SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(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 October 1, 1995
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 __________
Commission file number 1-8402
---------
IRVINE SENSORS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0280334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3001 Redhill Avenue, Costa Mesa, California 92626
(Address of principal executive offices) (Zip Code)
(714) 549-8211
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class: which registered:
Common Stock Boston Stock Exchange Incorporated
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes X No
----- -----
To the extent known by the registrant, the aggregate market value of the Common
Stock held beneficially by-non-affiliates of the registrant was approximately
$84,083,400 on December 1, 1995. As the Preferred Stock is not publicly traded
it has not been included in the computation.
As of December 1, 1995, there were 16,028,300 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's Annual Report to Stockholders for the fiscal year ended
October 1, 1995; (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 23, 1996 (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/A or any amendment to this Form 10-K/A [_].
PART I
Item 1. Business.
General
Irvine Sensors Corporation (the "Company" or "ISC") is the developer of a
proprietary technology 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 a 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. IBM has advised the Company that it believes
that the development phase of its planned activities has been completed.
Although the Company is presently negotiating to secure a continued source of
supply from IBM, there can be no assurance that such negotiations will be
successful.
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.
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's subsidiary, Carson Alexiou Corporation, has been inactive since
1985.
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 Company's technology.
The Company has developed a family of standard products consisting of stacked
computer memory chips which the Company denotes as Memory Short Stacks.
2
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 initially
intends to exploit its potential market by focusing on the sale of the Memory
Short Stack 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 gross margins
than many applications requiring high volume production. Furthermore, the
Company has existing relationships with some of the potential customers in this
category. This low-volume, high-margin market entry strategy should also allow
the Company to ramp up production volume in an orderly fashion over time,
allowing it to budget more effectively for changing capital requirements. To
the extent demand for the Company's chip-stacking technology outstrips the
Company's manufacturing capacity, the Company intends to license the technology
to others more experienced with high volume manufacturing of low margin
semiconductor products.
The Company has shipped quantities of the Memory Short Stack to certain of its
government and commercial customers. However, there is no assurance that the
Company will be successful in marketing the Memory Short Stack for widespread
applications.
During June 1992, the Company entered into a joint development agreement with
IBM to commercialize the Company's chip-stacking technology. Under the
agreement, the Company and IBM worked together to develop the manufacturing
technologies required to produce stacked chip products. The development phase
of this agreement is nearing completion and the Company is presently negotiating
with IBM to secure future access to IBM's facilities for manufacturing the
Company's products. There can be no assurances that such negotiations will be
successfully completed.
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 intended to be used in products allowing 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).
The Company also has broad and higher level products under development which
utilize the Company's proprietary technology. There can be no assurances that
such developments will result in the introduction of additional products or
product lines.
Initial Commercial Products: Memory Short Stack and Serial Infrared
Communications Chips
The Company's initial product for the commercial marketplace is the 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.
3
The Company builds its 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 Memory Short Stack, on the other hand, is attached at the top
or bottom of the stack so that its chips are aligned parallel to the mounting
surface, like a stack of pancakes. Its dimensions allow the Memory Short Stack,
in many cases, to be used in a space currently occupied by a single chip. Since
at least four chips can be configured within the package dimensions of a single
conventionally-packaged chip, this offers a powerful upgrade capability to
system designers. There is no assurance, however, that the Memory Short Stack
will become a commercially viable product.
The Company expects to initially sell the Memory Short Stack to a limited
number of OEM's in the aerospace industry and to government prime contractors
and their subcontractors, who have a significant size, weight, or power problem,
whose resolution is worth the payment of a price premium.
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 presently demonstrated. Although there can be no assurances, the Company
believes that ultimately the price of stacked-chip products will be competitive
with alternative systems.
The Company does not presently have a high volume manufacturing capability due
largely to the cost of bringing a facility on-line and is currently dependent on
its agreement with IBM to produce volume quantities of parts. The Company is
presently negotiating to utilize IBM's facilities for manufacturing the
Company's products in the future, but there can be no assurances that such
negotiation will be successful. Interruption of its source of supply would
materially disrupt the Company's entry strategy for the sale of its Memory Short
Stacks.
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.
Potential Product Applications
The Company believes that its technology enables sophisticated features to be
incorporated into infrared sensing devices that must meet size constraints and
other military operating requirements. Until production has begun and products
are accepted in the market, the Company cannot assure that it will be successful
in its efforts to expand its product applications. However, the Company intends
to manufacture and market infrared sensing devices. The Company also intends to
offer various stacked-chip devices for commercial and military computer
applications.
