EXHIBIT 13
Irvine Sensors Corporation
Financial Highlights
Fiscal Year Ended
October 3, September 27, September 28, September 29, October 1,
1999 1998 1997 1996 1995
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Revenues $ 11,100,200 $ 9,314,500 $ 13,693,200 $ 12,024,200 $ 8,041,400
===============================================================================
Loss from operations $ (9,785,700) $ (5,798,200) $ (14,809,200) $ (11,154,700) $ (3,071,500)
===============================================================================
Net Loss $ (9,115,700) $ (4,243,500) $ (14,875,600) $ (15,914,700) $ (4,137,500)
===============================================================================
Basic and diluted net loss per common
and common equivalent share $ (0.29) $ (0.19) $ (0.73) $ (0.94) $ (0.28)
===============================================================================
Weighted average number of
shares outstanding 31,244,300 24,597,700 20,475,100 16,874,300 14,966,500
===============================================================================
Long-term debt $ 433,200 $ 933,700 $ 1,207,000 $ 3,165,600 $ 201,200
===============================================================================
Convertible debt $ - $ - $ 250,000 $ 3,400,000 $ 2,250,000
===============================================================================
Total assets $ 10,510,350 $ 7,064,700 $ 9,449,300 $ 21,742,200 $ 15,609,200
===============================================================================
Price Range of Common Stock
The following table sets forth the range of representative high and low bid
prices of the Company's common stock in the over-the-counter market for the
periods indicated, as furnished by The Nasdaq Stock Market. These prices
represent prices among dealers, do not include retail markups, markdowns or
commissions, and may not represent actual transactions:
Fiscal Year Ended
October 3, 1999 September 27, 1998
High Low High Low
Common Stock Bid Prices
First Quarter $1 15/16 $1 31/32 $1 1/32 $1
Second Quarter $1 21/32 $1 5/16 $2 21/32 $2 19/32
Third Quarter $2 $1 7/16 $2 1/32 $2
Fourth Quarter $1 27/32 $1 7/32 $2 29/32 $1 11/32
On December 22, 1999, there were 885 stockholders of record and approximately
9,000 beneficial holders, based on information provided by the Company's
transfer agent.
The Company has not paid cash dividends on any class of its stock since its
incorporation; under Delaware law there are certain restrictions, which limit
the Company's ability to pay cash dividends in the future.
Irvine Sensors Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
FISCAL YEAR ENDED OCTOBER 3, 1999 vs.
FISCAL YEAR ENDED SEPTEMBER 27, 1998
Consolidated revenues in fiscal 1999 of $11,100,200 increased by $1,785,700 or
19 percent compared to fiscal 1998. The primary reason for this increase is the
increased sales realized by Novalog.
Cost of contract revenues of $3,163,200 was 78 percent of contract revenues, an
improvement from the 86 percent figure of fiscal 1998. This improvement was
primarily due to attempts made to reduce cost of operations during fiscal 1999.
Cost of product sales was $5,197,600 or approximately 74 percent of product
sales in fiscal 1999. By comparison, fiscal 1998 cost of product sales was 85
percent of product sales, reflecting final shutdown costs of the Vermont
facility, which did not recur in fiscal 1999. Additionally, the Company
realized better product margins due to the increase in sales volume.
General and administrative expenses of $6,997,100 increased by $3,506,700 or 100
percent in relation to fiscal 1998, largely as a result of the growth in the
Company's consolidated subsidiaries. As a percentage of total revenues, general
and administrative expenses were approximately 63 percent in fiscal 1999
compared to 37 percent in fiscal 1998, again reflecting the substantial fiscal
1999 increase in expenses of the Company's subsidiaries, two of which generated
no revenues.
Research and Development increased to $5,528,000 in fiscal 1999, a growth of
$1,399,600 or 34 percent in the year-to-year comparison. The growth was due to
the product development expenses of the MicroSensors and Silicon Film
consolidated subsidiaries. As a percentage of revenues, R&D accounted for
approximately 49 percent in fiscal 1999 compared to approximately 44 percent in
fiscal 1998, with the product development expenses of MicroSensors and Silicon
Film accounting for the difference, without corresponding revenues.
The aggregate increase of $5,773,200 in fiscal 1999 of operating costs and
expenses are the direct result of management's decision to further implement the
Company's strategy to develop, market and sell commercial products through its
subsidiaries.
Interest expense declined by $161,900 in fiscal 1999 due to final retirement of
debt associated with the Vermont facility in fiscal 1998, which did not recur in
fiscal 1999.
Interest income increased by $26,100 in fiscal 1999 due to the short-term
investment of proceeds from the Company's equity offerings.
The consolidated net loss of $9,115,700 in fiscal 1999 was $4,872,200, or 115
percent greater than fiscal 1998. The increased net loss of the MicroSensors
and Silicon Film subsidiaries accounted for over 88 percent of this increase.
FISCAL YEAR ENDED SEPTEMBER 27, 1998 vs.
FISCAL YEAR ENDED SEPTEMBER 28, 1997
Revenues in fiscal 1998 of $9,314,500 decreased by $4,378,700 or 32 percent
compared to fiscal 1997. The primary reason for this decrease is attributed to
the closure of the Vermont facility. The decision to close the Vermont location
was centered on lower revenue and the continued increased cost of operations.
When considering corporate revenues generated by excluding the Vermont location,
fiscal 1998 revenues of $9,314,500 increased by $2,709,800 or approximately 41
percent.
Cost of contract revenues of $5,711,700 was 86 percent of contract revenues
compared to 94 percent in fiscal 1997. Cost of product sales of $1,942,200 or
85 percent of product sales includes the final shutdown costs related to the
Vermont facility. By comparison, in fiscal 1997 cost of product sales was 150
percent of product sales. Management is continuing to address the high product
costs and believes that gross margins will improve as sales increase and the
effect of implemented cost reductions is realized.
General and administrative expenses of $3,490,400 were decreased by $231,600 or
6 percent in relation to fiscal 1997. As a percentage of total revenues general
and administrative expenses were 37 percent in fiscal 1998 compared to 27
percent in fiscal 1997. However, fiscal 1997 included revenues from the Vermont
facility.
Research and development expenses increased by $2,511,800 or 155 percent in the
year-to-year comparison. The growth was due to the product development expenses
of the MicroSensors and Silicon Film consolidated subsidiaries. As a percentage
of revenues R&D accounted for approximately 44 percent in fiscal 1998 compared
to approximately 12 percent in fiscal 1997. The R&D expense in fiscal 1998
includes significant costs associated with Silicon Film's development of the
electronic film product.
The aggregate decrease of $7,356,300 in fiscal 1998 in cost of revenues,
general and administrative expenses and R&D are the direct result of
management's decision to streamline and control its expenses to fall in line
with the reduced revenue from the Vermont plant closing.
Interest expense declined by $177,400 in fiscal 1998, primarily attributable to
settlement of the Company's bank debt.
Interest income declined by $26,800 in fiscal 1998, primarily attributable to
lower interest rates and the debt pay-off associated with the Vermont facility.
The net loss of $4,243,500 in fiscal 1998 was $10,632,100 or 71 percent less
than fiscal 1997. The Vermont plant closing in fiscal 1997 accounted for
$5,873,400 or 55 percent of this reduced loss.
Liquidity, Capital Resources and Impact of Changing Prices
At October 3, 1999, the Company had consolidated cash and cash equivalents of
$981,100, which represents a decrease of $329,300 since September 27, 1998. The
net cash used in operating activities was $7,704,000 during fiscal 1999. The
primary use of cash was to fund the research and development and other operating
expenses of its MicroSensors and Silicon Film subsidiaries.
The Company used $1,530,600 in investing activities during fiscal 1999. Cash
used in investing activities primarily consisted of acquiring property, plant
and equipment for $1,453,400. The Company also entered into capital lease
agreements to acquire an additional $780,300 of equipment.
During fiscal 1999, the Company obtained net cash of $8,905,300 from financing
activities. Cash provided by financing activities included $6,439,400 from the
issuance of common and preferred stock and common stock warrants, and $2,661,100
from the sale of common and preferred stock in subsidiaries to minority interest
shareholders. Net cash provided by equity and minority interest transactions
was reduced by principal payments for capital leases payable of $195,200.
Subsequent to year-end, the Company collected $600,000 for the sale of 444,444
additional shares of the Company's common stock.
