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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 EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 29, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
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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
$16,875,300 on December 20, 1996. As the Preferred Stock is not publicly traded
it has not been included in the computation.
As of December 20, 1996, there were 19,583,800 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's Annual Report to Stockholders for the fiscal year ended
September 29, 1996; (Part II); portions of Registrant's Definitive Proxy
Statement to be used in connection with Registrant's Annual Meeting of
Stockholders to be held on February 28, 1997 (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 or 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
Irvine Sensors Corporation (the "Company" or "ISC") is the developer of a
proprietary technology used to produce an extremely compact package of solid
state microcircuitry, which it believes offers volume, power, weight and
operational advantages for a wide variety of potential military and commercial
applications. These advantages result from the Company's ability to assemble
microelectronic chips in a three dimensional "stack" instead of alongside each
other on flat surfaces, as is the case with conventional methods. This stacking
technology has also led to the development of collateral technology for the
design of low powered chips, both for chip stacking and for single chip
applications. The Company believes that its very low power chip technology may
have wide commercial application in portable electronic devices.
As memory chips, processors and other microelectronic components become
larger and faster, the benefits that can be realized from increased operating
speed are limited by the communication time and distance between chips. Where
tens to hundreds of millions of calculations per second are required, even at
the speed of light, distances between electrical components can become an
important limitation on the speed of a computer. The Company's approach to
shortening interchip distances is to use the third dimension. This is
accomplished by placing chips on top of each other in a stack instead of
conventional side by side packaging. This approach was conceived and developed
by the Company as a means of addressing the demands of space-based surveillance.
During June 1992, the Company entered into various agreements with IBM to
commercialize the Company's chip-stacking technology under which IBM also has
acted as a source of supply for the Company's products. During fiscal 1996, IBM
advised the Company that it believed the development phase of its planned
activities had been completed. In April 1996, the Company consummated an
agreement for the acquisition and operation of equipment comprising IBM's cubing
line located at IBM's Essex Junction, Vermont facility. The cubing line was
established by IBM under the joint development alliance. According to the terms
of the agreement, the Company acquired the equipment and clean room which
comprises the cubing line for a cash payment of approximately $6.5 million. In
addition, the Company signed a facility lease agreement for the space required
to operate the cubing line under the Company's management within the IBM
facility at least through December 1998.
In May 1995, the Company entered into a licensing and production agreement
with Unitrode Corporation, a manufacturer of analog/linear integrated circuits,
to exploit certain elements of the Company's low powered chip technology.
Since its inception, the Company has derived the majority of its revenues
from its core business of performing research and development of its technology
for governmental customers. This core business has progressively broadened from
essentially basic research to development of specific applications for both
commercial and governmental customers. In fiscal 1995, the Company began to
receive its first revenues from commercial products based on its technologies.
As demonstrated in fiscal 1996, the Company believes that commercial product
revenues will be increasingly significant to its total revenues in the future,
although there can be no assurance of profitability based on these anticipated
revenues or otherwise.
The Company has three subsidiaries, the first, Carson Alexiou Corporation,
has been inactive since 1985. Novalog, Inc. is an operating company which the
Company established in 1995 to expand the Company's low power chip technology.
3D Microsystems, Inc is a newly formed entity which is currently inactive.
PRODUCTS AND TECHNOLOGY
Drawing from experience gained in packaging electronics for infrared sensor
system development, in September 1987, the Company began work on a contract from
the Defense Advanced Research Projects Agency ("DARPA") that required ISC to
stack memory chips for use in a computer application. In November 1988, the
Company delivered to DARPA two 8-layer stacks of Static Random Access Memory
("SRAM") chips. This was the first functioning demonstration of ISC's
technology as applied to a device having potential for commercialization.
Subsequent to this demonstration, certain computer manufacturers that use memory
components in their own products purchased sample stacks of computer memory
chips from the Company for evaluation. One such relationship evolved into the
joint development alliance with IBM to commercialize the
1
Company's chip stacking technology. The Company has developed a family of
standard products consisting of stacked computer memory chips.
The Company 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.
In addition to its 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 chip under the tradename SIRComm/TM /through its subsidiary,
Novalog, Inc.