4
Computer Devices. The Company has designed and intends to produce and market,
or license manufacturers to use, its technology for use in government and
commercial applications. Initial applications are anticipated to involve the
packaging of memory chips for computers.
In fiscal 1994, the Company delivered fully functional engineering samples of
its Memory Short Stacks to two customers for use in space recorders. These
products were built by IBM and burned-in, tested and shipped from the Company's
Vermont facility. In fiscal 1995, the Company received its first production
orders for Memory Short Stacks.
Infrared Communications Devices. In fiscal 1995, the Company began shipping
its SIRComm products to customers. The Company designs the chips which are then
manufactured for the Company by others. The Company believes that multiple
sources of manufacture are available and does not anticipate any problems in
filling customers' orders.
HYMOSS(R) Focal Plane and other HYMOSS Systems. The Company has under
development various military applications incorporating aspects of the Company's
HYMOSS ("Hybrid Mosaic on Stacked Silicon") technology. Development of the
Company's HYMOSS technology has been funded by government contracts since 1980.
The HYMOSS module consists of electro-optical detectors arranged in a mosaic
pattern and packaged directly onto a dense stack of electronic microcircuitry
chips. HYMOSS focal plane modules are designed to be used individually or in
focal plane assemblies containing numerous modules. The Company believes that
many potential uses exist for HYMOSS focal planes in both strategic and tactical
systems. Demonstration units incorporating the simplest form of this
technology have been manufactured and sold since calendar 1986.
In its most sophisticated potential use, the HYMOSS focal plane would be used
in a satellite-based array of numerous modules. In this role, it is designed to
"stare" at a potential target area or enemy launch site, transmitting
information only when a specified movement or other change occurs. Presently
deployed systems for detection of intercontinental ballistic missiles scan the
target area and continuously transmit large quantities of data to earth stations
for processing. Because of its data processing and selective transmission
capabilities, the HYMOSS focal plane is anticipated to detect targets more
rapidly and accurately than existing systems. The anticipated speed and
accuracy of HYMOSS focal plane detection systems are expected to enable military
personnel to quickly evaluate and respond to changes occurring in the area under
surveillance. The Company believes that existing strategic and tactical
surveillance systems can be improved by adapting sub-elements of the HYMOSS
module technology for use in the simplified devices although there is no
assurance that the technology will be so applied.
The Company's proprietary method for stacking integrated circuits is expected
to permit the compression of tens of thousands of detectors and their related
electronics into a volume approximately the size of the human eye. The Company
believes the resulting reduction in size of the focal plane should greatly
expand its potential uses in military devices. The Company also believes that
each detector will be capable of sensing infrared radiation in much the same way
the retina of the human eye senses visible light. A change detected by the
sensors contained in the HYMOSS focal plane would be processed and interpreted
by a signal processor contained in a HYMOSS module.
During the calendar years 1985 through 1991, the Company developed a potential
improvement to the HYMOSS focal plane, referred to as "Dynamic Stare," which the
Company believes could yield cost reductions or performance enhancements in
HYMOSS focal planes. Dynamic Stare is the subject of three issued U.S.
Patents. See "Patents, Trademarks and Licenses." It is also the subject of two
foreign applications pending.
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. 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
5
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 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
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 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 sales of the basic devices sold by the Company. In addition, RDL is
entitled to receive an amount equal to 7% of all royalties earned by the Company
from sales by the Company's sublicensees. The Company's exclusive rights to the
technology extend to all uses, both government and commercial. RDL agreed to
defer its royalty claims and subordinate them with respect to all other
creditors in exchange for options to purchase up to 1,000,000 shares of the
Company's Common Stock, which are exercisable by applying the deferred royalties
to the purchase. The initial 500,000 options vested immediately at the time of
the initial five year deferral period in October 1989. In October 1994, the
remaining 500,000 options vested upon RDL's extended deferral. The 1,000,000
options are exercisable at $1.00 until October 1999. If RDL exercises its
option in whole or in part, title to RDL's technology would transfer to the
Company and all further royalty obligations would cease. If the option expires
unexercised, the subordination provisions would terminate and the accrued
royalties would be due and payable in the same manner as any other corporate
obligation.
In October 1990, the Company and RDL consummated an agreement in which full
settlement of the $40,000 note was arranged. RDL agreed to the cancellation of
the Company's $40,000 debt and surrendered the warrant to purchase 200,000
shares of the Company's stock in exchange for a cash payment of $5,000 and
200,000 unregistered shares of the Company's Common Stock.