As a result of equity financing in fiscal 1999, the further development
activities of MicroSensors and Silicon Film were accomplished while limiting the
net reduction of the Company's working capital to $1,241,150. The Company
anticipates that the existing working capital and its projected operating
results will meet its cash requirements for the immediate future.
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. Since
its inception, the Company has experienced such termination of its contracts on
two occasions. There is no assurance the Company will not experience suspensions
or terminations in the future. Such termination, if material, could cause a
disruption of the Company's revenue stream and could result in employee layoffs.
At October 3, 1999, the Company's funded backlog was approximately $3,928,900
compared to $ 1,897,800 at September 27, 1998. In addition, existing contracts
include a large amount of unfunded backlog, which typically is funded when the
previously funded amounts have been expended. Subsequent to fiscal year end the
total backlog was $3,041,600 as of December 15, 1999.
Except for historical information contained herein, this Report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The forward-
looking statements contained herein are subject to certain risks and
uncertainties, including such factors, among others, as the pace at which new
markets develop, the ability of the Company to introduce new products and ramp
up manufacturing in a timely manner while controlling its operating expenses and
the response of competitors, many of whom are bigger and better financed than
the Company. In addition, the scope of the Company's growth plan may introduce
unanticipated risks and financial requirements. The availability of external
financing for the Company's plan cannot be assured and is subject to numerous
factors including those unrelated to the Company's performance such as economic
and market conditions. Further, the Company's financial performance prior to
substantial growth in revenues may not permit additional equity financing and
may place at risk the continuation of its long-term debt financing because of
inability to achieve financial covenants. Accordingly, investors are advised to
assess forward-looking statements contained herein with caution. Additional
information on various risks and uncertainties potentially affecting the
Company's results are contained in publicly filed disclosures available through
the Securities and Exchange Commission EDGAR database (http://www.sec.gov) or
from the Company's Investor Relations.
Irvine Sensors Corporation
Consolidated Balance Sheets
October 3, September 27,
1999 1998
-----------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 981,100 $ 1,310,400
Accounts receivable, net of allowances
of $36,700 in 1999 and $10,000 in 1998 2,401,500 1,766,100
Stock subscriptions receivable 600,000 -
Inventory 2,219,800 1,532,700
Other current assets 438,450 193,500
-----------------------------------
Total current assets 6,640,850 4,802,700
Equipment, furniture and fixtures, net 3,546,900 2,224,000
Goodwill 171,600 -
Other assets 151,000 38,000
-----------------------------------
$ 10,510,350 $ 7,064,700
===================================
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 3,310,800 $ 1,570,800
Accrued expenses 752,600 622,400
Deferred revenues - 50,000
Deferred and subordinated royalties payable - 1,000,000 -
affiliated company
Capital lease obligations - current portion 311,900 52,800
-----------------------------------
Total current liabilities 5,375,300 2,296,000
Capital lease obligations 433,200 107,500
Deferred and subordinated royalties payable - affiliated
company - 826,200
Minority interest in consolidated subsidiaries 2,489,200 1,488,000
-----------------------------------
Total liabilities 8,297,700 4,717,700
Shareholders' Equity:
Preferred stock, $0.01 par value, 500,000 shares authorized;
6,400 and 6,966 shares Series B Convertible Cumulative
Preferred outstanding; aggregate liquidation preference
of $95,600 50 50
3,500 and 3,964 shares Series C Convertible Cumulative
Preferred outstanding; aggregate liquidation preference
of $105,840 50 50
2,400 and 4,400 shares Series D Convertible Preferred
outstanding; aggregate liquidation preference of $240,000 50 50
Common stock, $0.01 par value, 40,000,000 shares authorized;
35,035,100 and 28,457,700 shares issued and outstanding 350,300 284,600
Common stock warrants and unit warrants; 147,000 and
162,000 outstanding - -
Paid-in capital (including common stock subscribed) 64,796,500 55,885,250
Accumulated deficit (62,938,700) (53,823,000)
-----------------------------------
Total shareholders' equity 2,212,650 2,347,000
-----------------------------------
$ 10,510,350 $ 7,064,700
===================================
See Accompanying Notes to Consolidated Financial Statements.
Irvine Sensors Corporation
Consolidated Statements of Operations
Fiscal Year Ended
-----------------------------------------------------------------
October 3, September 27, September 28,
1999 1998 1997
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Revenues:
Product sales $ 7,017,900 $ 2,289,800 $ 7,872,100
Contract research & development 4,080,700 6,624,700 5,821,100
Other 1,600 400,000 -
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Total revenues 11,100,200 9,314,500 13,693,200
-----------------------------------------------------------------
Cost and expenses:
Cost of contract revenues 3,163,200 5,711,700 5,455,200
Cost of product sales 5,197,600 1,942,200 11,835,200
General and administrative 6,997,100 3,490,400 3,722,000
Research and development 5,528,000 4,128,400 1,616,600
(Gain) loss related to plant closure - (160,000) 5,873,400
-----------------------------------------------------------------
20,885,900 15,112,700 28,502,400
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Loss from operations (9,785,700) (5,798,200) (14,809,200)
Interest expense (104,300) (266,200) (443,600)
Interest income 38,600 12,500 39,300
Other - 299,700 -
-----------------------------------------------------------------
Loss before minority interest
and provision for income taxes (9,851,400) (5,752,200) (15,213,500)
Minority interest in loss of subsidiaries 738,500 365,200 340,500
Provision for income taxes (2,800) (2,600) (2,600)
-----------------------------------------------------------------
Loss before extraordinary item (9,115,700) (5,389,600) (14,875,600)
Extraordinary item - debt extinguishment - 1,146,100 -
-----------------------------------------------------------------
Net loss $ (9,115,700) $ (4,243,500) $ (14,875,600)
=================================================================
Basic and Diluted Loss Per Share :
Loss before extraordinary item $ (0.29) $ $(0.24) $ $(0.73)
Extraordinary item - 0.05 -
-----------------------------------------------------------------
Net loss $ (0.29) $ $(0.19) $ $(0.73)
=================================================================
Weighted average number
of shares outstanding 31,244,300 24,597,700 20,475,100
=================================================================
See Accompanying Notes to Consolidated Financial Statements.
