<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 1, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from __________ to __________
Commission file number 1-8402
---------
IRVINE SENSORS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0280334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3001 Redhill Avenue, Costa Mesa, California 92626
(Address of principal executive offices) (Zip Code)
(714) 549-8211
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class: which registered:
Common Stock Boston Stock Exchange Incorporated
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes X No
----- -----
To the extent known by the registrant, the aggregate market value of the Common
Stock held beneficially by-non-affiliates of the registrant was approximately
$84,083,400 on December 1, 1995. As the Preferred Stock is not publicly traded
it has not been included in the computation.
As of December 1, 1995, there were 16,028,300 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's Annual Report to Stockholders for the fiscal year ended
October 1, 1995; (Part II); portions of Registrant's Definitive Proxy Statement
to be used in connection with Registrant's Annual Meeting of Stockholders to be
held on February 23, 1996 (Part III).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K/A or any amendment to this Form 10-K/A [_].
<PAGE>
PART I
Item 1. Business.
General
Irvine Sensors Corporation (the "Company" or "ISC") is the developer of a
proprietary technology to produce an extremely compact package of solid state
microcircuitry, which it believes offers volume, power, weight and operational
advantages for a wide variety of potential military and commercial applications.
These advantages result from the Company's ability to assemble microelectronic
chips in a three dimensional "stack" instead of alongside each other on a flat
surfaces, as is the case with conventional methods. This stacking technology
has also led to the development of collateral technology for the design of low
powered chips, both for chip stacking and for single chip applications. The
Company believes that its very low power chip technology may have wide
commercial application in portable electronic devices.
As memory chips, processors and other microelectronic components become larger
and faster, the benefits that can be realized from increased operating speed are
limited by the communication time and distance between chips. Where tens to
hundreds of millions of calculations per second are required, even at the speed
of light, distances between electrical components can become an important
limitation on the speed of a computer. The Company's approach to shortening
interchip distances is to use the third dimension. This is accomplished by
placing chips on top of each other in a stack instead of conventional side by
side packaging. This approach was conceived and developed by the Company as a
means of addressing the demands of space-based surveillance. During June 1992,
the Company entered into various agreements with IBM to commercialize the
Company's chip-stacking technology under which IBM also has acted as a source of
supply for the Company's products. IBM has advised the Company that it believes
that the development phase of its planned activities has been completed.
Although the Company is presently negotiating to secure a continued source of
supply from IBM, there can be no assurance that such negotiations will be
successful.
In May 1995, the Company entered into a licensing and production agreement
with Unitrode Corporation, a manufacturer of analog/linear integrated circuits,
to exploit certain elements of the Company's low powered chip technology.
Since its inception, the Company has derived the majority of its revenues from
its core business of performing research and development of its technology for
governmental customers. This core business has progressively broadened from
essentially basic research to development of specific applications for both
commercial and governmental customers. In fiscal 1995, the Company began to
receive its first revenues from commercial products based on its technologies.
The Company believes that commercial product revenues will be increasingly
significant to its total revenues in the future, although there can be no
assurance of profitability based on these anticipated revenues or otherwise.
The Company's subsidiary, Carson Alexiou Corporation, has been inactive since
1985.
Products and Technology
Drawing from experience gained in packaging electronics for infrared sensor
system development, in September 1987, the Company began work on a contract from
the Defense Advanced Research Projects Agency ("DARPA") that required ISC to
stack memory chips for use in a computer application. In November 1988, the
Company delivered to DARPA two 8-layer stacks of Static Random Access Memory
("SRAM") chips. This was the first functioning demonstration of ISC's
technology as applied to a device having potential for commercialization.
Subsequent to this demonstration, certain computer manufacturers that use memory
components in their own products purchased sample stacks of computer memory
chips from the Company for evaluation. One such relationship evolved into the
joint development alliance with IBM to commercialize the Company's technology.
The Company has developed a family of standard products consisting of stacked
computer memory chips which the Company denotes as Memory Short Stacks.
2
<PAGE>
The Company believes that its chip stacking technology can offer demonstrable
benefits to designers of systems that incorporate numerous integrated circuits,
by improving speed and reducing size, weight and power usage. In addition,
since ISC's technology reduces the number of interconnections between chips,
potential system failure points can also decrease.
The Company believes that the features achievable with its chip stacking
technology will have application in space and in aircraft in which weight and
volume considerations are dominant, as well as in various other applications in
which portability is required and speed is important. The Company initially
intends to exploit its potential market by focusing on the sale of the Memory
Short Stack to high end, high margin government and commercial users to whom the
technical improvement will be most valuable. While these applications tend to
require lower unit volume, the sales are at significantly higher gross margins
than many applications requiring high volume production. Furthermore, the
Company has existing relationships with some of the potential customers in this
category. This low-volume, high-margin market entry strategy should also allow
the Company to ramp up production volume in an orderly fashion over time,
allowing it to budget more effectively for changing capital requirements. To
the extent demand for the Company's chip-stacking technology outstrips the
Company's manufacturing capacity, the Company intends to license the technology
to others more experienced with high volume manufacturing of low margin
semiconductor products.
