Irvine Sensors Corporation
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Annual Report 1995
Irvine Sensors Corporation
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- - --------------------------------------------------------------------------------
Results of Operations
FISCAL YEAR ENDED OCTOBER 1, 1995 vs.
FISCAL YEAR ENDED OCTOBER 2, 1994
Another year of record revenues of $8,041,400 showed a 57 percent increase over
fiscal 1994. Fiscal 1995 saw the introduction of the Company's new serial
infrared communications chip (SIRComm(TM)) with production volumes shipped to
major manufacturers occurring primarily in the fourth fiscal quarter.
Production quantities of Memory Short Stacks(TM) from the Company's Computer
Products Operation in Vermont were also shipped throughout fiscal 1995 to major
manufacturers in the aerospace and commercial industries. In addition to the
growth experienced by the Company's product-based operations, the Company's core
contract research and development operation continued to experience substantial
increases from efforts on existing contracts and from several large contracts
obtained during fiscal 1995 which included revenues from the delivery of custom
chip stacks.
Cost of revenues remained substantially unchanged from fiscal 1994 at 90 percent
of revenues. There were no major changes in the cost structure of the contract
research and development operation, while cost of revenues as a percent of
revenues decreased at the Computer Products Operation primarily due to lower
start-up and training costs during 1995 as the operation became more efficient.
Start-up costs of the SIRComm operation, which have been expensed, were a major
contributor to the high cost of sales percent of revenues, but by September
these costs had been absorbed and the unit was performing up to the Company's
expectations.
The Company increased its research and development ("R&D") expenditures by
$435,700 or 52 percent over last year's expenditures. This increase reflects
the Company's resolve to maintain its competitive advantage by developing new
products and advancing its core technology. As a percent of revenues, R&D
remained consistent with fiscal 1994 at 16 percent of revenues.
General and Administrative ("G&A") expenses increased $222,500. However, as a
percent of revenues, they decreased to 32 percent in fiscal 1995 from 45 percent
in fiscal 1994. The increase in G&A consisted primarily of additional labor
costs required to handle the growth in business activity.
The Company's financial condition continues to reflect the impact of its
significant growth in operations as evidenced by the increases in accounts
receivable, inventory and accounts payable. Inventory in particular was
impacted by the growth in backlog at the Computer Products Operation for Memory
Short Stacks and, to a lesser extent, anticipated sales of custom chip stacks by
the California facility. The Company invested approximately $3.1 million in
capital facilities and equipment (including $395,800 of capital lease
obligations) which were required to achieve and sustain the growth in
operations.
During July and August 1995, the Company raised approximately $4.2 million in
private financing to institutional and corporate investors in Canada and Europe
from the sale of approximately 382,100 shares of common stock and $2.25 million
of convertible subordinated debenture bonds (see Notes 2 and 6).
The Company originally accounted for its convertible debentures in accordance
with APB 14, "Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants". However, the Securities and Exchange Commission ("SEC")
staff has indicated that convertible debt instruments which are convertible at a
discount from market should be accounted for by treating the maximum discount as
interest expense with an offset to paid in capital. In November 1997, the
Company was advised that past issuers of such securities have recently restated
prior financial statements to comport with the SEC view. In conformance
therewith, the Company has calculated non-cash interest expense of $1,101,700
with a like amount added to paid-in capital in the fourth quarter of fiscal
1995. Because of the offsetting nature of these entries, there is no effect on
Shareholders' equity. (See Note 6 to the Consolidated Financial Statements).
FISCAL YEAR ENDED OCTOBER 2, 1994 vs.
FISCAL YEAR ENDED OCTOBER 3, 1993
In achieving record revenues for fiscal 1994, the Company also achieved
significant technological progress in two important business segments. Contract
revenues of $4,918,700 were 25 percent above fiscal 1993, following a 15 percent
increase in fiscal 1993 over fiscal 1992. This year's revenues included sales
of fully functional engineering samples of Memory Short Stacks built by IBM and
burned-in, tested and shipped from our Computer Products Operation in Vermont.
And, as the year drew to a close the Company announced that it was accepting
orders for a serial infrared communications chip (SIRComm) for use in the
wireless communications market. The first revenues from this product will occur
in fiscal 1995. Contract revenues in fiscal 1994 also included deliveries of,
and work in process on, prototype custom chip stacks by the California facility.
The Company's resolve to maintain its competitive advantage by developing
products and advancing its technology was evidenced by its expenditures of
$884,300, 17 percent of contract revenues in fiscal 1994, following expenditures
of $646,800, 16 percent of contract revenues, in fiscal 1993. The Company
believes it is now on the threshold of achieving results of these efforts.
Cost of contract revenues of $4,612,900 was 93 percent of contract revenues, an
increase of 13 percentage points over fiscal 1993. Start-up costs, training and
yield factors at the Vermont facility have been expensed as incurred and are a
significant element of the increased costs.
1
Irvine Sensors Corporation
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- - --------------------------------------------------------------------------------
The Company generated a net loss of $2,463,900 ($0.18 per common share) compared
to a net loss of $1,507,600 ($0.12 per common share) in fiscal 1993 resulting
primarily from the substantial research and development costs coupled with the
start-up costs associated with the commercialization efforts.
The Company's Balance Sheet and financial condition were significantly impacted
by actions taken during fiscal 1994. In a private financing to institutional
and corporate investors in Canada and Europe (see Note 2), the Company raised
approximately $7.9 million from the sale of approximately 1.36 million shares of
common stock. As a result, interest income of $173,500 was recorded in fiscal
1994 compared to $64,700 in the prior year. The Company invested approximately
$2.3 million in capital facilities and equipment and at year's end, cash and
marketable securities of approximately $4.9 million were the foundation of a
current ratio of 5.0:1 compared to 2.9:1 at the prior year's end.
Accounts receivable of $1,584,500 at year's end increased by $633,300 from the
prior year, attributable to increased revenues and the timing of payments on a
government contract.
The Company is now manufacturing parts to fill customers' orders. Accordingly,
work in process inventory has increased to $253,100 from $25,500 at the year
earlier date. The Company anticipates that this trend will continue in fiscal
1995.