INITIAL COMMERCIAL PRODUCTS: STACKED MEMORY AND SERIAL INFRARED COMMUNICATIONS
CHIPS
The Company's initial products for the commercial marketplace are various
forms of stacked memory chips. One such form is referred to as a Memory Short
Stack. The Memory Short Stack entails the assembly of a large stack of chips
which is predesigned to be separated into easily attachable smaller units. For
example, a stack of 100 chips might be designed to be separated into ten ten-
layer short stacks. Within the typical dimensions of a single memory chip
package, such a configuration permits up to ten chips to be packaged together.
Moreover, such a unit can be made to be compatible with existing single-chip
packages with only a minimum of redesign. The Company believes that the Memory
Short Stack permits memory upgrades for systems that are limited by the
dimensions of existing slots, racks or other chip mounting components.
The Company also builds larger memory modules for mounting on one side (a
face consisting of chip edges) with the chips perpendicular to the mounting
surface, like a loaf of bread. This results in a module height when mounted
which precludes its use where existing space between boards or racks is tightly
constrained. The advantage of this approach is that the higher input-output
densities achievable with the edge-mounted devices allow system architectures
preferred by some customers.
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.
2
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. The new chip, called SIRComm, for Serial Infrared Communications
Controller, is believed to be the first dedicated serial IR receiver chip
designed to be completely compliant with the Infrared Data Association's (IrDA)
worldwide infrared wireless connectivity standard. The SIRComm chip
incorporates elements which evolved from ISC's signal extraction analog
circuitry developed over the last decade for military applications. To date,
the Company has shipped more than one million of these parts in the
international marketplace.
POTENTIAL PRODUCT APPLICATIONS
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 a
$5,200,000 follow-on contract from the Navy in June 1993 to further develop the
neural networks technology. This phase of the contract has been completed and
the Company is presently negotiating a second 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.
3
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 29, 1996, the Company had accrued $355,700 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 1996, 1995 and 1994. The
Company believes that the terms of the foregoing transactions were no less
favorable to the Company than would have been obtained from a nonaffiliated
third party for similar services.
MANUFACTURING
The Company manufactures stacked memory products at its facilities in
Vermont and California. The Vermont facilities are 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 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.
The primary components of the Company's memory devices are commercial
memory chips. To date the Company has obtained the majority of such chips for
its products from IBM. However, a variety of alternative sources exist for such
commercial products.
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.
Beginning in fiscal year 1993 and through fiscal 1996, the Company
significantly enhanced and expanded its production facilities in California and
Vermont to meet its current and future requirements for commercial production of
stacked memory products.
BACKLOG
At November 24, 1996, the Company's funded backlog was $5,393,100 compared
to $4,991,000 at December 1, 1995. The Company anticipates that all of the
funded backlog will be filled in fiscal 1997. In addition, the Company has
$813,300 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
4
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 1996, contracts with all branches of the U.S. government
accounted for 31 percent of the Company's revenues, the remaining 69 percent of
the Company's revenues was derived from non-government sources. During fiscal
1996, revenues derived from the U.S. Navy and various divisions of Lockheed
Martin Corporation accounted for approximately 16 percent and 44 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 Director of Programs coordinates the
marketing activities of senior and technical management with respect to
government programs, while a Senior Vice President directs the marketing efforts
related to computer products. 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 29,
5
1996, October 1, 1995 and October 2, 1994 were $2,009,700, $1,280,000 and
$844,300, 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 29, 1996, 41 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 President 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 29, 1996, the Company had 159 full-time employees and 4
consultants. Of the full-time employees, 128 were engaged in engineering,
production and technical support, 5 in sales and marketing and 26 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.
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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
Essex Junction, Vermont 20,000 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 and Computer Products
Operations include laboratories containing clean rooms for operations requiring
a working environment with reduced atmospheric particles. The facility at Essex
Junction, Vermont contains the cubing line which was established by IBM under a
joint development alliance that IBM and the Company entered into in 1992 to
commercialize the Company's chip-stacking technology. 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 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
Fiscal Year Ended October 1, 1995:
First Quarter $ 7 1/8 $4 13/16
Second Quarter $ 7 7/8 $5 1/2
Third Quarter $ 7 7/8 $6
Fourth Quarter $10 3/8 $7
On December 20, 1996, the closing bid and asked prices for the Company's
Common Stock were $0.9375 and $1.00, respectively.