The Company has shipped quantities of the Memory Short Stack to certain of its
government and commercial customers. However, there is no assurance that the
Company will be successful in marketing the Memory Short Stack for widespread
applications.
During June 1992, the Company entered into a joint development agreement with
IBM to commercialize the Company's chip-stacking technology. Under the
agreement, the Company and IBM worked together to develop the manufacturing
technologies required to produce stacked chip products. The development phase
of this agreement is nearing completion and the Company is presently negotiating
with IBM to secure future access to IBM's facilities for manufacturing the
Company's products. There can be no assurances that such negotiations will be
successfully completed.
The Company also intends to continue to market infrared sensing devices for
surveillance, acquisition, tracking and interception applications for a variety
of Defense Department and NASA missions.
In addition to its stacking technology, the Company has developed a Serial
Infrared Communications chip using elements of its sensor chip design
technology. This device is intended to be used in products allowing computers
and computer peripherals to communicate using infrared transmissions in a manner
similar to that employed by remote control units for televisions and video
cassette recorders. The Company is actively marketing its Serial Infrared
Communications chip under the tradename SIRComm(TM).
The Company also has broad and higher level products under development which
utilize the Company's proprietary technology. There can be no assurances that
such developments will result in the introduction of additional products or
product lines.
Initial Commercial Products: Memory Short Stack and Serial Infrared
Communications Chips
The Company's initial product for the commercial marketplace is the Memory
Short Stack. The Memory Short Stack entails the assembly of a large stack of
chips which is predesigned to be separated into easily attachable smaller units.
For example, a stack of 100 chips might be designed to be separated into ten
ten-layer short stacks. Within the typical dimensions of a single memory chip
package, such a configuration permits up to ten chips to be packaged together.
Moreover, such a unit can be made to be compatible with existing single-chip
packages with only a minimum of redesign. The Company believes that the Memory
Short Stack permits memory upgrades for systems that are limited by the
dimensions of existing slots, racks or other chip mounting components.
3
<PAGE>
The Company builds its larger memory modules for mounting on one side (a face
consisting of chip edges) with the chips perpendicular to the mounting surface,
like a loaf of bread. This results in a module height when mounted which
precludes its use where existing space between boards or racks is tightly
constrained. The Memory Short Stack, on the other hand, is attached at the top
or bottom of the stack so that its chips are aligned parallel to the mounting
surface, like a stack of pancakes. Its dimensions allow the Memory Short Stack,
in many cases, to be used in a space currently occupied by a single chip. Since
at least four chips can be configured within the package dimensions of a single
conventionally-packaged chip, this offers a powerful upgrade capability to
system designers. There is no assurance, however, that the Memory Short Stack
will become a commercially viable product.
The Company expects to initially sell the Memory Short Stack to a limited
number of OEM's in the aerospace industry and to government prime contractors
and their subcontractors, who have a significant size, weight, or power problem,
whose resolution is worth the payment of a price premium.
The demand for performance has produced a wide variety of competitors and
competitive systems ranging from various three-dimensional designs to highly
dense two-dimensional designs. Although some competitors are generally believed
to be better financed, more experienced and organizationally stronger, the
Company is not aware of any system in existence or under development that can
stack memory chips more densely than its three-dimensional approach. See
"Competition."
The Company is not aware of any technical disadvantages to its chip stacking
technology. However, until high volume production is achieved, as to which
there is no assurance, the ultimate cost of products utilizing the Company's
chip stacking technology cannot be firmly established. Since the Company
believes cost will be a major factor in determining utility for many market
segments, the Company will remain at a disadvantage in penetrating these
segments until manufacturing volumes reach materially higher levels than have
been presently demonstrated. Although there can be no assurances, the Company
believes that ultimately the price of stacked-chip products will be competitive
with alternative systems.
The Company does not presently have a high volume manufacturing capability due
largely to the cost of bringing a facility on-line and is currently dependent on
its agreement with IBM to produce volume quantities of parts. The Company is
presently negotiating to utilize IBM's facilities for manufacturing the
Company's products in the future, but there can be no assurances that such
negotiation will be successful. Interruption of its source of supply would
materially disrupt the Company's entry strategy for the sale of its Memory Short
Stacks.
In June 1995, the Company commenced production shipments of an integrated
circuit (IC) chip designed to permit mobile units such as notebook computers and
cellular phones to communicate with printers, modems or other stationary
peripherals by using infrared (IR) signals rather than cables or radio frequency
transmissions. The new chip, called SIRComm, for Serial Infrared Communications
Controller, is believed to be the first dedicated serial IR receiver chip
designed to be completely compliant with the Infrared Data Association's (IrDA)
worldwide infrared wireless connectivity standard. The SIRComm chip
incorporates elements which evolved from ISC's signal extraction analog
circuitry developed over the last decade for military applications.
