is
free to commercially exploit such government-funded technologies and may assert
its intellectual property rights to seek to block other non-government users
thereof, but there can be assurances of success in such endeavors.
Competition. ISC and its subsidiaries face strong competition. Most
competitors have considerably greater financial, marketing and technological
resources than does ISC or its subsidiaries. There is no assurance that ISC or
its subsidiaries will be able to compete successfully with such other companies.
Dependence on Suppliers. ISC and its subsidiaries extensively use
suppliers in the manufacture of their products. At the projected level of
operations, both ISC and its subsidiaries have identified sources that are
believed to be adequate to meet identified needs. However, there is no
assurance that ISC or its subsidiaries will be able to cover changing
manufacturing needs in the future. Failure to do so will have a material
adverse impact on the operations of ISC and its subsidiaries.
Possible Technological Advances. ISC and its subsidiaries are in
industries characterized by continuing technological development and,
accordingly, will be required to devote substantial resources to improve already
technologically complex products. Many companies in these industries devote
considerably greater resources to research and development than does ISC or its
subsidiaries. Developments by any of these companies could have a materially
adverse effect on ISC.
Dependence on Key Personnel. ISC and its subsidiaries will depend to a
large extent on the abilities and continued participation of certain key
employees. The loss of key employees could have a material adverse effect on
the businesses of ISC and its subsidiaries. ISC and its subsidiaries have
adopted employee Stock Option Plans designed to attract and retain key
employees. The value of such options to the subsidiaries will be strongly tied
to the timing of any future IPOs, of which there can be no assurance, and there
can, accordingly, be no guarantee of the efficacy of such options in retaining
key employees. Neither ISC or its subsidiaries presently maintain "key man"
insurance on any key employees. ISC believes that, as its activities and those
of its subsidiaries increase and change in character, additional, experienced
personnel will be required to implement the business plans of ISC and its
subsidiaries. Competition for such personnel is intense and there is no
assurance that they will be available when required, or that ISC or its
subsidiaries will have the ability to attract them.
The above factors are not intended to be inclusive. Failure to satisfactorily
achieve any of the Company's objectives or avoid any of the above or other risks
would likely have a material adverse effect on the Company's business and
results of operations.
Item 2. Properties
The following table sets forth information with respect to the Company's
facilities:
Location Square Feet Lease Expiration
---------------------- ----------- ----------------
ATD Costa Mesa, California 18,973 September 2001
MSI Costa Mesa, California 4,500 September 2001
Novalog Costa Mesa, California 4,100 April 1999
All Other Costa Mesa, California 6,400 September 2001
------
Total 33,973
The facilities used by ATD 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. The Company plans to consolidate Novalog with its other facilities upon
the expiration of Novalog's lease.
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.
The Common Stock is also listed on the Boston Stock Exchange under the symbol
"ISC."
Common Stock
Bid Prices
High Low
-------- --------
Fiscal Year Ended September 27, 1998:
First Quarter $1 1/32 $1
Second Quarter $2 21/32 $2 19/32
Third Quarter $2 1/32 $2
Fourth Quarter $2 29/32 $1 11/32
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
On January 7, 1999, the closing bid and ask prices for the Company's Common
Stock were $1 13/32 and $1 7/16 respectively.
On January 7, 1999, there were approximately 859 stockholders of record and
approximately 9,300 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.
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 27, September 28, September 29, October 1, October 2,
1998 1997 1996 1995 1994
-------------- -------------- -------------- ------------ ------------
Consolidated Statement of Operations Data:
- ------------------------------------------
Total revenues $ 9,314,500 $ 13,693,200 $ 12,024,200 $ 8,041,400 $ 5,139,400
Loss from operations (5,798,200) (14,809,200) (11,154,700) (3,071,500) (2,629,500)
Net loss (4,243,500) (14,875,600) (15,914,700) (4,137,500) (2,463,900)
Basic and diluted net loss per common
and common equivalent share $ (0.19) $ (0.73) $ (0.94) $ (0.28) $ (0.18)
Weighted average number of
shares outstanding 24,597,700 20,475,100 16,874,300 14,966,500 14,141,500
Shares used in computing
net loss per share 24,597,700 20,475,100 16,874,300 14,966,500 14,141,500
Loss per common and common equivalent shares includes, where applicable,
cumulative and imputed dividends on Preferred Stock which have not been declared
or paid.