As of October 1, 1995, the Company had accrued $123,200 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 1995, 1994 and 1993. 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.
6
Supplies and Equipment
The primary components of the Company's focal planes 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.
Capital Equipment
Because of the nature of the sophisticated research and development work
performed under its 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, the Company began to enhance and expand its
facilities in California and Vermont to meet its requirements for commercial
product introduction. Further expansion is anticipated in fiscal 1996.
Backlog
At December 1, 1995, the Company's funded backlog was $4,991,000 compared to
$1,484,000 at December 2, 1994. The Company anticipates that all of the funded
backlog will be filled in fiscal 1996. However, the Company has, in addition to
the funded portion, a large unfunded backlog of contracts exceeding $1,408,000
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, will materially increase this backlog.
Failure to obtain these contracts in a timely manner could materially affect the
Company's short-term results.
Customers and Marketing
The Company anticipates focusing its sensor product marketing efforts on U.S.
military agencies or contractors to those agencies. The Company is continually
seeking and preparing proposals for additional contracts. The Company has also
begun to develop potential non-military uses of its technology. Potential
commercial applications may include computer-related electronics packaging and a
broad range of industrial recognition devices such as process control devices
and security systems.
In fiscal 1995, the Company's major customers were agencies of the U.S.
government. The U.S. Navy accounted for 30% of the Company's revenues and the
U.S. Army accounted for 21% of the Company's revenues. 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 General Manager and a Vice President direct the
marketing efforts related to computer products, and a General Manager and a
Marketing Manager direct the marketing activities of the SIRComm products unit.
7
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,
Loral, Inc., Amber Engineering, Inc., Litton Industries, Infrared Industries,
Inc., EG&G Judson, OptoElectronics-Textron, Inc., and Rockwell International.
The Company believes that the only infrared focal plane technology which
competes directly with its HYMOSS technology is that which is used by Grumman
Space Systems Division. 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
Crystal Semiconductor, among others, all of whom have financial, labor and
capital resources greater than those of the Company.
Research and Development
Since calendar 1980, the Company has been developing its technology and
believes it has successfully demonstrated its feasibility. In 1986, the Company
delivered a working demonstration unit of a HYMOSS module. In 1988, the Company
delivered a working demonstration unit of a high density computer memory module
utilizing the Company's stacked circuitry technology. 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 October 1, 1995, October 2, 1994, and October 3, 1993, were $1,280,000,
$844,300, and $646,800, respectively. These expenditures of Company funds were
in addition to the Company's revenues of $7,877,000, $4,918,700, and $3,947,600,
in fiscal years 1995, 1994 and 1993, respectively, which primarily represent
customer-sponsored research and development activities and to a lesser extent,
product sales. The spending levels of Company funds on research and development
are indicative of the Company's resolve to maintain its competitive advantage by
developing products and improving its 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
offerings.
8
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 October 1, 1995, 34 U.S. 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.
Among the patents and applications, there are several patents relating to
products and processes applicable to the HYMOSS focal plane. Several cover
electronic circuitry of the HYMOSS focal plane and others cover products and
processes pertaining to stacked chip modules useful as dense electronic
packages, such as computer memory. "HYMOSS" is a registered trademark of the
Company.
The Company has been advised by its patent counsel, Thomas Plante, Esq., that
no adverse patent has been found which might create an infringement problem in
the marketing of the Company's HYMOSS and line array focal planes. If others
were to assert that the Company is utilizing technology covered by patents held
by them, the Company would evaluate the necessity and desirability of seeking a
license from the patent holder. There is no assurance that the Company is not
infringing on other patents or that it could obtain a license if it were so
infringing.
Those products and improvements which the Company develops under government
contracts are generally subject to royalty-free use by the government for
government applications. However, the Company has negotiated certain "non-
space" exclusions in government contracts and has the right to file for patent
protection on commercial products which may result from government-funded
research and development activities.
The Company has exclusive rights to technology developed under an agreement
with R & D Leasing, Ltd. ("RDL"), a limited partnership. Under the agreement,
the Company will pay royalties of 3.5% of all direct sales, by the Company, of
the basic devices using the technology. RDL will also receive 7% of all income
earned by the Company from sublicensees. The Company's Chairman and a Senior
Vice-President have a beneficial interest in RDL. See "Development Contracts."
Employees
As of October 1, 1995, the Company had 111 full-time employees and 4
consultants. Of the full-time employees, 84 were engaged in engineering,
production and technical support, 6 in sales and marketing and 21 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.