Liquidity, Capital Resources and Impact of Changing Prices
In fiscal years 1990 through 1992, the rates of Company investment in capital
equipment and internal research and development were modest due to successes
achieved in the establishment of standardized processes to assemble early units
of the Company's contemplated products. In fiscal years 1994 and 1995 the
Company began to substantially expand its facilities and procure additional
capital equipment to meet its requirements for commercial product introduction.
Such manufacturing capability requires additional capital expenditures for
equipment and plant facilities. The Company believes that when additional
capital investments are required, it may obtain alternate financing through
capital leases or installment financing instead of depleting working capital.
At October 1, 1995, the Company's current ratio was 2.8:1.
Depreciation of existing capital assets and Company contributions of its common
stock to the employees' retirement plan do not require cash, but provide the
opportunity for cost recovery since they are elements of the Company's Overhead
and G&A bid rates. These non-cash expenses may in fact generate positive cash
flow for the Company as sales increase and cost recovery is achieved.
In its R&D base, the Company engages primarily in fixed price or cost-plus-
fixed-fee research and development contracts and commercial product sales.
Under cost-plus-fixed-fee contracts, the Company is generally reimbursed for its
costs, with certain limitations. Management believes there has been only
minimal impact upon operations due to the effect of changing prices. However,
the Company has, historically, not been able to adjust its prices to reflect
short-term variances in sales projections due to negotiated contractual rate
limits in some of its contracts. Accordingly, the Company has, in recent years,
experienced significant losses as a result of having incurred research and
development and other expenses in excess of those reimbursable under its
contracts, as well as preproduction and start-up costs of product introduction.
The Company believes that this condition and its decision to pursue commercial
applications of its products will continue to have a significant adverse impact
on profitability in fiscal 1996. This impact may be offset by additional
revenues from joint development agreements and licensing fees which are
anticipated in fiscal 1996.
At October 1, 1995 the Company's funded backlog was approximately $5,506,900
compared to $1,484,400 at October 2, 1994. In addition, several of the existing
contracts include substantial amounts not yet funded. The Company is also
continuing to negotiate for additional research contracts with government
military agencies and major government prime contractors, and with manufacturers
for commercial sales and development contracts, which, if obtained, will
materially increase the backlog.
2
Irvine Sensors Corporation
Consolidated Balance Sheet
October 1, October 2,
1995 1994
- - --------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 4,367,100 $ 437,300
Marketable securities, at cost, which approximates market - 4,447,500
Accounts receivable, net of allowances of $10,000 2,388,000 1,584,500
Inventory 2,930,900 253,100
Prepaid expenses 241,500 73,100
------------ ------------
Total current assets 9,927,500 6,795,500
------------ ------------
Equipment, furniture and fixtures, net 5,649,600 3,548,700
Other assets 32,100 11,200
------------ ------------
$ 15,609,200 $ 10,355,400
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 1,302,500 $ 667,500
Accrued expenses 671,500 478,500
Deferred revenue 1,365,000 190,800
Notes payable and current portion of long-term debt 206,400 18,600
------------ ------------
Total current liabilities 3,545,400 1,355,400
------------ ------------
Long-term debt 78,000 1,600
------------ ------------
Deferred royalties payable - affiliated company 123,200 79,500
------------ ------------
Convertible subordinated debentures 2,250,000 -
------------ ------------
Preferred stock of consolidated subsidiary 118,500 118,500
------------ ------------
Shareholders' Equity:
Preferred stock, $0.01 par value, 500,000 shares authorized:
9,354 shares Series B Convertible Cumulative Preferred
outstanding; aggregate liquidation preference of $224,500 100 100
5,659 shares Series C Convertible Cumulative Preferred
outstanding; aggregate liquidation preference of $254,700 100 100
Common stock, $0.01 par value, 20,000,000 shares authorized;
15,566,800 and 14,710,700 shares issued and outstanding 155,700 147,100
Common stock warrants; 126,900 and 291,200 issued and
outstanding - -
Paid-in capital 28,127,400 23,304,800
Accumulated deficit (18,789,200) (14,651,700)
------------ ------------
Total shareholders' equity 9,494,100 8,800,400
------------ ------------
$ 15,609,200 $ 10,355,400
============ ============
See accompanying Notes to Consolidated Financial Statements.