Irvine Sensors Corporation
Consolidated Statement of Shareholders' Equity (Deficit)
Common Stock Common Stock Preferred
Shares Issued Warrants Issued Shares Issued
------------- --------------- ------------- Paid-in Accumulated Shareholders'
Number Amount Number Amount Number Amount Capital Deficit Equity (Deficit)
--------------------------------------------------------------------------------------------------------
Balance at
September 29, 1996 18,710,000 $187,100 239,200 $ - 14,000 $ 100 $42,829,400 $(34,703,900) $ 8,312,700
--------------------------------------------------------------------------------------------------------
Common stock issued to
employee retirement plan 347,600 3,500 - - - - 442,000 - 445,500
Convertible debentures
converted to common stock 2,441,400 24,400 - - - - 3,125,600 - 3,150,000
Series B and Series C
preferred stock converted
to common stock 12,600 100 - - (250) - (100) - -
Sale of common stock 22,200 200 - - - - 19,800 - 20,000
Common stock bonus issued 7,500 100 - - - - 7,400 - 7,500
Common stock warrants
issued - - 118,000 - - - - - -
Common stock warrants
expired - - (17,200) - - - - - -
Net loss - - - - - - - (14,875,600) (14,875,600)
--------------------------------------------------------------------------------------------------------
Balance at
September 28, 1997 21,541,300 $215,400 340,000 $ - 13,750 $ 100 $46,424,100 $(49,579,500) $ (2,939,900)
--------------------------------------------------------------------------------------------------------
Common stock issued to
employee retirement plan 333,300 3,400 - - - - 496,600 - 500,000
Convertible debentures
converted to common stock 100,000 1,000 - - - - 249,000 - 250,000
Series B and Series C
preferred stock converted
to common stock 140,900 1,400 - - (2,800) - (1,400) - -
Common stock issued to
retire liabilities 487,800 4,900 - - - - 753,200 - 758,100
Sale of common stock and
common stock units 2,091,700 20,900 - - - - 3,712,900 - 3,733,800
Stock options exercised 8,200 100 - - - - (100) - -
Common stock
warrants issued - - 116,200 - - - 303,900 - 303,900
Common stock
warrants exercised 294,200 2,900 (294,200) - - - 274,100 - 277,000
Series D preferred
units sold - - - - 37,750 400 3,283,700 - 3,284,100
Series D preferred
units converted 3,460,300 34,600 - - (33,350) (350) (34,250) - -
Preferred stock of
dissolved subsidiary - - - - - - 118,500 - 118,500
Capital contributed
by ATPL - - - - - - 305,000 - 305,000
Net loss - - - - - - - (4,243,500) (4,243,500)
--------------------------------------------------------------------------------------------------------
Balance at
September 27, 1998 28,457,700 $284,600 162,000 $ - 15,350 $ 150 $55,885,250 $(53,823,000) $ 2,347,000
--------------------------------------------------------------------------------------------------------
Common stock issued to
employee retirement plan 330,000 3,300 - - - - 496,900 - 500,200
Series B and Series C
preferred stock converted
to common stock 51,500 500 - - (1,050) - (500) - -
Series D preferred units
converted 206,100 2,000 - - (2,000) - 163,500 - 165,500
Common stock issued
to retire liabilities 190,000 1,900 - - - - 280,600 - 282,500
Common stock issued
to purchase shares of
subsidiaries 1,127,500 11,300 - - - - 1,147,950 - 1,159,250
Sale of common stock
and common stock units 4,536,400 45,400 - - - - 6,077,700 - 6,123,100
Common stock subscribed,
444,400 shares - - - - - - 600,000 - 600,000
Common stock options
exercised 120,900 1,200 - - - - 131,200 - 132,400
Common stock warrants
exercised 15,000 100 (15,000) - - - 13,900 - 14,000
Net loss - - - - - - - (9,115,700) (9,115,700)
------------------------------------------------------------------------------------------------------------
Balance at
October 3, 1999 35,035,100 $350,300 147,000 - $ 12,300 $ 150 $64,796,500 $(62,938,700) $ 2,212,650
=============================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
Irvine Sensors Corporation
Consolidated Statements of Cash Flows
Fiscal Year Ended
-----------------------------------------------------------------------
October 3, September 27, September 28,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(9,115,700) $(4,243,500) $(14,875,600)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation $ 911,450 $ 1,546,700 $ 2,994,500
(Gain) loss on disposal of equipment - (309,700) 5,873,400
Non-cash employee retirement plan
contribution 500,200 500,000 445,500
Minority interest in net loss of
subsidiaries (738,500) (365,200) -
Extraordinary gain - (1,146,100) -
Common stock issued to pay
operating expenses 380,800 (261,700) -
(Increase) decrease in accounts
receivable (635,400) (528,400) 1,786,200
(Increase) decrease in inventory (687,100) 1,044,600 1,809,400
(Increase) decrease in other current
assets (280,750) 989,400 (899,300)
(Increase) decrease in other assets - (1,700) 151,000
Increase (decrease) in accounts
payable and accrued expenses 1,837,200 (1,454,500) 1,463,300
(Decrease) in deferred revenues (50,000) (56,100) (2,276,500)
Increase in royalties accrued-
affiliated company 173,800 212,400 258,100
----------- ----------- -----------
Total adjustments 1,411,700 169,700 11,605,600
---------- ----------- ----------
Net cash used in operating
activities (7,704,000) (4,073,800) (3,270,000)
Cash flows from investing activities:
Capital facilities and equipment
expenditures (1,453,400) (390,800) (1,113,400)
Proceeds from refund on
equipment purchase - - 324,500
Proceeds from sale of equipment - 149,700 1,051,900
Acquisition of intangible assets (77,200) - -
Net cash (used in) provided
by investing activities (1,530,600) (241,100) 263,000
Cash flows from financing activities:
Proceeds from issuance of
common and preferred stock and
common stock warrants 6,439,400 5,063,100 27,500
Sale of minority interest in
subsidiary 2,661,100 - 2,918,100
Proceeds from stock sale by bank - 954,800 -
Contributed capital by ATPL - 305,000 -
Principal payments of notes payable and
capital leases (195,200) (2,336,900) (253,300)
----------- ----------- -----------
Net cash provided by financing
activities 8,905,300 3,986,000 2,692,300
--------- ----------- ----------
Net decrease in cash and
cash equivalents (329,300) (328,900) (314,700)
Cash and cash equivalents
at beginning of period 1,310,400 1,639,300 1,954,000
---------- ----------- -----------
Cash and cash equivalents at end of period $ 981,100 $ 1,310,400 $ 1,639,300
========== =========== ===========
Noncash investing and financing activities:
Principal payment of note payable by
issuance of common stock $ - $ 500,000 $ -
========== =========== ===========
Conversion of debentures
to common stock $ - $ 250,000 $ 3,150,000
Conversion of preferred ========== =========== ===========
stock to common stock $ 500 $ 34,600 $ -
========== =========== ===========
Exchange of subsidiary stock $ 987,650 $ 1,564,900 $ -
========== =========== ===========
Equipment financed with
capital leases $ 780,300 $ 170,000 $ -
========== =========== ===========
Paid-in capital from
dissolution of subsidiary $ $ 118,500 $ -
========== =========== ===========
Stock issued in exchange
for shares in subsidiary $ 171,600 $ - $ -
========== =========== ===========
Stock sold on a subscription basis $ 600,000 $ - $ -
========== =========== ===========
Costs of financing paid with
options in subsidiaries $ 38,500 $ - $ -
========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements.
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
CONSOLIDATION
The consolidated financial statements include the accounts of Irvine Sensors
Corporation (the Company) and its subsidiaries, Novalog, Inc. ("Novalog"),
MicroSensors, Inc. ("MSI"), 3D Microelectronics, Inc., 3D MicroSystems, Inc.,
and Silicon Film Technologies, Inc. ("Silicon Film") (formerly Imagek, Inc.).
Carson Alexiou Corporation ("CAC"), a former subsidiary of the Company, was
dissolved in fiscal 1998. All significant intercompany transactions and balances
have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest September 30. Fiscal 1999
(53 weeks) ended on October 3, 1999, fiscal 1998 (52 weeks) ended on September
27, 1998, and fiscal 1997 (52 weeks) ended on September 28, 1997.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
Company believes its estimates of inventory reserves and estimated costs to
complete on contracts to be the most sensitive estimates impacting financial
position and results of operations in the near term.
REVENUES
The Company's revenues were derived from shipments of functional memory stacks,
shipments of the SIRComm(TM) infrared chip and the development and manufacture
of prototype and sample products 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 stacks and SIRComm chips are
generally priced in accordance with the Company's established price list. The
Novalog, MSI and Silicon Film subsidiaries are product-oriented companies with
sales primarily to OEM manufacturers and revenues are recorded when products are
shipped.
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
1997. Contract revenues have been recorded in amounts that are expected to be
realized upon final settlement.
Other revenues in fiscal 1998 were derived from sale of intellectual property to
ATPL. (See Note 7 - Related Party Transactions.)
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 for 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. Inventories are reviewed quarterly to
determine salability and obsolescence. A reserve is established for slow moving
and obsolete items.
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. Leasehold improvements are amortized over the
terms of the leases.
INTANGIBLE ASSETS
The excess of total acquisition cost over the fair value of net assets acquired
(goodwill) is being amortized on a straight-line basis over 15 years. The
Company reviews the carrying value of goodwill for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Other acquired intangibles are being amortized on a straight-line
basis over their estimated useful lives of 3 years.
INCOME TAXES
Deferred tax assets and liabilities are recorded for differences between the
financial statement and tax basis of the assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
recorded for the amount of income tax payable or refundable for the period
increased or decreased by the change in deferred tax assets and liabilities
during the period.
BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net loss per share is based on the assumption that
options, warrants, and convertible preferred stock are included in the
calculation of diluted earnings per share, except when their effect would be
anti-dilutive. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ADOPTED
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 revised standards for the
way that a public enterprise reports information about key revenue producing
segments in the annual financial statements and selected information in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. All periods
presented have been restated in accordance with this pronouncement. See Note 17
- - Reportable Segments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133). SFAS 133 is required to be adopted for fiscal
years beginning after June 15, 1999. Management does not expect the adoption of
SFAS 133 to have a significant effect on earnings or the financial position of
the Company.
In April 1998, the American Institute of Certified Public Accountants' (AICPA)
issued SOP 98-5, "Reporting on the Costs of Start-up Activities" (SOP 98-5).
SOP 98-5 is required to be adopted for fiscal years beginning after December 15,
1998. Management does not expect the adoption of SOP 98-5 to have a significant
effect on earnings or the financial position of the Company.