Properties
The Company maintains its headquarters and research facilities in
approximately 23,000 square feet of leased space in Costa Mesa, California,
which includes an approximate 7,600 square foot laboratory containing clean
rooms for operations requiring a working environment with reduced atmospheric
particles. The facilities are covered by two leases, which expire on July 31,
1996. The Company believes that its Costa Mesa facilities are currently
adequate for its present needs, although any growth may necessitate additional
space or improvements to its current space. The Company also maintains
facilities in Burlington, Vermont which includes approximately 20,000 square
feet of manufacturing and development facilities. The lease on this facility
expires on December 31, 1998. In the event the Company seeks to establish a
volume manufacturing capability, the Company will have to obtain additional
space, which it believes will be readily available.
9
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
10
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 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
Fiscal Year Ended October 2, 1994:
First Quarter $ 9-1/8 $5-1/2
Second Quarter $10-3/8 $6-7/8
Third Quarter $ 8-3/4 $6-1/4
Fourth Quarter $ 8-1/8 $6-3/4
On December 1, 1995, the closing bid and asked prices for the Company's Common
Stock were $6 1/2 and $6 1/4, respectively.
On December 1, 1995, there were approximately 857 stockholders of record 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.
11
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 YEARS ENDED
-------------------------------------------------------------------------
October 1, October 2, October 3, September 27, September 29,
1995 1994 1993 1992 1991
-------------------------------------------------------------------------
Consolidated Statement of Operations Data:
- - ------------------------------------------
Total revenues $ 8,041,400 $ 5,139,400 $ 4,286,300 $ 3,788,300 $4,217,200
Loss from operations (3,071,500) (2,629,500) (1,552,100) (920,100) (291,900)
Net loss (4,137,500) (2,463,900) (1,507,600) (895,800) (319,000)
Loss per common and
common equivalent share $ (0.28) $ (0.18) $ (0.12) $ (0.08) $ (0.04)
=========== =========== =========== =========== ==========
Weighted average number of
shares outstanding 14,966,500 14,141,500 12,865,800 11,430,900 9,955,900
=========== =========== =========== =========== ==========
Loss per common and common equivalent shares includes, where applicable,
cumulative dividends on Preferred Stock which have not been declared or paid.
-------------------------------------------------------------------------
October 1, October 2, October 3, September 27, September 29,
1995 1994 1993 1992 1991
-------------------------------------------------------------------------
Consolidated Balance Sheet Data:
- - --------------------------------
Current assets $ 9,927,500 $ 6,795,500 $2,135,900 $4,189,300 $ 856,400
Current liabilities $ 3,545,400 $ 1,355,400 $ 739,000 $ 571,700 $ 568,900
Working capital $ 6,382,100 $ 5,440,100 $1,396,900 $3,617,600 $ 287,500
Total assets $15,609,200 $10,355,400 $3,897,500 $4,600,000 $1,232,000
Long-term debt $ 2,451,200 $ 81,100 $ 62,600 $ 64,300 $ 86,300
Shareholders' equity $ 9,494,100 $ 8,800,400 $2,977,400 $3,845,500 $ 458,300
12
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 3 and
4 of the Company's 1995 Annual Report to Stockholders and is incorporated by
reference in this Annual Report on Form 10-K/A.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the report thereon of Price Waterhouse
LLP dated December 5, 1995, except for the last paragraph of Note 6 which is as
of December 16, 1997, appearing on pages 5 through 17 of the Company's 1995
Annual Report to Stockholders are incorporated by reference in this Annual
Report on Form 10-K/A. With the exception of the aforementioned information and
the information incorporated in Item 7, the 1995 Annual Report to Stockholders
is not to be deemed filed as part of this Annual Report on Form 10-K/A.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
13
PART III
The following items included in the Company's Definitive Proxy Statement dated
January 15, 1996 to be used in connection with the Company's Annual Meeting of
Stockholders to be held on February 23, 1996 are incorporated herein by
reference:
Pages in
Proxy Statement
---------------
Item 10. Directors and Executive Officers of the Registrant. 3-5
Item 11. Executive Compensation. 9-11
Item 12. Security Ownership of Certain Beneficial Owners 8
and Management.
Item 13. Certain Relationships and Related Transactions. 15
14
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
* Incorporated by reference from the indicated pages of the 1995 Annual
Report to Stockholders.