Potential Product Applications
The Company believes that its technology enables sophisticated features to be
incorporated into infrared sensing devices that must meet size constraints and
other military operating requirements. Until production has begun and products
are accepted in the market, the Company cannot assure that it will be successful
in its efforts to expand its product applications. However, the Company intends
to manufacture and market infrared sensing devices. The Company also intends to
offer various stacked-chip devices for commercial and military computer
applications.
4
<PAGE>
Computer Devices. The Company has designed and intends to produce and market,
or license manufacturers to use, its technology for use in government and
commercial applications. Initial applications are anticipated to involve the
packaging of memory chips for computers.
In fiscal 1994, the Company delivered fully functional engineering samples of
its Memory Short Stacks to two customers for use in space recorders. These
products were built by IBM and burned-in, tested and shipped from the Company's
Vermont facility. In fiscal 1995, the Company received its first production
orders for Memory Short Stacks.
Infrared Communications Devices. In fiscal 1995, the Company began shipping
its SIRComm products to customers. The Company designs the chips which are then
manufactured for the Company by others. The Company believes that multiple
sources of manufacture are available and does not anticipate any problems in
filling customers' orders.
HYMOSS(R) Focal Plane and other HYMOSS Systems. The Company has under
development various military applications incorporating aspects of the Company's
HYMOSS ("Hybrid Mosaic on Stacked Silicon") technology. Development of the
Company's HYMOSS technology has been funded by government contracts since 1980.
The HYMOSS module consists of electro-optical detectors arranged in a mosaic
pattern and packaged directly onto a dense stack of electronic microcircuitry
chips. HYMOSS focal plane modules are designed to be used individually or in
focal plane assemblies containing numerous modules. The Company believes that
many potential uses exist for HYMOSS focal planes in both strategic and tactical
systems. Demonstration units incorporating the simplest form of this
technology have been manufactured and sold since calendar 1986.
In its most sophisticated potential use, the HYMOSS focal plane would be used
in a satellite-based array of numerous modules. In this role, it is designed to
"stare" at a potential target area or enemy launch site, transmitting
information only when a specified movement or other change occurs. Presently
deployed systems for detection of intercontinental ballistic missiles scan the
target area and continuously transmit large quantities of data to earth stations
for processing. Because of its data processing and selective transmission
capabilities, the HYMOSS focal plane is anticipated to detect targets more
rapidly and accurately than existing systems. The anticipated speed and
accuracy of HYMOSS focal plane detection systems are expected to enable military
personnel to quickly evaluate and respond to changes occurring in the area under
surveillance. The Company believes that existing strategic and tactical
surveillance systems can be improved by adapting sub-elements of the HYMOSS
module technology for use in the simplified devices although there is no
assurance that the technology will be so applied.
The Company's proprietary method for stacking integrated circuits is expected
to permit the compression of tens of thousands of detectors and their related
electronics into a volume approximately the size of the human eye. The Company
believes the resulting reduction in size of the focal plane should greatly
expand its potential uses in military devices. The Company also believes that
each detector will be capable of sensing infrared radiation in much the same way
the retina of the human eye senses visible light. A change detected by the
sensors contained in the HYMOSS focal plane would be processed and interpreted
by a signal processor contained in a HYMOSS module.
During the calendar years 1985 through 1991, the Company developed a potential
improvement to the HYMOSS focal plane, referred to as "Dynamic Stare," which the
Company believes could yield cost reductions or performance enhancements in
HYMOSS focal planes. Dynamic Stare is the subject of three issued U.S.
Patents. See "Patents, Trademarks and Licenses." It is also the subject of two
foreign applications pending.
Neural Networks. In 1991, the Company received funding from U.S. Navy's
Office of Naval Research for potential use of its technology in neural networks.
After the successful completion of this phase 1 contract, the Company received a
$5,200,000 follow-on contract from the Navy in June 1993 to further develop the
neural networks technology. Neural networks contain large numbers of sensing
nodes which continuously interact with each other, similar to the way that the
neurons of a human brain interact to process sensory
5
<PAGE>
stimuli. Neural networks are the subject of scientific inquiry because pattern
recognition and learning tasks, which humans perform well and computers perform
poorly, appear to be dependent on such processing. Neither conventional
computers nor advanced parallel processors have the interconnectivity needed to
emulate neural network processing techniques. The Company believes its chip-
stacking technology offers a way to achieve the very high levels of
interconnectivity necessary to construct an efficient artificial neural network.
To the Company's knowledge, no other presently available packaging approaches
are believed to offer this potential. The full embodiment of this technology is
not expected to yield near-term products for the Company, although it is
anticipated to keep the Company actively involved in advanced R&D relevant to
the Company's long-range business interests. However, elements of this
technology, including a proprietary chip set, are currently being developed with
a view to early product utilization.