3
Irvine Sensors Corporation
Consolidated Statement of Operations
Fiscal Year Ended
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October 1, October 2, October 3,
1995 1994 1993
- - -------------------------------------------------------------------------------
Revenues $ 7,877,000 $ 4,918,700 $ 3,947,600
Other 164,400 220,700 338,700
----------- ----------- -----------
Total revenues 8,041,400 5,139,400 4,286,300
----------- ----------- -----------
Costs and expenses:
Cost of revenues 7,298,700 4,612,900 3,139,400
General and administrative 2,534,200 2,311,700 2,043,200
Research and development 1,280,000 844,300 646,800
Other expenses - - 9,000
----------- ----------- -----------
11,112,900 7,768,900 5,838,400
----------- ----------- -----------
Loss from operations (3,071,500) (2,629,500) (1,552,100)
Interest expense (55,900) (7,100) (19,400)
Interest income 92,600 173,500 64,700
Non-cash interest expense related
to Convertible Debentures (1,101,700) - -
----------- ----------- -----------
Loss before provision for income taxes (4,136,500) (2,463,100) (1,506,800)
Provision for income taxes 1,000 800 800
----------- ----------- -----------
Net loss $(4,137,500) $(2,463,900) $(1,507,600)
=========== =========== ===========
Net loss per common and
common equivalent share $ (0.28) $ (0.18) $ (0.12)
=========== =========== ===========
Weighted average number of
shares outstanding 14,966,500 14,141,500 12,865,800
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
4
Irvine Sensors Corporation
Consolidated Statement of Shareholders' Equity
Common Stock Common Stock Preferred Stock
Shares Issued Warrants Issued Shares Issued
------------- --------------- ------------- Paid-in Accumulated Shareholders'
Number Amount Number Amount Number Amount Capital (Deficit) Equity
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 27, 1992 12,608,100 $126,100 100,000 $ - 16,575 $200 $14,399,400 $(10,680,200) $ 3,845,500
---------- -------- ------- ------- ------ ---- ----------- ------------ -----------
Stock options exercised 142,000 1,400 - - - - 89,400 - 90,800
Common stock issued to
employee retirement plan 32,900 300 - - - - 198,100 - 198,400
Series B and Series C
preferred stock converted
to common stock 19,200 200 - - (385) - (200) - -
Sale of common stock
pursuant to Common Stock
Acquisition Rights Plan 350,300 3,500 - - - - 346,800 - 350,300
Common stock warrants
issued to consultants - - 55,000 - - - - - -
Net loss - - - - - - - (1,507,600) (1,507,600)
---------- -------- ------- ------- ------ ---- ----------- ------------ -----------
Balance at October 3, 1993 13,152,500 $131,500 155,000 $ - 16,190 $200 $15,033,500 $(12,187,800) $ 2,977,400
---------- -------- ------- ------- ------ ---- ----------- ------------ -----------
Stock options exercised 127,900 1,300 - - - - 21,900 - 23,200
Common stock issued to
employee retirement plan 43,200 400 - - - - 356,900 - 357,300
Sale of common stock 1,362,100 13,600 - - - - 7,844,500 - 7,858,100
Common stock warrants
issued 161,200 - - - - - -
Common stock warrants
exercised 25,000 300 (25,000) - - - 48,000 - 48,300
Net loss - - - - - - - (2,463,900) (2,463,900)
---------- -------- ------- ------- ------ ---- ----------- ------------ -----------
Balance at October 2, 1994 14,710,700 $147,100 291,200 $ - 16,190 $200 $23,304,800 $(14,651,700) $ 8,800,400
---------- -------- ------- ------- ------ ---- ----------- ------------ -----------
Stock options exercised 103,100 1,000 - - - - 219,900 - 220,900
Common stock issued to
employee retirement plan 68,000 700 - - - - 471,600 - 472,300
Sale of common stock 382,100 3,800 - - - - 1,933,500 - 1,937,300
Common stock warrants
issued 79,700 - - - - - -
Common stock warrants
exercised 244,000 2,500 (244,000) - - - 1,096,500 1,099,000
Series B and Series C
Preferred stock converted
to common stock 58,900 600 - - (1,177) - (600) - -
Net loss - - - - - - - (4,137,500) (4,137,500)
Additional paid-in capital
related to Convertible
Debentures - - - - - - 1,101,700 - 1,101,700
---------- -------- ------- ------- ------ ---- ----------- ------------ -----------
Balance at October 1, 1995 15,566,800 $155,700 126,900 $ - 15,013 $200 $28,127,400 $(18,789,200) $ 9,494,100
---------- -------- ------- ------- ------ ---- ----------- ------------ -----------
See accompanying Notes to Consolidated Financial Statements.
5
Irvine Sensors Corporation
Consolidated Statement of Cash Flows
Fiscal Year Ended
---------------------------------------------
October 1, October 2, October 3,
1995 1994 1993
- - -----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Cash received from customers $ 7,237,900 $ 4,506,100 $ 4,146,200
Cash paid to suppliers and employees (10,457,200) (6,384,800) (5,241,800)
Interest received 92,600 173,500 64,700
Interest paid (55,900) (7,100) (19,400)
Income taxes paid (1,000) (800) (800)
------------ ----------- -----------
Net cash used in operating activities $ (3,183,600) $(1,713,100) $(1,051,100)
Cash flows from investing activities:
Marketable securities, at cost 4,447,500 (4,447,500) -
Capital facilities and equipment expenditures (3,105,500) (2,334,000) (1,662,600)
------------ ----------- -----------
Net cash used in investing activities 1,342,000 (6,781,500) (1,662,600)
Cash flows from financing activities:
Net payments under line of credit - - -
Principal payments under notes payable and
capital lease obligations (131,600) (74,000) (100,300)
Proceeds from issuance of long-term debt 395,800 3,700 154,700
Proceeds from issuance of convertible
subordinate debentures 2,250,000 - -
Proceeds from issuance of common stock and
common stock warrants 3,257,200 7,929,600 441,100
------------ ----------- -----------
Net cash provided by financing activities 5,771,400 7,859,300 495,500
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 3,929,800 (635,300) (2,218,200)
Cash and cash equivalents at beginning of year 437,300 1,072,600 3,290,800
------------ ----------- -----------
Cash and cash equivalents at end of year $ 4,367,100 $ 437,300 $ 1,072,600
============ =========== ===========
Reconciliation of net loss to net cash used in operating
activities:
Net loss $ (4,137,500) $(2,463,900) $(1,507,600)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization $ 1,004,600 $ 535,700 $ 311,700
Common stock issued to employee retirement plan 472,300 357,300 198,400
Non-cash interest expense related to Convertible
Debentures 1,101,700 - -
(Increase) in accounts receivable (803,500) (633,300) (140,100)
(Increase) in inventory (2,677,800) (227,600) (12,900)
(Increase) decrease in prepaid expenses (168,400) 13,500 (11,800)
(Increase) in other assets (20,900) - -
Increase in accounts payable and accrued
expenses 828,000 497,500 98,500
Increase in deferred revenue 1,174,200 190,800 -
Increase in royalties accrued - affiliated
company 43,700 16,900 12,700
------------ ----------- -----------
Total adjustments 953,900 750,800 456,500
------------ ----------- -----------
Net cash used in operating activities $ (3,183,600) $(1,713,100) $(1,051,100)
============ =========== ===========
Noncash investing and financing activities:
Common stock issued to employee retirement plan $ 472,300 $ 357,300 $ 198,400
------------ ----------- -----------
Capitalized lease obligations $ 395,800 $ 3,700 $ 54,400
------------ ----------- -----------
Non-cash interest expense related to Convertible Debentures $ 1,101,700 $ - $ -
------------ ----------- -----------
See accompanying Notes to Consolidated Financial Statements.