STATEMENTS OF CASH FLOWS
For purposes of the Consolidated Statements 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable and payable, other liabilities and debt
approximate fair value. The fair value of royalties payable to affiliate is not
determinable due to their related party nature.
CONCENTRATION OF CREDIT RISK
The Company has cash deposits at U.S. banks and financial institutions, which
exceed federally insured limits at October 3,1999. The Company is exposed to
credit loss for amounts in excess of insured limits in the event of non-
performance by the institution; however, the Company does not anticipate non-
performance.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation as prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and has adopted the
disclosure provisions of Statement of Financial Accounting Standards 123,
"Accounting for Stock-based Compensation" ("SFAS 123"). SFAS 123 requires pro
forma disclosures of net income and net income per share as if the fair value
based method of accounting for stock-based awards had been applied. Under the
fair value based method, compensation cost is recorded based on the value of the
award at the grant date and is recognized over the service period.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 fiscal year
financial statements to conform to the current year presentation.
Note 2 - Issuance of Common and Preferred Stock
In a private financing during February and March 1996, the Company issued $11.1
million of 8 percent convertible subordinated debentures due in 1998 (the "1996
Debentures") to institutional and private investors in Canada and Europe. The
1996 Debentures were convertible into shares of common stock at varying rates
which were contingent upon the closing bid prices of the common stock. The
Company had the right to demand conversion of the 1996 Debentures at any time
after March 1997. Interest was payable semiannually on January 31 and July 31 of
each year. The gross proceeds less expenses were added to the Company's general
funds.
During fiscal 1997, the Company, at the request of bondholders, converted
$3,150,000 of the outstanding 1996 Debentures at varying rates into 2,441,400
shares of the Company's common stock. With these conversions, all but $250,000
of the original issue of $11.1 million of the 1996 Debentures was retired. In
May 1996, the Company had registered the resale of 2,997,000 shares of common
stock which the Company then believed would be sufficient to cover the
conversion of the entire $11.1 million series of 1996 Debentures and related
warrants, which had been issued in February and March 1996. However, due to the
decline in the price of the Company's common stock, the number of shares issued
upon conversion of all the Debentures, exceeded the number of shares previously
registered. In January 1998 the Company filed a registration statement which
included the resale of 1,114,810 unregistered shares issued upon conversion of
the 1996 Debentures. The Securities and Exchange Commission declared this
registration effective in April 1998.
In fiscal 1998, the Company forced conversion of the remaining $250,000 of
outstanding 8 percent Convertible Subordinated Debentures into 100,000 shares of
the Company's common stock. The common shares underlying the convertible
debentures were included in the Company's January 1998 registration statement.
In connection with settlement of bank debt, the Company issued 550,000
unregistered shares of common stock in December 1997. (See Note 10 -
Extraordinary Item - Debt Extinguishment.)
The Company began the sale of Series D Convertible Preferred Stock Units in a
private placement to certain accredited investors in December 1997 and continued
to accept subscriptions thereto through January 2, 1998, at which time, the
Company sold an additional 24,750 Units. The Company issued an aggregate of
37,750 Units at a price of $100.00 per Unit and the net proceeds of $3,284,100
from the sale of these securities were added to the Company's general funds.
The Series D Convertible Preferred Stock Units consist of one share of
Convertible Preferred Stock, plus one five-year Warrant to purchase one share of
common stock of Novalog, Inc., a subsidiary of the Company, and one five-year
Warrant to purchase one share of common stock of MSI, a wholly-owned subsidiary
of the Company (see Note 5). Each share of Convertible Preferred Stock is
convertible into common stock of the Company at the rate of 100 shares of common
stock for each share of Preferred D, subject to adjustment for stock splits,
reverse stock splits and other similar recapitalization events. The Preferred D
shares have no voting rights, except as required by law, and bear no dividends.
(See Note 17 for calculation of beneficial conversion and imputed dividend
resulting from issuance of Series D Convertible Preferred Stock.) The common
shares underlying the Preferred D shares were included in the April 1998
registration statement. In connection with this private placement of 37,750
units, the Company granted to the placement agent a warrant to purchase up to
3,775 units of Series D Convertible Preferred Stock units at a price of $110 per
unit which was 110 percent of the private placement price of the Units. The
warrant is exercisable during the period beginning the earlier of one year from
January 2, 1998 or the date of registration and expiring on January 2, 2003. The
placement agent exercised warrants to purchase 500 units in May 1998 and 1,000
units in the period between October and December 1998. Additional warrants to
purchase 500 units were exercised in March 1999. All of the proceeds were added
to the Company's general funds.
As of October 3, 1999, at the request of the holders thereof, a total of 35,350
shares of Series D Convertible Preferred Stock Units have been converted into
3,666,400 shares of common stock.
In January 1998, the Board of Directors authorized a contribution to the
Employee Stock Bonus Plan (the Company's ERISA-qualified Employee Retirement
Plan). The amount represents an annual contribution for fiscal year 1998 and was
made in 333,334 shares of the Company's common stock, which have been issued to
the Plan.
In January 1998, the Company sold 125,000 Common Stock Units to investors in a
private placement. Each Common Stock Unit consists of one share of common stock
of the Company, plus one five-year Warrant to purchase one share of common stock
of Novalog, Inc., a subsidiary of the Company, and one five-year Warrant to
purchase one share of common stock of MicroSensors, Inc., a wholly-owned
subsidiary of the Company. The proceeds of $125,000 from these transactions were
added to the Company's general funds.
In January 1998, a warrant holder exercised outstanding warrants to purchase
222,000 shares of common stock at a price of $1.00 per share. The proceeds from
this warrant exercise have been added to the Company's general funds.
In April 1998, the Company issued, in a private placement to accredited
investors, 700,000 unregistered shares of the Company's common stock. The net
proceeds of $980,000 from this private placement have been added to the
Company's general funds.
In August 1998, holders of 1,128,000 shares of common stock of Novalog exercised
warrants to exchange these shares for 905,000 unregistered shares of common
stock of the Company resulting in an increase of $1,564,900 in total
shareholders' equity and a corresponding decrease in minority interest in
consolidated subsidiary.
In fiscal 1998, distribution of vested benefits was made from the Company's
Employee Retirement Plan to former employees. Subsequently, 1,819 shares of
Series B and 1,010 shares of Series C Convertible Preferred stock were
surrendered for conversion into 140,900 shares of common stock. The converted
Preferred shares have been retired.
In December 1998, the Board of Directors authorized a contribution to the
Employee Stock Bonus Plan (the Company's ERISA-qualified Employee Retirement
Plan). The amount represents an annual contribution for fiscal year 1999 and was
made in 330,000 shares of the Company's common stock, which have been issued to
the Plan.
During fiscal 1999, the Company sold 4,980,800 shares of unregistered common
stock of the Company to accredited investors in connection with a series of
private placement offerings. Included in these offerings was the sale of
267,670 units, which consisted of two shares of unregistered common stock of the
Company, one two-year warrant to purchase one share of common stock of Silicon
Film owned by the Company and one three-year warrant to purchase one common
share of MSI owned by the Company. The net proceeds were $6,439,400.
During fiscal 1999, the Company issued 190,000 shares of unregistered common
stock of the Company to vendors and consultants in exchange for services
provided.
During fiscal 1999, holders of 120,900 common stock options exercised their
options to purchase unregistered common stock of the Company. The net proceeds
were $132,400.
During fiscal 1999, holders of 1,655,000 shares of common stock of Novalog
exchanged these shares for 1,017,500 unregistered shares of common stock of the
Company through warrant exercise and other means. These transactions resulted
in a decrease of $1,038,000 to the minority interest liability.
During fiscal 1999, the Company issued 110,000 shares of common stock of the
Company to an unrelated party in exchange for an ownership interest in ATPL, a
related party (See Note 7 - Related Party Transactions). The ownership interest
includes 127,500 shares of common stock of Silicon Film and rights to future
royalties under the ATPL license terms. The transaction resulted in recording
goodwill of $171,600 related to the acquisition of the common stock of Silicon
Film, and a net increase of $121,300 to shareholders' equity, which is net of
losses previously allocated to minority interest shareholders.
In October 1999, the Company filed a registration statement which included the
resale of 8,270,731 unregistered shares; this registration statement included
all previously unregistered shares that had been issued as of October 3, 1999.
The Securities and Exchange Commission declared this registration effective in
October 1999.