Development Contracts
In April 1980, the Company entered into an agreement with R & D Leasing Ltd.,
("RDL"), a limited partnership in which the Company's Chairman of the Board and
a Senior Vice-President are general partners with beneficial interests, to
design an electronic circuit, to develop certain fabrication processes and to
build equipment for testing electronic integrated circuits. In connection with
the development of the electronic test equipment under the RDL agreement,
certain other proprietary fabrication processes were developed to which RDL
retained ownership. Upon the occurrence of certain specified events, such as
the use of patented fabrication processes in connection with contracts, the
agreement with RDL provides that the Company will pay RDL a royalty fee of 3.5%
of revenues from sales of the basic devices using the processes created during
the development of this equipment. In June 1989, the Board of Directors
approved an agreement with RDL whereby $40,000 of royalty fees were converted to
a long-term note payable and a warrant to purchase shares of the Company's
Common Stock. The note was unsecured, bore no interest and had a due date of
June 30, 1995. The warrant to purchase 200,000 shares of Common Stock at 20
cents per share had an expiration date of June 30, 1995.
In October 1989, the Board of Directors approved an amendment to the RDL
agreement. Under the amendment the Company will pay RDL a royalty of 3.5% of
all sales of the basic devices sold by the Company. In addition, RDL is
entitled to receive an amount equal to 7% of all royalties earned by the Company
from sales by the Company's sublicensees. The Company's exclusive rights to the
technology extend to all uses, both government and commercial. RDL agreed to
defer its royalty claims and subordinate them with respect to all other
creditors in exchange for options to purchase up to 1,000,000 shares of the
Company's Common Stock, which are exercisable by applying the deferred royalties
to the purchase. The initial 500,000 options vested immediately at the time of
the initial five year deferral period in October 1989. In October 1994, the
remaining 500,000 options vested upon RDL's extended deferral. The 1,000,000
options are exercisable at $1.00 until October 1999. If RDL exercises its
option in whole or in part, title to RDL's technology would transfer to the
Company and all further royalty obligations would cease. If the option expires
unexercised, the subordination provisions would terminate and the accrued
royalties would be due and payable in the same manner as any other corporate
obligation.
In October 1990, the Company and RDL consummated an agreement in which full
settlement of the $40,000 note was arranged. RDL agreed to the cancellation of
the Company's $40,000 debt and surrendered the warrant to purchase 200,000
shares of the Company's stock in exchange for a cash payment of $5,000 and
200,000 unregistered shares of the Company's Common Stock.
As of October 1, 1995, the Company had accrued $123,200 in deferred royalties.
With the exception of the 200,000 unregistered shares of the Company's Common
Stock and the $5,000 cash payment to RDL made in connection with the
cancellation of the Company's $40,000 note in October 1990, no royalties were
paid by the Company during fiscal years 1995, 1994 and 1993. The Company
believes that the terms of the foregoing transactions were no less favorable to
the Company than would have been obtained from a nonaffiliated third party for
similar services.
6
<PAGE>
Supplies and Equipment
The primary components of the Company's focal planes are integrated circuits
and infrared detectors. The integrated circuits are designed by the Company for
manufacture by others from silicon wafers and other materials readily available
from multiple sources. Due to the ready availability of these materials, the
Company does not have any special arrangements with suppliers for their
purchase. The Company does not produce detectors. However, the Company has
developed a process which enables it to use relatively low cost and
unsophisticated detectors which are generally available from numerous sources.
The primary components of the Company's memory devices are commercial memory
chips. To date the Company has obtained the majority of such chips for its
products from IBM. However, a variety of alternative sources exist for such
commercial products.
Capital Equipment
Because of the nature of the sophisticated research and development work
performed under its contracts, the Company designs and assembles equipment for
testing and prototype development. The Company utilizes the unique capability
of this equipment to seek, qualify for and perform additional contract research
and development for its customers. The Company does not have any manufacturing
capability to produce electro-optical or infrared detectors.
Beginning in fiscal year 1993, the Company began to enhance and expand its
facilities in California and Vermont to meet its requirements for commercial
product introduction. Further expansion is anticipated in fiscal 1996.
Backlog
At December 1, 1995, the Company's funded backlog was $4,991,000 compared to
$1,484,000 at December 2, 1994. The Company anticipates that all of the funded
backlog will be filled in fiscal 1996. However, the Company has, in addition to
the funded portion, a large unfunded backlog of contracts exceeding $1,408,000
which typically is funded when the previously funded amounts have been expended.
The Company is also continuing to negotiate for additional research contracts
and commercial sales, which, if obtained, will materially increase this backlog.
Failure to obtain these contracts in a timely manner could materially affect the
Company's short-term results.
Customers and Marketing
The Company anticipates focusing its sensor product marketing efforts on U.S.
military agencies or contractors to those agencies. The Company is continually
seeking and preparing proposals for additional contracts. The Company has also
begun to develop potential non-military uses of its technology. Potential
commercial applications may include computer-related electronics packaging and a
broad range of industrial recognition devices such as process control devices
and security systems.
In fiscal 1995, the Company's major customers were agencies of the U.S.
government. The U.S. Navy accounted for 30% of the Company's revenues and the
U.S. Army accounted for 21% of the Company's revenues. Contracts with
government agencies may be suspended or terminated by the government at any
time, subject to certain conditions. Similar termination provisions are
typically included in agreements with prime contractors. There is no assurance
the Company will not experience suspensions or terminations in the future.