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statement
Schedules for the fiscal years ended October 1, 1995, October 2, 1994,
and October 3, 1993:
Schedule I - Marketable Securities
Schedule X - Supplementary Consolidated Statement of Operations
Information
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 exhibits listed in the accompanying Index to Exhibits on pages 19
through 20 of this report are filed or incorporated by reference as part
of this report.
(b) Reports on Form 8-K:
None.
15
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 5, 1995, except for the last paragraph of Note 6 which is as of
December 16, 1997, appearing on page 17 of the 1995 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/A) also included an audit of the Financial Statement Schedules listed in
Item 14(a) of this Form 10-K/A. In our opinion, these Financial Statements
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
PRICE WATERHOUSE LLP
Costa Mesa, California
December 5, 1995
16
SCHEDULE I - MARKETABLE SECURITIES
Name of Issuer Principal Carrying
and Description Amount Cost Market Value Value
- - --------------- ------------ ------------ ------------ ------------
October 1, 1995:
- - ----------------
None $ - $ - $ - $ -
October 2, 1994:
- - ----------------
U.S. Treasury Bills $4,500,000 $4,374,100 $4,439,200 $ 4,447,500
October 3, 1993:
- - ----------------
None $ - $ - $ - $ -
17
SCHEDULE X - SUPPLEMENTARY CONSOLIDATED STATEMENT
OF OPERATIONS INFORMATION
Charged to Costs and Expenses
Fiscal Period Ended
--------------------------------------
October 1, October 2, October 3,
1995 1994 1993
--------------------------------------
1. Maintenance and Repairs $210,800 $113,900 $85,700
18
3. INDEX TO EXHIBITS
Sequentially
Exhibit Number Numbered Page
- - -------------- -------------
3.1 Certificate of Incorporation, as amended to date. (8) -
3.2 Bylaws, as amended to date. (8) -
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 International Business Machines, Inc.
dated June 1992. (9) -
10.13 Contract between the Company and Office of Naval Research
dated July 8, 1993. (10) -
10.14 Contract between the Company and NASA Marshall Space Flight Center
dated August 10, 1993. (10) -
10.15 Contract between the Company and U.S. Army Space & Strategic Defense
Command dated August 18, 1993. (10) -
10.16 Amendment to Employee Stock Bonus Plan and Trust agreement dated October 4, 1993. 27-82
10.17 Lease Agreement for the premises at 1 Green Tree Park, South Burlington, Vermont. 84-100
10.18 Contract between the Company and NASA Management Office - JPL
dated January 30, 1995. 102-113
10.19 Contract between the Company and Naval Air Warfare Center dated March 31, 1995. 115-150
10.20 License Agreement with Unitrode Intregrated Circuits Corporation dated May 30, 1995. 152-166
10.21 Purchase Order from Cray Research, Inc. dated May 8, 1995. 168-185
10.22 Subcontract between the Company and Lockheed Sanders, Inc. dated June 30, 1995. 187-201
10.23 Purchase Order from Grumman Aerospace Corporation dated January 5, 1995. 203-217
11. Statement re Computation of Per Share Earnings. 21
13. Portions of Registrant's Annual Report to Stockholders for the
fiscal year ended October 1, 1995. 219-231
21. Subsidiaries of the Registrant 22
23.1 Consent of Independent Accountants 23
23.2 Consent of Thomas Plante, Esq., Patent Counsel 24
(footnotes on following page)
19
- - ------------------------------------------
(Footnotes to items on previous page)
(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.
20
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: December 22, 1995
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 /s/ Thomas H. Lenagh
- - ----------------------------------- -------------------------------
James Alexiou Thomas E. Lenagh, Director
Chairman of the Board Date: December 22, 1995
Date: December 22, 1995
/s/ John C. Carson /s/ Kenneth T. Lian
- - ----------------------------------- ---------------------------------
John C. Carson, Director Kenneth T. Lian, Director
Date: December 22, 1995 Principal Executive Officer
Date: December 22, 1995
/s/ Joanne S. Carson /s/ Frank P. Ragano
- - ----------------------------------- ---------------------------------
Joanne S. Carson, Director Frank P. Ragano, Director
Date: December 22, 1995 Date: December 22, 1995
/s/ John J. Stuart, Jr.
- - ----------------------------------- ---------------------------------
Marc Dumont, Director John J. Stuart, Jr.
Date: Chief Financial Officer
(Principal Accounting Officer)
Date: December 22, 1995
21
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
Date: December 24, 1997 By /s/ John J. Stuart, Jr.
---------------------------------
John J. Stuart, Jr.
Chief Financial Officer
(Principal Accounting Officer)
22