6
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
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Note 1 - Summary of Significant Accounting Policies
CONSOLIDATION
The consolidated financial statements include the accounts of Irvine Sensors
Corporation (the "Company") and its wholly owned subsidiary, Carson Alexiou
Corporation ("CAC"). All significant inter-company transactions and balances
have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest September 30. Fiscal 1995
(52 weeks) ended on October 1, 1995, fiscal 1994 (52 weeks) ended on October 2,
1994, and fiscal 1993 (53 weeks) ended on October 3, 1993.
REVENUES
The Company's revenues include shipments of functional memory cubes from its
Vermont facility and shipments of a new product, the SIRComm infrared chip which
began during the fourth quarter of fiscal 1995. In prior years, the Company's
revenues historically resulted principally from prototype development and
manufacture of sample quantities for its customers. The Company continues to
contract to develop prototypes and provide research, development, design,
testing and evaluation of complex detection and control defense systems. The
Company's R&D contracts are usually cost plus fixed fee (best effort) or fixed
price and revenues are recognized as costs are incurred and include applicable
fees or profits primarily in the proportion that costs incurred bear to
estimated final costs. Production orders for memory cubes and SIRComm chips are
generally priced in accordance with the Company's established price list.
The Company provides for anticipated losses on contracts by a charge to income
during the period in which they are first identified. Unbilled accounts
receivable are stated at estimated realizable value.
United States Government contract costs, including indirect costs, are subject
to audit and adjustment by negotiations between the Company and Government
representatives. Indirect contract costs have been agreed upon through fiscal
1994. Contract revenues have been recorded in amounts which are expected to be
realized upon final settlement.
Other revenues in each of the fiscal years 1993 through 1995 were derived from a
license agreement with IBM wherein the Company and IBM are jointly developing
the Company's technology and products. In addition, other revenues in fiscal
1995 were also derived from a licensing agreement with Unitrode to transfer
technology required to produce the Company's SIRComm chip. (See Note 14 -
Technology Licenses.)
RESEARCH AND DEVELOPMENT COSTS
A major portion of the Company's operations is comprised of customer-funded
research and prototype development or related activities. The Company also
incurs costs in research and development of new concepts in proprietary
products. Such costs are charged to expense as incurred.
INVENTORY
Inventory is valued at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) basis.
EQUIPMENT, FURNITURE AND FIXTURES
The Company capitalizes costs of additions to equipment, furniture and fixtures,
together with major renewals and betterments. In addition, the Company
capitalizes overhead and general and administrative costs for all in-house
capital projects. Maintenance, repairs, and minor renewals and betterments are
charged to expense. When assets are sold or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized.
Depreciation of equipment, furniture and fixtures is provided over the estimated
useful lives of the assets, primarily using the straight-line method. The
useful lives are three to seven years.
INCOME TAXES
Taxes are provided, at the appropriate rates, for all taxable items included in
the statement of operations regardless of the period in which such items are
reported for tax purposes. Investment tax credits are accounted for under the
"flow through" method, whereby the benefit is recognized in the year in which
the credit is realized.
EARNINGS PER SHARE
Computations of primary earnings per share are based on the weighted average
number of shares of common stock outstanding, including dilutive stock options,
convertible preferred stock and common stock warrants where applicable.
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statement of Cash Flows, the Company considers
all demand deposits and Certificates of Deposit with original maturities of 90
days or less to be cash equivalents.
7
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
MARKETABLE SECURITIES
Marketable securities consisted of U.S. Government securities carried at cost
plus accrued interest, which approximated market.
Effective October 1, 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which prescribes the accounting for debt and equity securities held
as assets. The cumulative effect of adopting SFAS No. 115 on the Company's
financial statements for the year ended October 1, 1995 was not material.
Note 2 - Issuance of Common Stock and Series A Preferred Stock
In December 1989, the Board of Directors adopted a Contingent Common Stock
Acquisition Rights Plan (the Plan) to deal with certain issues posed by the
Company's belief that its stock was then undervalued. Under the Plan, options
to purchase 500,000 shares of the Company's common stock at a price of $1.00 per
share were allocated among the 10 participants who were all of the Company's
officers and directors, in proportion to the number of shares of common stock
under their respective beneficial ownership as of December 1989. The options
vested and were exercisable once the closing bid price of the common stock
averaged $4.00 or more for any six-month period in which the Plan was in effect.
This event occurred in December 1992, at which time, 350,275 of these options
vested and 149,725 were canceled pursuant to forfeiture provisions contained in
the Plan. In April 1993, all 350,275 of the vested options were exercised,
resulting in the issuance of 350,275 shares of unregistered common stock and the
receipt of $350,275 which was added to the Company's general funds.
During fiscal 1993, the Company issued 142,000 shares of common stock to one
director, thirteen employees, two of whom are officers of the Company, one
former officer and one former director, upon exercise of options granted under
the Company's 1981 and 1991 Stock Option Plans. The proceeds of approximately
$90,800 were added to the Company's general funds.
During fiscal 1994, the Company issued 127,900 shares of common stock to eight
employees, one of whom is a director, and four non-employee directors upon
exercise of options and warrants granted under the Company's Stock Option Plans.
The net proceeds of approximately $23,200 were added to the Company's general
funds.
In February 1994, the Company completed the sale of approximately 1.36 million
unregistered shares of the Company's common stock in a private financing to
institutional and corporate investors in Canada and Europe. After regulatory
requirements are met by holders of these securities, restrictive legends on
these shares may be removed and the shares could then be traded without
restrictions. The net proceeds of approximately $7.9 million were added to the
Company's general funds. There are no restrictions on the use of these funds.
In August 1995, the Company completed the sale of approximately 382,100
unregistered shares of the Company's common stock in a private financing
pursuant to Regulation S to institutional and private investors in Canada and
Europe. The Company has agreed to use its best efforts to register these shares
for subsequent resale by the holders thereof. After regulatory requirements are
met by holders of these securities, restrictive legends on these shares may be
removed and the shares could then be traded without restrictions. The gross
proceeds less expenses will be added to the Company's general fund. There are
no restrictions on the use of these funds. Subsequent to October 1, 1995, the
Company registered the shares.