The Company presently has limited marketing resources and thus focuses its
efforts in specific areas of interest. The Director of Programs coordinates the
marketing activities of senior and technical management with respect to
government programs, while a General Manager and a Vice President direct the
marketing efforts related to computer products, and a General Manager and a
Marketing Manager direct the marketing activities of the SIRComm products unit.
7
<PAGE>
As a result of the post cold-war defense cutbacks, many defense contractors
are experiencing declines in their business base as government agencies' budgets
are reduced. The Company believes that as the defense budget decreases there
will be more emphasis and funds directed to advanced technology systems and
research programs for which the Company is qualified to compete. However, there
can be no assurances that the Company will be successful in competing against
the larger defense contractors for potential programs.
Competition
The demand for high performance semiconductors has produced a wide variety of
competitors and competitive systems, ranging from various three-dimensional
designs to highly dense two-dimensional designs. Some of the Company's
competition is generally believed to be better financed, more experienced and
organizationally stronger than the Company.
The Company is aware of two large companies that have developed competing
approaches to chip stacking. They are Texas Instruments, Inc., (TI) and
Thompson CSF (Thompson). In addition, there are several small companies and
divisions of large companies that have various technologies for stacking a
limited number of chips.
The Company is aware of many companies which are currently servicing the
military focal plane market. These include Santa Barbara Research Center, TI,
Loral, Inc., Amber Engineering, Inc., Litton Industries, Infrared Industries,
Inc., EG&G Judson, OptoElectronics-Textron, Inc., and Rockwell International.
The Company believes that the only infrared focal plane technology which
competes directly with its HYMOSS technology is that which is used by Grumman
Space Systems Division. The Company believes that many of its competitors have
financial, labor and capital resources greater than those of the Company and
there is no assurance that the Company will be able to compete successfully.
The Company is aware of several companies which currently service the market
for serial infrared detectors. They include Hewlett-Packard, Temic, Sharp, and
Crystal Semiconductor, among others, all of whom have financial, labor and
capital resources greater than those of the Company.
Research and Development
Since calendar 1980, the Company has been developing its technology and
believes it has successfully demonstrated its feasibility. In 1986, the Company
delivered a working demonstration unit of a HYMOSS module. In 1988, the Company
delivered a working demonstration unit of a high density computer memory module
utilizing the Company's stacked circuitry technology. The Company believes
government and commercial research contracts will provide the major portion of
funding necessary for continuing development of its products. However, the
manufacture of stacked circuitry modules in volume will require substantial
additional funds, which may involve additional equity or debt financing or a
joint venture, license or other arrangement. There can be no assurance that
sufficient funding will be available from government or other sources or that
the Company's products will be successfully developed for volume production.
The Company's expenditures for research and development for the fiscal years
ended October 1, 1995, October 2, 1994, and October 3, 1993, were $1,280,000,
$844,300, and $646,800, respectively. These expenditures of Company funds were
in addition to the Company's revenues of $7,877,000, $4,918,700, and $3,947,600,
in fiscal years 1995, 1994 and 1993, respectively, which primarily represent
customer-sponsored research and development activities and to a lesser extent,
product sales. The spending levels of Company funds on research and development
are indicative of the Company's resolve to maintain its competitive advantage by
developing products and improving its technology.
The Company has funded its research and development activities primarily
through contracts with the federal government, with research and development
limited partnerships and with funds from the Company's public and private stock
offerings.
8
<PAGE>
Patents, Trademarks and Licenses
The Company has a policy of protecting its investment in technology by seeking
to obtain, where practical, patents on the inventions made by its employees. As
of October 1, 1995, 34 U.S. patents have been issued and other U.S. patent
applications are pending. Foreign patent applications corresponding to several
of the U.S. patents and patent applications are also pending. There is no
assurance that additional patents will issue in the U.S. or elsewhere.
Moreover, the issuance of a patent does not carry any assurance of successful
application, commercial success or adequate protection. There is no assurance
that the Company's existing patents or any other patent that may issue in the
future would be upheld if the Company seeks enforcement of its patent rights
against an infringer or that the Company will have sufficient resources to
prosecute its rights, nor is there any assurance that patents will provide
meaningful protection from competition.
Among the patents and applications, there are several patents relating to
products and processes applicable to the HYMOSS focal plane. Several cover
electronic circuitry of the HYMOSS focal plane and others cover products and
processes pertaining to stacked chip modules useful as dense electronic
packages, such as computer memory. "HYMOSS" is a registered trademark of the
Company.
The Company has been advised by its patent counsel, Thomas Plante, Esq., that
no adverse patent has been found which might create an infringement problem in
the marketing of the Company's HYMOSS and line array focal planes. If others
were to assert that the Company is utilizing technology covered by patents held
by them, the Company would evaluate the necessity and desirability of seeking a
license from the patent holder. There is no assurance that the Company is not
infringing on other patents or that it could obtain a license if it were so
infringing.