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On December 20, 1996, there were approximately 821 stockholders of
record and 9,165 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 29, October 1, October 2, October 3, September 27,
1996 1995 1994 1993 1992
------------ ----------- ----------- ----------- -------------
Consolidated Statement of Operations Data:
- ------------------------------------------
Total revenues $ 12,024,200 $ 8,041,400 $ 5,139,400 $ 4,286,300 $3,788,300
Loss from operations (11,154,700) (3,071,500) (2,629,500) (1,552,100) (920,100)
Net loss (11,518,000) (3,035,800) (2,463,900) (1,507,600) (895,800)
Loss per common and
common equivalent share $ (0.68) $ (0.20) $ (0.18) $ (0.12) $ (0.08)
============ =========== =========== =========== ==========
Weighted average number of
shares outstanding 16,874,300 14,966,500 14,141,500 12,865,800 11,430,900
============ =========== =========== =========== ==========
Loss per common and common equivalent shares includes, where applicable,
cumulative dividends on Preferred Stock which have not been declared or paid.
September 29, October 1, October 2, October 3, September 27,
1996 1995 1994 1993 1992
------------- ----------- ----------- ---------- -------------
Consolidated Balance Sheet Data:
- --------------------------------
Current assets $ 9,648,200 $ 9,927,500 $ 6,795,500 $2,135,900 $4,189,300
Current liabilities $ 5,787,100 $ 3,545,400 $ 1,355,400 $ 739,000 $ 571,700
Working capital $ 3,861,100 $ 6,382,100 $ 5,440,100 $1,396,900 $3,617,600
Total assets $21,742,200 $15,609,200 $10,355,400 $3,897,500 $4,600,000
Long-term debt $ 6,565,600 $ 2,451,200 $ 81,100 $ 62,600 $ 64,300
Shareholders' equity $ 8,312,700 $ 9,494,100 $ 8,800,400 $2,977,400 $3,845,500
8
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 1996 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 January 10, 1997, appearing on pages 5 through 17 of the
Company's 1996 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 1996 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 24, 1997 to be used in connection with the Company's
Annual Meeting of Stockholders to be held on February 28, 1997 are incorporated
herein by reference:
Pages in Proxy Statement
------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 2-5
ITEM 11. EXECUTIVE COMPENSATION. 9-13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT. 7-9
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 9-16
Report of Independent Accountants 17
9
* Incorporated by reference from the indicated pages of the 1996 Annual
Report to Stockholders.
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statements
Schedules for the fiscal years ended September 29, 1996, October 1, 1995,
and October 2, 1994:
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.
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
10.23 Contract between the Company and Office of Naval Research dated July 19, 1996
10.24 Contract between the Company and Wright-Patterson Air Force Base dated August 12, 1996
10
10.25 Purchase Order from Loral Federal Systems Co. dated April 26, 1996
11 Statement re Computation of Per Share Earnings.
13 Portions of Registrant's Annual Report to Stockholders for the fiscal year ended September 29, 1996.
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 for the fiscal year ended October 1, 1995.
(13) Incorporated by reference to Registrant's Form 8-K dated April 19, 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 29, 1996.
11
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
Chief Executive Officer
Date: January 10, 1997
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 ALEXIOU
- ----------------------------------- -------------------------------
James Alexiou Thomas H. Lenagh, Director
Chief Executive Officer Date:
(Principal Executive Officer)
Date: January 10, 1997
/s/ JOHN C. CARSON /s/ JOHN J. STUART, JR.
- ----------------------------------- --------------------------------
John C. Carson, Director John J. Stuart, Jr.
Date: January 10, 1997 Chief Financial Officer
(Principal Accounting Officer)
Date: January 10, 1997
/s/ JOANNE S. CARSON /s/ FRANK P. RAGANO
- ----------------------------------- ---------------------------------
Joanne S. Carson, Director Frank P. Ragano, Director
Date: January 10, 1997 Date: January 10, 1997
- -----------------------------------
Marc Dumont, Director
Date:
12
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 January 10, 1997 appearing on page 17 of the 1996 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/ PRICE WATERHOUSE LLP
Costa Mesa, California
January 10, 1997
13
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 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
Year ended October 2, 1994:
- ---------------------------
Allowance for doubtful accounts $ 10,000 $ - $ - $ 10,000
Inventory reserves - - - -
14