During fiscal 1995 the Company issued 103,100 shares of common stock to ten
employees and one non-employee director upon exercise of options granted under
the Company's Stock Option plans. Net proceeds of $220,900 were added to the
Company's general fund.
Note 3 - Common Stock Warrants
In July 1992, the Company consummated a public offering of 750,000 shares of
common stock and granted the Underwriter an option to purchase up to 112,500
additional shares of common stock to cover over allotments. In connection with
this offering, the Company granted to the Underwriter warrants to purchase up to
75,000 shares of common stock at a price of $5.10 per share, which was 120
percent of the initial public offering price of the shares. The warrants are
exercisable during the four-year period beginning July 9, 1993 and expiring July
8, 1997. During fiscal 1995, 57,800 of these warrants were exercised and 17,200
remain outstanding.
In February 1992, the Company granted a warrant to its legal counsel to purchase
25,000 unregistered shares of common stock at a price of $1.3125 in connection
with services rendered. The warrant was exercised in March 1994 and the
proceeds were added to the Company's general funds.
8
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
In February 1993 and July 1993, the Company granted warrants to two consultants
to purchase 25,000 and 30,000 unregistered shares of common stock at prices of
$4.72 and $8.875 per share, respectively, in connection with services rendered.
The shares underlying these warrants were registered in fiscal 1995 and the
prices reduced to $4.50 per share. The warrant for 25,000 shares has been
exercised and the warrant for 30,000 shares remains outstanding.
In connection with the February 1994 sale of approximately 1.36 million shares
of common stock to investors in Canada and Europe, the Company granted to the
foreign investment banker warrants to purchase up to 136,200 shares of common
stock at an average price of $8.23 per share. The warrants expire January 7,
1999. In fiscal 1995, the price was reduced to $4.50 per share and the warrants
were exercised.
In February 1994, the Company granted a warrant to its legal counsel to purchase
25,000 unregistered shares of common stock at a price of $8.75 per share in
connection with services rendered. The warrant is exercisable on or after
February 25, 1995 and expires on February 24, 1998. In fiscal 1995, the price
was reduced to $4.50 per share and the warrant was exercised.
In connection with the August 1995 sale of approximately 382,100 shares of
common stock and the issuance of approximately $2.25 million of 8 percent
convertible debentures to investors in Canada and Europe, the Company granted to
the foreign investment banker warrants to purchase up to approximately 79,700
shares of common stock at prices ranging from $7.47 to $8.33 per share. These
warrants expire in August and September 2000. Subsequent to October 1, 1995,
the Company registered the shares underlying the warrants.
As of October 1, 1995, there were a total of 126,900 warrants outstanding of
which 17,200 expire in July 1997, 30,000 expire in July 1998, 72,800 expire in
August 1999, and 6,900 expire in September 2000.
Note 4 - Series B and Series C Convertible Preferred Stock
The Series B and Series C Convertible Cumulative Preferred Stock which were
originally issued to the Company's Employee Retirement Plan each bear a
10 percent cumulative annual dividend, which under Delaware law may generally be
paid only out of (i) retained earnings or (ii) net profit in the current or
preceding fiscal year. To the extent that the dividends are not declared and
paid in any fiscal year, the obligation carries over to the next fiscal year.
These shares of Series B and Series C Convertible Cumulative Preferred Stock are
not redeemable, carry a liquidation preference over the common stock of $15.00
and $30.00, respectively, per share and are convertible, at the option of the
holder, into 50 shares of common stock for each share of Series B and Series C
Convertible Cumulative Preferred Stock, respectively. Distributions of vested
benefits made from the Plan to former employees and the subsequent surrender and
conversion into shares of common stock are as follows:
Preferred Stock Common
Series B Series C Stock
-----------------------------------
Distribution dates:
April 1992 625 - 31,200
March 1993 340 45 19,200
October 1994 880 297 58,900
-----------------------------------
1,845 342 109,300
===================================
The 1,845 and 342 shares of Preferred Series B and Series C, respectively, have
been retired.
Undeclared dividends of $84,200 and $84,900 on the remaining outstanding
Preferred Series B and Series C, respectively, will be carried forward to fiscal
1996.
Note 5 - Preferred Stock of Consolidated Subsidiary
The preferred stock outstanding represents an ownership interest in CAC by
former employees and an Employee Stock Bonus Plan (ESBP) which CAC had formed.
The preferred stock has a $100 par value and there are 1,400 shares authorized
and 1,185 shares issued and outstanding. There are no conversion rights or
liquidation preferences of this preferred stock which extend to the common stock
of the Company.
Note 6 - Convertible Subordinated Debentures
In July and August 1995, the Company issued in a private financing $2.25 million
of 8 percent convertible subordinated debentures (the "Debentures") due in 1997
to institutional and private investors in Canada and Europe. The Debentures are
convertible into shares of common stock at $6.50 per share, subject to
adjustment under certain conditions. The Company shall have the right to demand
conversion of the Debentures at any time after July 31, 1996. Interest is
payable semi-annually on January 31 and July 31 of each year. The Debentures
are subordinated to prior payment of bank indebtedness of the Company. The
gross proceeds less expenses were added to the Company's general funds. There
are no restrictions on the use of these funds. The Company agreed to use its
best efforts to
9
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
register for subsequent resale the shares issuable upon conversion of the
Debentures, and subsequent to October 1, 1995, the Company registered the
shares.
The Company originally accounted for its convertible debentures in accordance
with APB 14, "Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants". However the Securities and Exchange Commission ("SEC") staff
has indicated that convertible debt instruments which are convertible at a
discount from market should be accounted for by treating the maximum discount as
interest expense with an offset to paid in capital. In November 1997, the
Company was advised that past issuers of such securities have recently restated
prior financial statements to comport with the SEC view. In conformance
therewith, the Company has calculated non-cash interest expense of $1,101,700
with a like amount added to paid-in capital in the fourth quarter of fiscal
1995. Because of the offsetting nature of these entries, Shareholders' equity
remains unchanged. The Company has restated its financial statements for fiscal
1995. The impact of these adjustments on the Company's financial results as
originally reported is summarized below:
1995
As Reported As Restated
------------------------------
Net loss $(3,035,800) $(4,137,500)
Net loss per common and
common equivalent share $ (0.20) $ (0.28)
Shareholders' equity at end of year $ 9,494,100 $ 9,494,100
Note 7 - Related Party Transactions
In April 1980, the Company entered into an agreement with R & D Leasing Ltd.