Those products and improvements which the Company develops under government
contracts are generally subject to royalty-free use by the government for
government applications. However, the Company has negotiated certain "non-
space" exclusions in government contracts and has the right to file for patent
protection on commercial products which may result from government-funded
research and development activities.
The Company has exclusive rights to technology developed under an agreement
with R & D Leasing, Ltd. ("RDL"), a limited partnership. Under the agreement,
the Company will pay royalties of 3.5% of all direct sales, by the Company, of
the basic devices using the technology. RDL will also receive 7% of all income
earned by the Company from sublicensees. The Company's Chairman and a Senior
Vice-President have a beneficial interest in RDL. See "Development Contracts."
Employees
As of October 1, 1995, the Company had 111 full-time employees and 4
consultants. Of the full-time employees, 84 were engaged in engineering,
production and technical support, 6 in sales and marketing and 21 in finance and
administration. None of the Company's employees is represented by a labor union
and the Company has experienced no work stoppages due to labor problems. The
Company considers its employee relations to be excellent.
Properties
The Company maintains its headquarters and research facilities in
approximately 23,000 square feet of leased space in Costa Mesa, California,
which includes an approximate 7,600 square foot laboratory containing clean
rooms for operations requiring a working environment with reduced atmospheric
particles. The facilities are covered by two leases, which expire on July 31,
1996. The Company believes that its Costa Mesa facilities are currently
adequate for its present needs, although any growth may necessitate additional
space or improvements to its current space. The Company also maintains
facilities in Burlington, Vermont which includes approximately 20,000 square
feet of manufacturing and development facilities. The lease on this facility
expires on December 31, 1998. In the event the Company seeks to establish a
volume manufacturing capability, the Company will have to obtain additional
space, which it believes will be readily available.
9
<PAGE>
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
10
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The following table sets forth the range of representative high and low bid
prices of the Company's Common Stock (Nasdaq SmallCap Market symbol: IRSN) in
the over-the-counter market for the periods indicated, as furnished by NASD,
Inc. These prices represent prices among dealers, do not include retail
markups, markdowns or commissions, and may not represent actual transactions:
<TABLE>
<CAPTION>
Common Stock
Bid Prices
-------------------------
High Low
------------ ----------
<S> <C> <C>
Fiscal Year Ended October 1, 1995:
First Quarter $ 7-1/8 $4-13/16
Second Quarter $ 7-7/8 $5-1/2
Third Quarter $ 7-7/8 $6
Fourth Quarter $10-3/8 $7
Fiscal Year Ended October 2, 1994:
First Quarter $ 9-1/8 $5-1/2
Second Quarter $10-3/8 $6-7/8
Third Quarter $ 8-3/4 $6-1/4
Fourth Quarter $ 8-1/8 $6-3/4
</TABLE>
On December 1, 1995, the closing bid and asked prices for the Company's Common
Stock were $6 1/2 and $6 1/4, respectively.
On December 1, 1995, there were approximately 857 stockholders of record based
on information provided by the Company's transfer agent.
The Company has not paid cash dividends on any class of its stock since its
incorporation. Under Delaware law there are certain restrictions which limit
the Company's ability to pay cash dividends in the future.
11
<PAGE>
Item 6. Selected Financial Data.
The following table summarizes certain selected consolidated financial data
and is qualified by the more detailed Consolidated Financial Statements
incorporated herein by reference (see Item 8, below):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------------------------------
October 1, October 2, October 3, September 27, September 29,
1995 1994 1993 1992 1991
-------------------------------------------------------------------------
Consolidated Statement of Operations Data:
- - ------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 8,041,400 $ 5,139,400 $ 4,286,300 $ 3,788,300 $4,217,200
Loss from operations (3,071,500) (2,629,500) (1,552,100) (920,100) (291,900)
Net loss (4,137,500) (2,463,900) (1,507,600) (895,800) (319,000)
Loss per common and
common equivalent share $ (0.28) $ (0.18) $ (0.12) $ (0.08) $ (0.04)
=========== =========== =========== =========== ==========
Weighted average number of
shares outstanding 14,966,500 14,141,500 12,865,800 11,430,900 9,955,900
=========== =========== =========== =========== ==========
</TABLE>
Loss per common and common equivalent shares includes, where applicable,
cumulative dividends on Preferred Stock which have not been declared or paid.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
October 1, October 2, October 3, September 27, September 29,
1995 1994 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
- - --------------------------------
Current assets $ 9,927,500 $ 6,795,500 $2,135,900 $4,189,300 $ 856,400
Current liabilities $ 3,545,400 $ 1,355,400 $ 739,000 $ 571,700 $ 568,900
Working capital $ 6,382,100 $ 5,440,100 $1,396,900 $3,617,600 $ 287,500
Total assets $15,609,200 $10,355,400 $3,897,500 $4,600,000 $1,232,000
Long-term debt $ 2,451,200 $ 81,100 $ 62,600 $ 64,300 $ 86,300
Shareholders' equity $ 9,494,100 $ 8,800,400 $2,977,400 $3,845,500 $ 458,300
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
The information required by Item 7 of this report is set forth on pages 3 and
4 of the Company's 1995 Annual Report to Stockholders and is incorporated by
reference in this Annual Report on Form 10-K/A.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the report thereon of Price Waterhouse
LLP dated December 5, 1995, except for the last paragraph of Note 6 which is as
of December 16, 1997, appearing on pages 5 through 17 of the Company's 1995
Annual Report to Stockholders are incorporated by reference in this Annual
Report on Form 10-K/A. With the exception of the aforementioned information and
the information incorporated in Item 7, the 1995 Annual Report to Stockholders
is not to be deemed filed as part of this Annual Report on Form 10-K/A.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
13
<PAGE>
PART III
The following items included in the Company's Definitive Proxy Statement dated
January 15, 1996 to be used in connection with the Company's Annual Meeting of
Stockholders to be held on February 23, 1996 are incorporated herein by
reference:
<TABLE>
<CAPTION>
Pages in
Proxy Statement
---------------
<S> <C>
Item 10. Directors and Executive Officers of the Registrant. 3-5
Item 11. Executive Compensation. 9-11
Item 12. Security Ownership of Certain Beneficial Owners 8
and Management.