Note 3 - Common Stock Warrants
In connection with the sale of $11.1 million of the 1996 Debentures, the Company
granted warrants to the foreign investment banker to purchase up to 222,000
shares of common stock at a price to be determined based on the average
conversion prices of the 1996 Debentures. The warrants were exercised in fiscal
1998.
In fiscal 1997 the Company granted warrants, the value of which it believes to
be not material, to four consultants in varying amounts to purchase up to
118,000 shares of unregistered common stock at prices ranging from $0.9375 to
$1.50.
In fiscal 1998 the Company granted warrants, the value of which it believes to
be not material, to five former employees in varying amounts to purchase up to
44,000 shares of unregistered common stock at a price of $1.00.
Warrants to purchase 15,000 shares of common stock of the Company were exercised
in 1999; the proceeds were $14,000.
As of October 3, 1999, there are a total of 147,000 warrants outstanding of
which 74,000 expire in the year 2000 and 73,000 expire in the year 2002.
Note 4 - Series B and Series C Convertible Preferred Stocks
The Series B and Series C Convertible Cumulative Preferred Stocks, 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 Stocks
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:
Fiscal 1997 50 200 12,600
Fiscal 1998 1,800 1,000 140,900
Fiscal 1999 500 500 51,500
---------------------------------------------
2,400 1,700 205,000
=============================================
The shares of Preferred Series B and Series C tendered for conversion have been
retired. Undeclared dividends of $103,600 and $105,700 on the remaining
outstanding Preferred Series B and Series C, respectively, will be carried
forward to fiscal 2000.
Note 5 - Minority Interest in Subsidiaries
During fiscal 1999, Silicon Film sold 83,900 shares of its Series A Convertible
Preferred Stock (the "Series A Preferred") in a Private Placement. The Series A
Preferred bears no yield, has a priority in liquidation and is convertible into
common stock of Silicon Film, at the election of the holder, at the rate of 25
common shares (as adjusted for a price protection feature which was resolved by
Silicon Film's Board of Directors on October 19, 1998) for each 1 share of
Series A Preferred tendered for conversion. The net proceeds of $1,136,900 are
reflected in the consolidated cash position of the Company and increased
minority interest in consolidated subsidiaries.
During fiscal 1999, Silicon Film sold 143,400 and 150,000 shares of its Series B
Convertible Preferred Stock (the "Series B Preferred") to outsiders and to the
Company, respectively, in a series of Private Placements. The Series B Preferred
bears no yield, has a priority in liquidation and is convertible into common
stock of Silicon Film, at the election of the holder, at the rate of 16-2/3
common shares for each 1 share of Series B Preferred tendered for conversion.
The proceeds were $1,365,700, net of financing costs (includes $38,500 financing
costs satisfied with noncash sources) and purchases by the Company, and are
reflected in the consolidated cash position of the Company. The resulting
increase in minority interest in consolidated subsidiaries was $1,365,700.
Subsequent to October 3, 1999, Silicon film sold an additional 85,750 and 10,000
shares of its Series B Preferred Stock to outsiders and to ISC, respectively.
The net cash proceeds were $957,500.
During fiscal 1999, Silicon Film issued 85,000 options to purchase common shares
of Silicon Film's stock at exercise prices ranging from $0.60 to $1.00 in
exchange for various services. These transactions resulted in a net increase in
minority interest liability of $98,300.
During fiscal 1999, Silicon Film granted 3,311,500 options to employees,
officers and directors to purchase common shares of Silicon Film's stock. As of
October 3, 1999, there are 4,561,500 options outstanding, of which 466,700 are
exercisable.
As of October 3, 1999, Silicon Film has 720,000 warrants outstanding, all of
which are exercisable at prices ranging from $0.60 to $2.00.
The Company sold Series D Convertible Preferred Stock Units in a private
placement to certain accredited investors in December 1997 and January 1998 (See
Note 2 - Issuance of Common and Preferred Stock). During the second quarter of
fiscal 1999, holders of 125,000 shares of Series D Convertible Preferred Stock
Units exercised warrants attached to the Units to purchase 125,000 shares of
common stock of MSI. The net proceeds of $125,000 were added to the Company's
general funds and are reflected in the consolidated cash position of the
Company. The transaction resulted in an increase in minority interest in
consolidated subsidiaries of $125,000.
During fiscal 1999, MSI granted 815,500 options to employees, officers and
directors to purchase common shares of MSI's stock. As of October 3, 1999,
there are 1,636,500 options outstanding, of which 235,600 are exercisable.
During fiscal 1999, Novalog granted 625,000 options to employees, officers and
directors to purchase common shares of Novalog's stock. As of October 3, 1999,
there are 1,878,000 options outstanding, of which 797,200 are exercisable.
Note 6 - Convertible Subordinated Debentures
In a private financing during February and March 1996, the Company issued $11.1
million of 8 percent convertible subordinated debentures due in 1998 (the "1996
Debentures") to institutional and private investors in Canada and Europe. The
1996 Debentures were convertible into shares of common stock at varying rates
which were contingent upon the closing bid prices of the common stock. The
Company had the right to demand conversion of the 1996 Debentures at any time
after March 1997. Interest was payable semiannually on January 31 and July 31 of
each year. The 1996 Debentures were subordinated to prior payment of bank
indebtedness of the Company. (See Note 2.)
During fiscal 1997, the Company, at the request of bondholders, converted
$3,150,000 of the outstanding 1996 Debentures at varying rates into 2,441,400
shares of the Company's common stock. With these conversions, all but $250,000
of the original issue of $11.1 million of the 1996 Debentures was retired. In
fiscal 1998, the Company forced the conversion of these remaining 1996
Debentures into 100,000 shares of common stock. In May 1996, the Company had
registered the resale of 2,997,000 shares of common stock which the Company then
believed would be sufficient to cover the conversion of the entire $11.1 million
series of 1996 Debentures and related warrants. However, due to the decline in
the price of the Company's common stock, the number of shares issued upon
conversion of all the Debentures, exceeded the number of shares previously
registered. In January 1998 the Company filed a registration statement which
included the resale of an additional 1,114,810 unregistered shares issued upon
conversion of the 1996 Debentures. The Securities and Exchange Commission
declared this registration effective in April 1998.
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 of the Board and
a Senior Vice-President are general partners with beneficial interests, to
develop certain processes and technology related to chip stacking. The Company
has exclusively licensed this technology from RDL. The Company's exclusive
rights to the technology extend to all uses, both government and commercial.
Since entering into the licensing agreement, the Company has accrued royalty
obligations to RDL at the rate of 3.5 percent of all Company sales of chip
stacks using the licensed technology. In addition, RDL is entitled to receive an
amount equal to 7 percent of all royalties earned by the Company from sales of
any such products by the Company's sublicensees, although to date, no such
sublicensee royalty income has been earned. In October 1989, RDL agreed to defer
its royalty claims and subordinate them with respect to all other creditors in
exchange for options to purchase up to 1,000,000 shares of the Company's Common
Stock, which are exercisable by applying the deferred royalties to the purchase.
The 1,000,000 options are exercisable at $1.00 each until April 2000. If RDL
exercises its option in whole or in part, title to RDL's technology would
transfer to the Company and all further royalty obligations would cease. If the
option expires unexercised, the subordination provisions would terminate and the
accrued royalties would be due and payable in the same manner as any other
corporate obligation. As of October 3, 1999, the Company had accrued $1,000,000
in deferred royalties pursuant to this agreement. Due to the RDL subordination,
royalties accrued, but none were paid by the Company during fiscal years 1999,
1998 and 1997.
The Company has entered into an Assignment of Patent and Intellectual Rights
(the "Assignment") with F. L. Eide ("Eide"), a Vice-President of the Company. As
part of his employment agreement, Eide has assigned to the Company all rights
and interests to five (5) U.S. Provisional Patent applications owned by him. In
consideration for this Assignment, Eide will receive a 1 percent royalty on the
gross sales revenues of any products incorporating elements of the assigned
technology for the lifetime of any patents resulting from the Provisional Patent
Applications. This Assignment was executed in February 1998.
In October 1997, the Company entered a License Agreement with Itzhak Sapir.