("RDL"), a limited partnership in which the Company's Chairman 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 percent 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 was 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 $0.20 per share had an
expiration date of June 30, 1995. In October 1989, the Board of Directors
approved an amendment to the RDL agreement limiting the royalty fees under
certain circumstances and deferring and subordinating all royalty claims with
respect to all other creditors for an initial period of five years. The
amendment allows the Company, at RDL's option, to pay up to $250,000 of accrued
royalties in shares of the Company's common stock at a price of $0.50 per share.
In the event that RDL extends the period to 10 years, the amount would be
increased to $1 million and the price would increase to $1.00 per share. Should
RDL exercise its option to accept payment in shares of the Company's common
stock, in whole or in part, title to RDL's technology would transfer to the
Company and future royalty obligations would cease. In fiscal 1994 RDL extended
the period to 10 years.
In October 1990, the Company and RDL consummated an agreement in which full
settlement of the $40,000 note payable was arranged. RDL forgave $20,000 of the
Company's $40,000 debt, evidenced by the aforementioned $40,000 note payable,
and surrendered its 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 owed RDL $123,200 in
deferred royalty fees.
Note 8 - Composition of Certain Financial Statement Captions
October 1, October 2,
1995 1994
---------- ----------
Accounts receivable:
U.S. Government $2,094,500 $1,528,500
Other customers 293,500 56,000
---------- ----------
$2,388,000 $1,584,500
========== ==========
Accounts receivable includes unbilled amounts of $1,423,000 and $700,100 at
October 1, 1995, and October 2, 1994, respectively. Unbilled amounts represent
contract revenues for which billings have not been presented to customers at
year-end. These amounts are billed in accordance with applicable contract terms,
usually within 30 days. Accounts receivable also includes billed retention of
$43,600 and $18,700 at October 1, 1995, and October 2, 1994, respectively. These
amounts are normally collected upon final audit of costs by the U.S. Government.
Costs incurred beyond the contract funded amount included in unbilled accounts
receivable amount to $387,900 and $170,400 at October 1, 1995, and October 2,
1994, respectively. These amounts, although not yet funded, are within the scope
of the contracts and the Company does not expect to sustain a loss with respect
to such costs.
October 1, October 2,
1995 1994
---------- ----------
Inventory:
Raw materials $ 488,600 $ -
Work in process 1,842,600 253,100
Finished goods 599,700 -
---------- ----------
$2,930,900 $ 253,100
========== ==========
Title to all inventories remains with the Company. Inventoried materials and
costs relate to work in process on customers' orders and on the Company's
generic module parts and memory stacks which the Company anticipates it will
sell to customers. Such inventoried costs are stated generally at the total of
the direct production costs including overhead. Inventory valuations do not
include general and administrative expenses.
10
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
October 1, October 2,
1995 1994
-------------------------
Equipment, furniture and fixtures:
Engineering and production
equipment $ 8,527,600 $ 5,951,200
Furniture and fixtures 335,600 305,400
Computer software programs 371,200 88,600
Leasehold improvements 850,100 633,800
----------- -----------
10,084,500 6,979,000
Less accumulated depreciation
and amortization 4,434,900 3,430,300
----------- -----------
$ 5,649,600 $ 3,548,700
=========== ===========
Engineering and production equipment includes approximately $396,500 and
$114,900 of capitalized leases at October 1, 1995, and October 2, 1994,
respectively. Accumulated amortization of capitalized leases amounted to $30,700
and $45,200 at October 1, 1995, and October 2, 1994, respectively.
October 1, October 2,
1995 1994
--------------------------
Accrued expenses:
Salaries and wages $292,500 $164,700
Vacation 183,500 140,900
Payroll taxes 33,900 29,400
Accounting fees 42,100 43,500
Other accrued expenses 119,500 100,000
-------- --------
$671,500 $478,500
======== ========
Note 9 - Notes Payable
Current and long-term debt consists of the following:
October 1, October 2,
1995 1994
-------------------------
Capitalized lease
obligations $284,400 $ 20,200
Less current portion 206,400 18,600
-------- --------
$ 78,000 $ 1,600
======== ========
Note 10 - Income Taxes
Effective October 4, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," which requires an asset
and liability approach to financial accounting and reporting for income tax.
The cumulative effect of adopting SFAS No. 109 on the Company's financial
statements for the year ended October 2, 1994 was not material.
Deferred income taxes reflect the net tax effects of (i) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (ii) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
the Company's income tax calculation as of October 1, 1995 are as follows:
Deferred tax liabilities:
Differences between book
and tax basis of property $ 166,800
Deferred tax assets:
Reserves not currently deductible 38,100
Operating loss carryforwards 7,471,600
Tax credit carryforwards 340,800
Valuations allowance (8,017,300)
-----------
Net deferred tax asset $ -
===========
The differences between the Company's effective income tax rate and the
statutory U.S. federal income tax rate for the fiscal years October 1, 1995 and
October 2, 1994, respectively, are as follows:
The total valuation allowance changed $1,515,300 from October 2, 1994 to October
1, 1995. At October 1, 1995, the portion of the valuation allowance attributed
to deferred tax assets for which subsequently recognized tax benefit will be
allocated directly to contributed capital was $945,700.
The provisions for income taxes for the fiscal years ended October 1, 1995,
October 2, 1994, and October 3, 1993, consist of provisions for state income
taxes of $1,000, $800, and $800, respectively. No provisions for federal income
taxes have been made in these fiscal years due to the net operating losses.