Item 13. Certain Relationships and Related Transactions. 15
</TABLE>
14
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements:
<TABLE>
<CAPTION>
Pages in
Annual Report*
--------------
<S> <C>
Consolidated Balance Sheet 5
Consolidated Statement of Operations 6
Consolidated Statement of Shareholders' Equity 7
Consolidated Statement of Cash Flows 8
Notes to Consolidated Financial Statements 9-16
Report of Independent Accountants 17
</TABLE>
* Incorporated by reference from the indicated pages of the 1995 Annual
Report to Stockholders.
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statement
Schedules for the fiscal years ended October 1, 1995, October 2, 1994,
and October 3, 1993:
Schedule I - Marketable Securities
Schedule X - Supplementary Consolidated Statement of Operations
Information
All other schedules have been omitted because they are not applicable, or
not required, or because the required information is included in the
financial statements or notes thereto which have been incorporated herein
by reference.
3. Exhibits:
The exhibits listed in the accompanying Index to Exhibits on pages 19
through 20 of this report are filed or incorporated by reference as part
of this report.
(b) Reports on Form 8-K:
None.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
--------------------------------
To the Board of Directors of
Irvine Sensors Corporation
Our audits of the consolidated financial statements referred to in our report
dated December 5, 1995, except for the last paragraph of Note 6 which is as of
December 16, 1997, appearing on page 17 of the 1995 Annual Report to
Shareholders of Irvine Sensors Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K/A) also included an audit of the Financial Statement Schedules listed in
Item 14(a) of this Form 10-K/A. In our opinion, these Financial Statements
Schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
December 5, 1995
16
<PAGE>
SCHEDULE I - MARKETABLE SECURITIES
<TABLE>
<CAPTION>
Name of Issuer Principal Carrying
and Description Amount Cost Market Value Value
- - --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
October 1, 1995:
- - ----------------
None $ - $ - $ - $ -
October 2, 1994:
- - ----------------
U.S. Treasury Bills $4,500,000 $4,374,100 $4,439,200 $ 4,447,500
October 3, 1993:
- - ----------------
None $ - $ - $ - $ -
</TABLE>
17
<PAGE>
SCHEDULE X - SUPPLEMENTARY CONSOLIDATED STATEMENT
OF OPERATIONS INFORMATION
<TABLE>
<CAPTION>
Charged to Costs and Expenses
Fiscal Period Ended
--------------------------------------
October 1, October 2, October 3,
1995 1994 1993
--------------------------------------
<S> <C> <C> <C>
1. Maintenance and Repairs $210,800 $113,900 $85,700
</TABLE>
18
<PAGE>
3. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Numbered Page
- - -------------- -------------
<S> <C>
3.1 Certificate of Incorporation, as amended to date. (8) -
3.2 Bylaws, as amended to date. (8) -
4.1 Specimen Common Stock certificate. (8) -
4.2 Form of Representative's Warrants. (9) -
10.1 (A) 1981 Incentive Stock Option Plan and 1981 Nonstatutory Stock Option Plan, as
amended to date, and (B) Form of Stock Option Agreement. (1)(2) -
10.2 Lease Agreements for the premises at 3001 Redhill Avenue,
Building III, Costa Mesa, California. (11) -
10.3 Employee Stock Bonus Plan and Trust Agreement dated June 29, 1982 effective
December 31, 1982 (3), Amendment dated December 14, 1982. (4) -
10.4 Amendment to Employee Stock Bonus Plan and Trust Agreement dated September 25, 1990. (8) -
10.5 Master Trust Agreement for Employee Deferred Benefit Plans dated August 22, 1990. (5) -
10.6 Agreement with R&D Leasing, Ltd. and Note Payable dated June 23, 1989. (6) -
10.7 License Agreement with R&D Leasing, Ltd. dated October 20, 1989. (6) -
10.8 Agreement with R&D Leasing, Ltd. dated October 1, 1990. (7) -
10.9 Contract between the Company and U.S. Army Strategic Defense
Command dated September 28, 1990. (7) -
10.10 1991 Stock Option Plan, as adopted by the Board of Directors December 9, 1991. (8) -