Pursuant to which Sapir granted a royalty bearing exclusive, worldwide license
under various U.S. and foreign patents owned by Sapir relating to digital
photographic products, principally a product which allows an unmodified 35mm SLR
camera to capture digital images. In connection with the Technology Assignment
Agreement mentioned above, Silicon Film acquired all of the Company's rights
under the License Agreement, and Sapir entered into an agreement with Silicon
Film to such effect. In February 1999, Sapir became a senior mechanical engineer
at Silicon Film. Effective March 26, 1999, Silicon Film issued Sapir a warrant
(which vested in full upon issuance) to purchase 275,000 share of Silicon Film's
common stock at a price of $1.00 per share in exchange for a reduction in
Silicon Film's royalty obligation to Sapir under the License Agreement from
their original levels to 1.5% of all EFS sales.
During fiscal 1998, the Company entered into a sale and licensing of
intellectual property rights agreement covering the Company's Electronic Film
System(TM) ("EFS(TM)") to Advanced Technology Products, LLC ("ATPL"). The
Company's Senior Vice President and Chief Technical Officer, John C. Carson,
serves as Managing Member of ATPL. The Company was the successor to the licensed
rights and future royalty obligations under this agreement until September 1998,
when the Company granted Silicon Film a license to use the technology and
intellectual property rights of the Company that are necessary to Silicon Film's
business. Silicon Film has agreed to prospectively grant, upon the Company's
request, a license to the Company to access Silicon Film's technology and
intellectual property rights when necessary for the Company to participate in
government contracts. In September 1998, another agreement was consummated with
ATPL under which the future royalty obligation was reduced in consideration for
the issuance of 1,222,125 shares of Silicon Film common stock. No value was
recorded by Silicon Film as a result of this transaction due to the uncertainty
related to valuing either the consideration given or received in this exchange.
Note 8 - Composition of Certain Financial Statement Captions
October 3, September 27,
1999 1998
---------------------------------------
Accounts receivable:
U.S. government $ 1,115,000 $ 1,235,300
Other customers 1,286,400 530,800
----------------------------------------
$ 2,401,500 $ 1,766,100
========================================
Accounts receivable include unbilled amounts of $452,600 and $886,200 at October
3, 1999 and September 27, 1998, 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 retentions of
$5,000 and $73,900 at October 3, 1999, and September 27, 1998, respectively.
These amounts are normally collected upon final audit of costs by the U.S.
government.
October 3, September 27,
1999 1998
---------------------------------------
Inventory:
Raw materials $ 49,900 $ -
Work in process 1,995,500 1,435,400
Finished goods 174,400 97,300
---------------------------------------
$ 2,219,800 $ 1,532,700
=======================================
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 including potential R&D contracts. Work in process includes
amounts that may be sold as products or under contracts. 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. Inventories are reviewed quarterly to determine salability and
obsolescence. A reserve is established for slow moving and obsolete items.
October 3, September 27,
1999 1998
---------------------------------------
Equipment, furniture and fixtures:
Engineering and production
equipment $ 7,415,100 $ 7,553,700
Furniture and fixtures 438,300 409,500
Construction in progress 866,500 -
Computer software programs 872,400 741,100
Leasehold improvements 808,800 777,000
---------------------------------------
10,401,100 9,481,300
Less accumulated depreciation
and amortization 6,854,200 7,257,300
---------------------------------------
$ 3,546,900 $ 2,224,000
========================================
October 3, September 27,
1999 1998
---------------------------------------
Accrued expenses:
Salaries and wages $ 335,600 $ 211,000
Vacation 267,300 235,700
Payroll taxes 16,100 14,700
Accounting fees 21,000 50,000
Royalties 75,000 -
Other accrued expenses 37,600 111,000
---------------------------------------
$ 752,600 $ 622,400
=======================================
Note 9 - Commitments and Contingencies
The Company leases certain facilities and equipment under cancelable and
noncancelable capital and operating leases. Minimum payments under capital lease
obligations and operating lease commitments existing at October 3, 1999 are as
follows:
Capital Operating
Fiscal Year Leases Leases
- ----------- ------ ------
2000 $ 419,100 $ 605,200
2001 383,300 618,700
2002 125,600 217,600
2003 - 207,500
2004 - 122,600
Thereafter - -
------------ ------------
Future minimum lease payments 928,000 $ 1,771,600
============
Amounts representing interest (182,900)
------------
Present value of net
minimum lease payments $ 745,100
============
Total rental expense for operating leases amounted to $525,900, $559,000 and
$1,685,200 for the fiscal years ended October 3, 1999, September 27, 1998, and
September 28, 1997, respectively.
Subsequent to October 3, 1999, Silicon Film obtained a revolving bank line of
credit in the amount of $500,000. Unpaid principal advances bear interest at
the bank's prime rate and are to be paid in full on April 1, 2000. The line of
credit is guaranteed by the Chairman of Silicon Film's Board of Directors.
Subsequent to October 3, 1999, Silicon Film obtained a promissory bridge note
from their placement agent, which provides for advances totaling $750,000.
Unpaid principal advances bear interest at 7.0% per annum. The unpaid principal
balance plus accrued interest are due and payable on the earlier of 90 days from
the date of the promissory bridge note (December 10, 1999) or the closing of
Silicon Film's planned offering of equity securities. The promissory bridge
note is unsecured.
Note 10 - Extraordinary Item - Debt Extinguishment
In December 1997, the Company executed a Forbearance Agreement with its lending
bank whereby the Company agreed to accelerate repayment of the Note Payable to
the bank. The current portion of the debt was reduced by $1,026,900, which was
received from the sale of the assets in October 1997. The Company also agreed,
among other requirements, to reduce the principal balance by payments of
$250,000 in each of the calendar quarters ending December 1997 and March 1998
and thereafter to reduce the remaining balance by a minimum of $200,000
quarterly. Execution of the Forbearance Agreement also resulted in a waiver of
the Company's financial covenant defaults and an amendment to the loan agreement
eliminating such financial covenants on a prospective basis. In connection
therewith, the Company pledged as collateral one million shares of Novalog, Inc.
common stock held by the Company. The Company also paid down $500,000 of the
Note with 550,000 shares of its stock and under the terms of the agreement,
dependent on the market price of the shares when sold, the Company would receive
a refund if the proceeds from the sale exceeded $500,000. Subsequently, the
Company was informed by the bank that it sold the 550,000 shares and that the
proceeds exceeded $500,000. After applying the proceeds to the then remaining
balance of the note the bank, through September 27, 1998, remitted $772,000 to
the Company and advised the Company that
additional proceeds of $183,000 were to be remitted to the Company. The Company
received these additional funds during fiscal 1999. The Company recorded the
proceeds that exceeded $500,000 as paid-in capital.
Note 11 - Income Taxes
Deferred tax assets and liabilities are recorded for differences between the
financial statement and tax basis of the assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
recorded for the amount of income tax payable or refundable for the period
increased or decreased by the change in deferred tax assets and liabilities
during the period.
The tax effects of significant items comprising the Company's income tax
calculation as of October 3, 1999 and September 27, 1998, are as follows:
October 3, September 27,
1999 1998
---------------------------------------
Current deferred tax assets:
Reserves not currently
deductible $ 1,591,000 $ 1,057,000
Long-term deferred tax assets:
Operating loss carryforwards 19,988,000 16,763,000
Tax credit carryforwards 866,000 541,000
Valuation allowance (22,445,000) (18,361,000)
---------------------------------------
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 ended October 3,
1999, and September 27, 1998, respectively, related primarily to the total
valuation allowance changing $4,084,000 from September 27, 1998 to October 3,
1999 and $334,300 from September 28, 1997 to September 27, 1998.
The provisions for income taxes for the fiscal years ended October 3, 1999,
September 27, 1998, and September 28, 1997, consist of provisions for state
income taxes of $2,800, $2,600 and $2,600, respectively. No provisions for
federal income taxes have been made in these fiscal years due to the net
operating losses.
At October 3, 1999, the Company had net operating loss carryforwards of
approximately $56,144,400 for financial reporting and federal income tax
purposes expiring in varying amounts from fiscal year 1999 through fiscal year
2018, and $15,596,800 for California tax purposes expiring in varying amounts
from fiscal year 1999 through fiscal year 2004, available to offset future
federal and California taxable income. In addition, as of October 3, 1999, the
Company had investment tax credits and qualified research credits of $328,000
and $489,000, respectively, expiring in varying amounts through fiscal year 2010
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 due to changes in ownership of
the Company's common stock.