At October 1, 1995, the Company had net operating loss carryforwards of
approximately $20,007,700 for financial reporting and federal income tax
purposes expiring in varying amounts from fiscal year 1996 through fiscal year
2010, and $8,860,900 for California and Vermont State Franchise tax purposes
expiring in varying amounts from fiscal year 1996 through fiscal year 2000,
available to offset future federal and California taxable income. In addition,
as of October 1, 1995, the Company had investment tax credits and qualified
research credits of $133,400 and $198,900, respectively, expiring in varying
amounts through fiscal year 2007 and available to offset future federal taxes.
The ability of the Company to utilize the net operating loss and credit
carryforwards may be restricted by certain provisions of the Internal Revenue
Code.
11
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
Note 11 - Commitments and Contingent Liabilities
The Company leases certain facilities and equipment under cancelable and
noncancelable lease obligations. Total rental expense for operating leases
amounted to $562,500, $347,100, and $240,600, for the fiscal years ended October
1, 1995, October 2, 1994, and October 3, 1993, respectively. Minimum lease
commitments existing at October 1, 1995 are approximately as follows:
Capital Operating
leases leases
-------- ---------
1996 $222,600 $540,600
1997 73,200 291,600
1998 9,600 31,700
1999 - 22,900
2000 - 1,900
Thereafter - -
-------- --------
Total minimum payments $305,400 $888,700
========
Less amount representing
future interest cost 21,000
--------
Recorded obligation under
capital leases
(notes 8 and 9) $284,400
========
In fiscal 1995, the Company established a line of credit with a bank for a
maximum of $500,000 with interest at the bank's prime rate plus 3 percent. As
of October 1, 1995, there were no outstanding borrowings under the line.
Note 12 - Stock Option Plans and Employee Retirement Plan
In December 1981, the Company's shareholders adopted two stock option plans: the
1981 Incentive Stock Option Plan (Incentive Plan) and the 1981 Nonstatutory
Stock Option Plan (Nonstatutory Plan). The Incentive Plan provided for the
granting of options to key management employees and the Nonstatutory Plan
provided for the granting of options to both key management employees and non-
employee directors. The maximum number of shares which could be optioned and
sold under the two plans was 1,450,000 shares, of which no more than 800,000 and
400,000 could be optioned and sold to directors and non-director officers,
respectively. Under the terms of the Incentive Plan, options could be granted at
an exercise price equal to the fair market value of the Company's common stock
on the date the options were granted, and under the terms of the Nonstatutory
Plan, options could be granted at 85 percent of the fair market value, on the
date the options were granted. If, however, the optionee owned more than 10
percent of the outstanding common stock of the Company, the exercise price of
incentive stock options would be at least 110 percent of such fair market value.
Options, generally, are not exercisable before one year from the date of grant,
and are generally exercisable in installments. Options granted under the
Incentive Plan may not exceed five years in duration, and options granted under
the Nonstatutory Plan may not exceed 10 years in duration. The plans terminated
on December 11, 1991, after which date no options could be granted under the
plans. As of October 1, 1995, options to purchase 4,000 shares at a price of
$0.5625 per share were outstanding and exercisable under the plans.
In December 1991, the Board of Directors adopted the 1991 Stock Option Plan to
replace the 1981 Plans which had terminated. This new Plan was approved by
shareholders at the Company's Annual Meeting in February 1992. Under the 1991
Plan, options to purchase an aggregate of 675,000 shares of the Company's common
stock may be granted to both key management employees and non-employee
directors. Options granted may be either Incentive Stock Options or Nonstatutory
Stock Options, and the requirements for participation, exercise price and other
terms are similar to the 1981 Plans. As of October 1, 1995, options to purchase
571,300 shares at prices ranging from $1.3125 (304,000 shares) to $8.625 (45,000
shares) were outstanding under the Plan, of which 253,900 were exercisable at
October 2, 1994.
In January 1995, the Board of Directors adopted the 1995 Stock Option Plan to
replace the 1991 Plan which had terminated. This new Plan was approved by
shareholders at the Company's Annual Meeting in February 1995. Under the 1995
Plan, options to purchase an aggregate of 700,000 shares of the Company's common
stock may be granted to both key management employees and non-employee
directors. Options granted may be either Incentive Stock Options or Nonstatutory
Stock Options, and requirements for participation, exercise price and other
terms are similar to the 1991 Plan. As of October 1, 1995, options to purchase
228,500 shares at prices ranging from $6.00 (181,500 shares) to $6.50 (32,000
shares) were outstanding under the Plan; however, no shares were exercisable at
October 1, 1995.
12
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
Stock option activity is summarized as follows:
Option Price
Shares Per Share
---------- -----------------
1981 Plan:
- - ----------
Options outstanding at September 27, 1992 304,100 $0.17 to $1.5625
Canceled (16,700) 0.5625
Exercised (117,400) 0.7 to 0.8125
--------
Options outstanding at October 3, 1993 170,000 0.17 to 1.5625
Exercised (117,600) 0.17 to 0.8125
--------
Options outstanding at October 2, 1994 52,400 0.5625 to 1.5625
Exercised (48,400) 0.5625 to 1.5625
--------
Options outstanding at October 1, 1995 4,000 $0.5625
========
1991 Plan:
- - ----------
Granted in fiscal 1992 402,500 $1.3125 to $4.09
Canceled -
Exercised -
--------
Options outstanding at September 27, 1992 402,500 $1.3125 to $4.09
Granted 130,000 3.625 to 8.625
Canceled (33,500) 1.3125
Exercised (27,000) 1.3125 to 4.09
--------
Options outstanding at October 3, 1993 472,000 1.3125 to 8.625
Granted 65,500 7.125 to 7.75
Exercised (10,500) 1.3125 to 4.09
--------
Options outstanding at October 2, 1994 527,000 1.3125 to 8.625
Granted 98,500 6.00
Exercised (54,200) 1.3125 to 7.75
--------
Options outstanding at October 1, 1995 571,300 $1.3125 to $8.625
========
1995 Plan:
- - ----------
Granted in fiscal 1995 228,500 $6.00 to $6.50
--------
Options outstanding at October 1, 1995 228,500 $6.00 to $6.50
========
In fiscal 1982, the Company established an employee retirement plan which is
effective for fiscal year 1982 and thereafter. The plan provides for annual
contributions to the Company's Stock Bonus Trust (SBT) to be determined by the
Board of Directors and which will not exceed 15 percent of total payroll. At the
discretion of the Trustee, the SBT will purchase common stock at fair market
value or other interest-bearing securities or investments for the accounts of
individual employees who will gain a vested interest of 20 percent in their
accounts after three years of service, and 20 percent each year of service
thereafter, until fully vested after seven years of service. That portion of
cash or stock held in an employee's account and not vested at termination of
employment will be redistributed in accordance with a prearranged formula.