September 27, September 28, September 29, October 1, October 2,
1998 1997 1996 1995 1994
------------- -------------- ------------- ----------- -----------
Consolidated Balance Sheet Data:
- --------------------------------
Current assets $4,802,700 $ 6,637,200 $ 9,648,200 $ 9,927,500 $ 6,795,500
Current liabilities $2,296,000 $ 7,395,600 $ 5,787,100 $ 3,545,400 $ 1,355,400
Working capital $2,506,700 $ (758,400) $ 3,861,100 $ 6,382,100 $ 5,440,100
Total assets $7,064,700 $ 9,449,300 $21,742,200 $15,609,200 $10,355,400
Long-term debt $ 933,700 $ 1,207,000 $ 3,165,600 $ 201,200 $ 81,100
Shareholders' equity (deficit) $2,347,000 $(2,939,900) $ 8,312,700 $ 9,494,100 $ 8,800,400
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 1998 Annual Report to Stockholders and is
incorporated by reference in this Annual Report on Form 10-K.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
None
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The financial statements, together with the reports thereon appearing on pages 5
through 18 of the Company's 1998 Annual Report to Stockholders are incorporated
by reference to this Annual Report on Form 10-K. With the exception of the
aforementioned information and the information incorporated in Item 7, the 1998
Annual Report to Stockholders is not deemed to be filed as part of this Annual
Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
---------------------
Change in certifying accountant previously reported on the Company's Form 8-K
filed October 2, 1998.
PART III
--------
The following items included in the Company's Definitive Proxy Statement dated
January 25, 1999 to be used in connection with the Company's Annual Meeting of
Stockholders to be held on February 26, 1999 are incorporated herein by
reference:
Pages in Proxy
--------------
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 Sheets 5
Consolidated Statements of Operations 6
Consolidated Statement of Shareholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9-19
Reports of Independent Certified Public Accountants 19-20
* Incorporated by reference from the indicated pages of the 1998
Annual Report to Stockholders.
2. Financial Statement Schedules:
Reports of Independent Certified Public Accountants on Financial
Statements Schedules for the fiscal years ended September 27, 1998 and
September 28, 1997, and September 29, 1996.
Schedule II - Valuation and Qualifying Accounts
Schedule III - Amounts Due From Directors and Officers.
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 encompassed in 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)
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)
10.15 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)
10.22 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)
13 Portions of Registrant's Annual Report to Stockholders for the fiscal
year ended September 27, 1998.
21 Subsidiaries of the Registrant
23.1 Consent of Grant Thornton LLP, Independent Accountants
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants
24 Consent of Thomas J. 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 27, 1998.
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 8, 1999
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/ Walter E. Garrigan
- ----------------------------- ---------------------------------
James Evert Walter E. Garrigan, Director
Chief Executive Officer Date: January 8, 1999
(Principal Executive Officer)
Date: January 8, 1999
/s/ John C. Carson /s/ John J. Stuart, Jr.
- ----------------------------- --------------------------------
John C. Carson, Director John J. Stuart, Jr.
Date: January 8, 1999 Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: January 8, 1999
/s/ Joanne S. Carson /s/ Frank P. Ragano
- ----------------------------- --------------------------------
Joanne S. Carson, Director Frank P. Ragano, Director
Date: January 8, 1999 Date: January 8, 1999
/s/ Marc Dumont /s/ Vincent F. Sollitto, Jr.
- ----------------------------- --------------------------------
Marc Dumont, Director Vincent F. Sollitto, Jr., Director
Date: January 8, 1999 Date: January 8, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
ON FINANCIAL STATEMENT SCHEDULES
--------------------------------
To the Board of Directors of
Irvine Sensors Corporation
Our audit of the consolidated financial statements referred to in our report
dated January 6, 1999 appearing on page 20 of the 1998 Annual Report to
Shareholders of Irvine Sensors Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedules listed in Item
14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
/s/ GRANT THORNTON LLP
Irvine, California
January 6, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Irvine Sensors Corporation
Our audits of the consolidated financial statements referred to in our report
dated December 16, 1997 appearing on page 19 of the 1998 Annual Report to
Shareholders of Irvine Sensors Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedules for the years
ended September 28, 1997 and September 29, 1996 listed in Item 14(a) of this
Form 10-K. In our opinion, these Financial Statement Schedules present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
December 16, 1997
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
----------------------------------------------
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions of Year
---------- ---------- ---------- ----------
Year ended September 27, 1998:
- ------------------------------
Allowance for doubtful accounts $ 10,000 $ - $ - $ 10,000
Inventory reserves 2,184,800 1,306,700 1,034,700 2,456,800
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