Note 12 - Stock Option Plans and Employee Retirement Plan
In December 1991, the Board of Directors adopted the 1991 Stock Option Plan to
replace 1981 Stock Option Plans, which had expired. 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 3, 1999, options to purchase
238,100 shares at prices ranging from $0.98 (83,300 shares) to $1.50 (6,000
shares) were outstanding under the 1991 Plan, of which 129,000 were exercisable
at October 3, 1999.
In January 1995, the Board of Directors adopted the 1995 Stock Option Plan to
replace the 1991 Plan, which was fully subscribed at the time. The 1995 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. In August 1997, the Board of Directors authorized an
increase in the number of options to an aggregate of 1,650,000 shares, which was
ratified by shareholders at the Company's Annual Meeting in February 1998.
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 3, 1999, options to
purchase 1,510,400 shares at prices ranging from $0.98 (411,700 shares) to $6.25
(62,500 shares) were outstanding under the 1995 Plan, of which 730,700 were
exercisable at October 3, 1999.
In November 1998, the Board of Directors approved a new plan, "The 1999 Stock
Option Plan." Under the 1999 Plan, options to purchase an aggregate of
1,000,000 shares of common stock may be granted to both key management employees
and non-employee directors. The 1999 Plan was ratified by shareholders at the
Company's Annual Meeting in February 1999. Options granted may be either
Incentive Stock Options or Nonstatutory Stock Options. Requirements for
participation, exercise price and other terms are similar to the 1991 and 1995
Plans. As of October 3, 1999, options to purchase 597,900 shares at prices
ranging from $1.34 (13,400 shares) to $1.92 (115,000 shares) were outstanding
under the 1999 Plan, of which 102,000 were exercisable at October 3, 1999.
Stock option activity is summarized as follows:
Option Price
Shares Per Share
------------------------------------
1991 Plan:
- ----------
Options outstanding at
September 29, 1996 210,700 $4.28 to $8.625
Granted 143,000 1.4375 to 2.3125
Cancelled (76,500) 6.00 to 7.6875
Expired (51,700) 4.28 to 8.6520
--------------
Options outstanding at
September 28, 1997 225,500 1.4375 to 7.75
Granted 120,000 1.50 to 2.4375
Exercised (8,300) 0.98
Cancelled (52,400) 1.50 to 7.50
Expired (25,000) 7.125 to 7.75
--------------
Options outstanding at
September 27, 1998 259,800 0.98 to 7.50
Granted 27,000 1.3438 to 1.6876
Exercised (15,000) 0.98 to 1.4375
Cancelled (26,200) 1.50 to 1.5938
Expired (7,500) 7.50
--------------
Options outstanding at
October 3, 1999 238,100 $0.98 to $1.50
==============
1995 Plan:
- ----------
Options outstanding at
September 29, 1996 454,000 $5.00 to $8.50
Granted 1,053,000 0.98 to 2.3125
Cancelled (371,900) 1.00 to 8.50
---------------
Options outstanding at
September 28, 1997 1,135,100 0.98 to 6.50
Granted 581,500 1.00 to 2.8750
Exercised (8,300) 0.98
Cancelled (57,300) 1.00 to 6.25
---------------
Options outstanding at
September 27, 1998 1,651,000 0.98 to 6.50
Granted 23,900 0.98 to 1.15
Exercised (114,300) 1.4687 to 1.6876
Cancelled (50,200) 1.00 to 6.50
-------------------
Options outstanding at
October 3, 1999 1,510,400 $0.98 to $6.25
===================
1999 Plan:
- ----------
Options outstanding at
September 27, 1998 - -
Granted 622,900 $1.3438 to $1.9219
Cancelled (25,000) 1.3594 to 1.5313
-------------------
Options outstanding at
October 3, 1999 597,900 $1.3438 to $1.9219
===================
A summary of outstanding options exercisable under the 1991, 1995 and 1999 Stock
Option Plans is shown below.
Weighted average
Range of Number remaining contractual Weighted average Number Weighted average
exercise prices outstanding life (years) exercise price exercisable exercise price
- ---------------------------------------------------------------------------------------------------------------------------------
$ 0.98 - 1.98 2,244,900 2 $1.39 875,200 $1.31
2.31 - 2.88 29,000 2 2.53 14,000 2.46
5.00 - 6.25 72,500 1 6.08 72,500 6.08
------------ -----------
2,346,400 961,700
============ ===========
Pursuant to SFAS No. 123 "Accounting for Stock Based Compensation," the Company
is required to disclose the effects on the net loss and per share data as if the
Company had elected to use the fair value approach to account for all of its
employee stock-based compensation plans. Had the compensation cost for the
Company's Plans been determined using the fair value method, the compensation
expense would have had the effects of increasing the Company's net loss for the
years ended October 3, 1999, September 27, 1998 and September 28, 1997, to the
pro forma amounts of $9,733,100, $4,754,000, and $15,041,000, respectively, with
a corresponding pro forma loss per share of $0.31, $0.19, and $0.73,
respectively. These pro forma amounts were determined estimating the fair value
of each option granted during fiscal 1999, 1998 and 1997 on its grant date,
using the Black-Scholes option-pricing model. Assumptions of no dividend yield,
a risk-free interest rate of 6 percent which approximates the Federal Reserve
Board's rate for treasuries at the time granted, an expected life of three
years, and volatility rates varying from 86.9 to 73.2 percent were applied to
options granted during fiscal years 1999, 1998 and 1997. The weighted average
fair value at the grant date for the options granted during fiscal years 1999,
1998 and 1997 was $0.92, $1.57 and $0.75 per option, respectively.
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 1999, 1998 and 1996 the
Company's contributions to the SBT were 330,000, 333,300 and 347,600 shares of
common stock, respectively, which had estimated market values of $500,200,
$500,000 and $445,500 respectively.
Note 13 - Revenues
In fiscal 1999, contracts with all branches of the U.S. government accounted for
18 percent of the Company's revenues, and a second-tier government contract with
a prime government contractor accounted for 19 percent. The remaining 63 percent
of the Company's revenues were derived from non-government sources. Of the 18
percent related to the U.S. government agencies, the U.S. Army, the U.S. Air
Force and the U.S. Navy accounted for 54 percent, 9 percent and 6 percent,
respectively, with the remaining revenue of 31 percent being widely diversified
among several other governmental agencies. Of the 36 percent applicable to non-
governmental sources, 2 customers accounted for 33 percent and 29 percent,
respectively, of the total commercial revenues
In fiscal 1998, contracts with all branches of the U.S. government accounted for
27 percent of the Company's revenues, and a second-tier government contract with
a prime government contractor accounted for 27 percent. The remaining 46 percent
of the Company's revenues were derived from non-government sources. Of the 27
percent related to the U.S. government agencies, the U.S. Army, the U.S. Air
Force and the U.S. Navy accounted for 24 percent, 12 percent and 8 percent,
respectively, with the remaining revenue of 56 percent being widely diversified
among several other governmental agencies. Of the 46 percent applicable to non-
governmental sources, three (3) customers accounted for 35 percent, 14 percent
and 7 percent, respectively, of the total commercial revenues.
In fiscal 1997, contracts with all branches of the U.S. government accounted for
43 percent of the Company's revenues, and the remaining 57 percent of the
Company's revenues was derived from non-government sources. Of the 43 percent
applicable to the U.S. government, there were three agencies of the government
that accounted for 55 percent, 13 percent and 11 percent. Other government
agencies accounted for the remaining 21 percent. Of the 57 percent applicable to
non-government sources, two customers accounted for 49 percent and 39 percent of
the revenues.
Note 14 - Deferred Revenues
In fiscal 1998, the Company received prepayments from customers related to
services and products that had not been delivered as of the balance sheet date.
Revenues were recorded in fiscal 1999 upon delivery of these services and
products.
Note 15 - Acquisition and Disposal of Equipment
On April 19, 1996, the Company consummated an agreement for the acquisition and
operation of the equipment comprising IBM's cubing line located at IBM's Essex
Junction, Vermont facility. The cubing line was established by IBM to
manufacture the stacked-chip assemblies required to commercialize the Company's
proprietary chip-stacking technology under the joint development alliance that
IBM and the Company entered into in 1992. According to the terms of the
agreement, the Company acquired the equipment and clean room, which comprises
the cubing line for a cash payment of approximately $6.5 million. In addition,
the Company signed a facility lease agreement for the space required to operate
the cubing line under the Company's management within the IBM facility through
December 1998. The terms of the facility lease agreement include escalating rent
payments, which have been straight lined for financial reporting purposes. The
difference between the amount paid and the amount expensed during fiscal 1996
has been reported as accrued rent. The agreement was terminated in fiscal 1997
and the deferred rent balances were netted against rent expense.