Management believes that the contributions made by the Company to the SBT, to
the extent they relate to Government cost-plus-fixed-fee contracts, will be
reimbursable by the U.S. Government. In fiscal years 1993, 1994 and 1995 the
Company's contributions to the SBT were 32,900, 43,200 and 68,000 shares of
common stock, respectively, which had estimated market values of $198,400,
$357,300, and $472,300 respectively.
Note 13 - Revenues
In fiscal 1995, contracts with all branches of the U.S. Government accounted for
74 percent of the Company's revenues and the remaining 26 percent of the
Company's revenues was derived from non-government sources. Of the 74 percent
applicable to the U.S. Government, there were two agencies of the Government
that accounted for 30 percent and 21 percent, respectively. Other Government
agencies accounted for the remaining 23 percent. There were no non-government
customers who individually accounted for more than 10 percent.
In fiscal 1994, contracts with all branches of the U.S. Government accounted for
83 percent of the Company's revenues and the remaining 17 percent of the
CompanyOs revenues was derived from non-government sources. Of the 83 percent
applicable to the U.S. Government, there were four agencies of the Government
that accounted for 22 percent, 21 percent, 15 percent and 14 percent,
respectively. Other Government agencies accounted for the remaining 11 percent.
There were no non-government customers who individually accounted for more than
10 percent.
In fiscal 1993, contracts with all branches of the U.S. Government accounted for
59 percent of the Company's revenues and the remaining 41 percent of the
Company's revenues was derived from non-government sources. Of the 59 percent
applicable to the U.S. Government, there were three agencies of the Government
that accounted for 28 percent, 13 percent and 11 percent, respectively. Other
Government agencies accounted for the remaining 7 percent. There were two non-
government customers who individually accounted for 24 percent and 15 percent,
respectively.
13
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
Note 14 - Technology Licenses
In June 1992 the Company and International Business Machines (IBM) entered into
an agreement to develop manufacturing technology required to commercially
produce parts using the Company's technology for stacking integrated circuits.
In June 1993, IBM and the Company jointly announced the opening of a pilot
manufacturing line at an IBM facility. The Company will receive royalties on
stacked chip parts sold by IBM and will share equally with IBM any royalties
received from the licensing of the jointly developed manufacturing technology.
In May 1995, the Company and Unitrode Corporation (Unitrode) entered into an
agreement to transfer technology required to produce the Company's wireless
infrared communication integrated circuit (SIRComm). The Company will receive
licensing and royalty payments for the technology transfer and on SIRComm
products sold by Unitrode.
Note 15 - Deferred Revenues
The Company received prepayments from customers related to services and products
which had not been delivered as of October 1, 1995. Revenues will be recorded
upon delivery of these services and products.
Report of Independent Accountants
- - --------------------------------------------------------------------------------
[LETTERHEAD OF PRICE WATERHOUSE LLP]
To the Board of Directors and Shareholders of Irvine Sensors Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Irvine
Sensors Corporation and its subsidiary at October 1, 1995, and October 2, 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended October 1, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 6 to the Consolidated Financial Statements, the Securities
and Exchange Commission Staff (the "Staff") has recently indicated that
convertible debt instruments which are convertible at a discount from market
should be accounted for by treating the maximum discount as additional interest
expense and paid-in capital. The Consolidated Financial Statements for the year
ended October 1, 1995 have been restated to conform to the Staff's views.
/s/ PRICE WATERHOUSE LLP
Costa Mesa, California
December 5, 1995 except for
the last paragraph of Note 6
which is as of December 16, 1997
14
Irvine Sensors Corporation
Corporate Information
- - --------------------------------------------------------------------------------
Directors James Alexiou/1,2/, Chairman of the Board, Irvine Sensors Corporation
John C. Carson, Senior Vice-President, Irvine Sensors Corporation
Joanne S. Carson, Secretary, Irvine Sensors Corporation
Marc Dumont/1/, Financial Advisor
Thomas H. Lenagh/2/, Financial Advisor
Kenneth T. Lian, President and CEO, Irvine Sensors Corporation
General Frank P. Ragano1, Chairman and CEO of CMS, Inc., a
manufacturer of defense munitions
/1/ Member of the Compensation Committee
/2/ Member of the Audit Committee
Officers Norman Argast, Senior Vice-President
John C. Carson, Senior Vice-President
Joanne S. Carson, Secretary
Tony Johnson, Vice-President
Kenneth T. Lian, President and CEO
David Pinto, Treasurer and Controller
John J. Stuart, Jr., Executive Vice-President and
Chief Financial Officer
Executive Offices Irvine Sensors Corporation, 3001 Redhill Avenue, Building III,
Costa Mesa, California 92626
Counsel Grover T. Wickersham, P.C., Wickersham Law Offices
430 Cambridge Avenue, Suite 100, Palo Alto, California 94306
Independent Accountants Price Waterhouse LLP, 575 Anton Blvd.,
Costa Mesa, California 92628
Transfer Agent First Interstate Bank of California, 707 Wilshire Boulevard,
Los Angeles, California 90017
Stock Data Nasdaq Listing: Common Stock - IRSN
Boston Stock Exchange Listing: Common Stock - ISCB
Form 10-K Shareholders may obtain without charge a copy of the Company's Annual Report on
Form 10-K for the fiscal year ended October 1, 1995, as filed with the Securities
and Exchange Commission, without exhibits thereto, and may obtain any exhibit
thereto upon payment of a nominal copying charge, by writing to Joanne S. Carson,
Secretary, Irvine Sensors Corporation, 3001 Redhill Avenue, Costa Mesa, California
92626.