As part of the process to terminate the agreement with IBM, the Company disposed
of the equipment acquired from IBM in April 1996 and other fixed assets
purchased and/or constructed at the IBM facility. These assets with a net book
value of $6,925,300 were sold for proceeds of $1,051,900, resulting in a loss on
the disposal of $5,873,400. During October 1997, $1,026,000 of these proceeds
were received by the Company's lender and applied against the principal of the
Company's long-term debt.
In December 1997, the Company made a $490,000 cash payment to extinguish its
remaining obligations under a Settlement Agreement. Accordingly, the Company
recorded an extraordinary gain of $1,146,100 on the extinguishment of debt and
reduced accounts payable by the corresponding amounts.
Note 16 - Loss Per Share
As the Company had a net loss from continuing operations for 1999, 1998 and
1997, basic and diluted net loss per share are the same.
Net loss applicable to common stockholders for fiscal 1998 includes $465,300 for
the non-cash imputed dividend related to the beneficial conversion feature on
24,750 Units of the Series D Convertible Preferred stock. (See Note 2 - Issuance
of Common and Preferred Stock.) The beneficial conversion feature is computed as
the difference between the quoted market price of a share of common stock on
date of issue and the conversion price times all shares of preferred stock sold
and under option. The imputed dividends are a non-cash, one-time charge based on
the immediate conversion feature.
Basic and diluted net loss per common share for fiscal years 1999, 1998 and 1997
were calculated as follows:
1999 1998 1997
----------------------------------------------------------------------
Net loss $(9,115,700) $(4,243,500) $(14,875,600)
Preferred Stock cumulative dividend (20,100) (20,700) (18,700)
Preferred Stock imputed dividend - (465,300) -
----------------------------------------------------------------------
Net loss available to Common Stockholders $(9,135,800) $(4,729,500) $(14,894,300)
======================================================================
Basic & diluted net loss per share: $ (0.29) $(0.19) $ (0.73)
======================================================================
Weighted average number of
shares outstanding 31,244,300 24,597,700 20,475,100
======================================================================
Note 17 - Reportable Segments
The Company has the following 5 reportable segments as of October 3, 1999:
Advanced Technology Division (ATD), Novalog, MSI, Silicon Film and Corporate
Headquarters. ATD derives most of its revenues from research and development
contracts funded primarily by governmental agencies. Novalog designs, develops
and sells proprietary integrated circuits ("ICs") and related products for use
in wireless infrared communication. MSI develops and sells proprietary
micromachined sensors and related electronics. Silicon Film designs and develops
proprietary electronic films systems and other digital imaging products and
services. Corporate Headquarters provides accounting, inventory control and
management consulting services to the consolidated
subsidiaries. Corporate revenue consists of charges to the subsidiaries for
these services and corporate assets consist of loans to subsidiaries and
goodwill for reacquisition of subsidiary stock.
The accounting policies used to develop segment information correspond to those
described in the summary of significant accounting policies. Segment profit or
loss is based on profit or loss from operations before income taxes and minority
interest in profit and loss of subsidiaries. The reportable segments are
distinct business units operating in different industries, except the Corporate
Headquarters segment, which spans the activities of the other segments. Each
segment is separately managed, with separate marketing and distribution systems.
The following information about the 5 segments is for the year ended October 3,
1999.
Silicon Corporate
ATD Novalog MSI Film Headquarters Other Totals
------------ ----------- ------------ ------------ ------------- ---------- -------------
Revenues from external customers $ 4,080,700 $6,787,900 $ 197,300 $ 1,600 $ - $ 32,700 $ 11,100,200
Intersegment revenue - - - - 2,320,000 - 2,320,000
Interest revenue - 2,100 - 4,600 31,700 - 38,600
Interest expense - 500 3,700 1,600 97,800 700 104,300
Depreciation 694,950 118,100 58,400 32,000 - 8,000 911,450
Segment profit (loss) (2,275,200) 481,800 (2,641,400) (4,132,600) (536,600) (747,400) (9,851,400)
Segment assets 5,816,200 2,392,900 503,100 1,517,500 12,721,100 109,050 23,059,850
Expenditures for segment assets 1,163,900 58,400 349,200 748,000 - 55,400 2,374,800
Reconciliation to Consolidated Amounts
Revenues
Total revenues for reportable segments $ 13,420,200
Elimination of intersegment revenues (2,320,000)
------------
Total consolidated revenues $ 11,100,200
============
Assets
Total assets for reportable segments $ 23,059,850
Elimination of intersegment assets (12,549,500)
Total consolidated assets $ 10,510,350
============
During fiscal 1998, the Company had the following 6 reportable segments: ATD,
CPO, Novalog, MSI, Silicon Film and Corporate Headquarters.
The following information about the 6 segments is for the year ended September
27, 1998.
Silicon Corporate
ATD CPO Novalog MSI Film Headquarters Other Totals
------------ -------- ------------ ------------ ----------- -------------- ---------- -----------
Revenues from external customers $ 7,231,900 $352,700 $ 1,026,100 $ 300,000 $ - $ - $ 403,800 $ 9,314,500
Intersegment revenue - - - - - 1,911,000 - 1,911,000
Interest revenue - - 2,500 - - 10,000 - 12,500
Interest expense - 107,400 900 - - 157,900 - 266,200
Depreciation 1,221,100 166,700 108,300 - - 50,600 - 1,546,700
Segment profit (loss) (1,694,300) 99,000 (1,636,300) (1,080,400) (1,042,200) (172,700) (225,300) (5,752,200)
Segment assets 5,728,100 65,900 710,500 233,200 321,400 27,631,800 5,600 34,696,500
Expenditures for segment assets 533,400 - 15,900 11,500 - - - 560,800
Reconciliation to Consolidated Amounts
Revenues
Total revenues for reportable segments $ 11,225,500
Elimination of intersegment revenues (1,911,000)
------------
Total consolidated revenues $ 9,314,500
============
Assets
Total assets for reportable segments $ 34,695,500
Elimination of intersegment assets (27,631,800)
------------
Total consolidated assets $ 7,064,700
============
During fiscal 1997, the Company did not have operating segments for which
separate financial information was produced internally to evaluate performance
and allocate resources.
Irvine Sensors Corporation
Report of Independent Certified Public Accountants
To the Board of Directors
Irvine Sensors Corporation
Costa Mesa, California
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Irvine Sensors
Corporation as of October 3, 1999 and September 27, 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Irvine
Sensors Corporation as of October 3, 1999 and September 27, 1998, and the
consolidated results of its operations and its consolidated cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Grant Thornton LLP
Irvine, California
December 21, 1999
Report of Independent Accountants
To the Board of Directors and Shareholders of Irvine Sensors Corporation
In our opinion, the consolidated statements of operations, of shareholders'
(deficit) and of cash flows for the year ended September 28, 1997 present
fairly, in all material respects, the results of operations and cash flows of
Irvine Sensors Corporation and its subsidiaries for the year ended September 28,
1997, 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Costa Mesa, California
December 16, 1997
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
James D. Evert/1/, President and CEO, Irvine Sensors
Corporation
Walter E. Garrigan/2/, Financial Advisor
General Frank P. Ragano/1/, Chairman and CEO of CMS,
Inc., a manufacturer of defense munitions
Wolfgang Seidel/1/, Principal, Seidel and Partner, a
management consulting firm
Vincent F. Sollitto Jr./2/, President and CEO of Photon
Dynamics Inc., a manufacturer of electronic capital
equipment
/1/Member of the Compensation Committee
/2/Member of the Audit Committee
Officers John C. Carson, Senior Vice-President
Joanne S. Carson, Secretary
Floyd K. Eide, Vice-President
James D. Evert, President and Chief Executive Officer
John J. Stuart, Jr., Senior Vice-President, Chief
Financial Officer and Treasurer
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 Certified Grant Thornton LLP
Public Accountants Irvine, California
Transfer Agent ChaseMellon Shareholder Services, 400 S. Hope St.,
4th Floor, Los Angeles, California 90071
www.chasemellon.com
Stock Data Nasdaq Listing: Common Stock - IRSN
Boston Stock Exchange Listing: Common Stock - ISC
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 3,1999, 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.