10.11 Form of Stock Option Agreement for 1991 Stock Option Plan. (9) -
10.12 Contract between the Company and International Business Machines, Inc.
dated June 1992. (9) -
10.13 Contract between the Company and Office of Naval Research
dated July 8, 1993. (10) -
10.14 Contract between the Company and NASA Marshall Space Flight Center
dated August 10, 1993. (10) -
10.15 Contract between the Company and U.S. Army Space & Strategic Defense
Command dated August 18, 1993. (10) -
10.16 Amendment to Employee Stock Bonus Plan and Trust agreement dated October 4, 1993. 27-82
10.17 Lease Agreement for the premises at 1 Green Tree Park, South Burlington, Vermont. 84-100
10.18 Contract between the Company and NASA Management Office - JPL
dated January 30, 1995. 102-113
10.19 Contract between the Company and Naval Air Warfare Center dated March 31, 1995. 115-150
10.20 License Agreement with Unitrode Intregrated Circuits Corporation dated May 30, 1995. 152-166
10.21 Purchase Order from Cray Research, Inc. dated May 8, 1995. 168-185
10.22 Subcontract between the Company and Lockheed Sanders, Inc. dated June 30, 1995. 187-201
10.23 Purchase Order from Grumman Aerospace Corporation dated January 5, 1995. 203-217
11. Statement re Computation of Per Share Earnings. 21
13. Portions of Registrant's Annual Report to Stockholders for the
fiscal year ended October 1, 1995. 219-231
21. Subsidiaries of the Registrant 22
23.1 Consent of Independent Accountants 23
23.2 Consent of Thomas Plante, Esq., Patent Counsel 24
</TABLE>
(footnotes on following page)
19
<PAGE>
- - ------------------------------------------
(Footnotes to items on previous page)
(1) Incorporated by reference to Part II of Registrant's Registration Statement
on Form S-18 filed with the Commission's Los Angeles Regional Office on
December 23, 1981 (Registration No. 2-75512-LA)(the-"S-18 Registration
Statement").
(2) Incorporated by reference to Part II of Pre-effective Amendment No. 1 to
the S-18 Registration Statement filed with the Commission's Los Angeles
Regional Office on February 10, 1982; 1987 amendment filed by amendment to
Form 10-K for the fiscal year ended September 27, 1987.
(3) Incorporated by reference to Part II of Pre-effective Amendment No. 3 to
the S-18 Registration Statement filed with the Commission's Los Angeles
Regional Office on May 27, 1982.
(4) Incorporated by reference to Part II of Registrant's Registration Statement
on Form S-1 filed with the Commission on March 23, 1983 (Registration No.
2-82596) (the "S-1 Registration Statement").
(5) Incorporated by reference to Part II of Pre-effective Amendment No. 3 to
the Form S-2 filed with the Commission on March 3, 1987 (Registration No.
33-10134).
(6) Incorporated by reference to Part IV of Registrant's Annual Report on Form
10-K for the fiscal year ended October 1, 1989.
(7) Incorporated by reference to Part IV of Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1990.
(8) Incorporated by reference to Part IV of Registrant's Annual Report on Form
10-K for the fiscal year ended September 29, 1991.
(9) Incorporated by reference to Part II of Pre-effective Amendment No. 2 to
the Form S-2 filed with the Commission on July 9, 1992 (Registration No.
33-47977).
(10) Incorporated by reference to Part IV of Registrant's Annual Report on Form
10-K for the fiscal year ended October 3, 1993.
(11) Incorporated by reference to Part IV of Registrant's Annual Report on Form
10-K for the fiscal year ended October 2, 1994.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IRVINE SENSORS CORPORATION
By /s/ James Alexiou
---------------------------
James Alexiou
Chairman of the Board
Date: December 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/ James Alexiou /s/ Thomas H. Lenagh
- - ----------------------------------- -------------------------------
James Alexiou Thomas E. Lenagh, Director
Chairman of the Board Date: December 22, 1995
Date: December 22, 1995
/s/ John C. Carson /s/ Kenneth T. Lian
- - ----------------------------------- ---------------------------------
John C. Carson, Director Kenneth T. Lian, Director
Date: December 22, 1995 Principal Executive Officer
Date: December 22, 1995
/s/ Joanne S. Carson /s/ Frank P. Ragano
- - ----------------------------------- ---------------------------------
Joanne S. Carson, Director Frank P. Ragano, Director
Date: December 22, 1995 Date: December 22, 1995
/s/ John J. Stuart, Jr.
- - ----------------------------------- ---------------------------------
Marc Dumont, Director John J. Stuart, Jr.
Date: Chief Financial Officer
(Principal Accounting Officer)
Date: December 22, 1995
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IRVINE SENSORS CORPORATION
Date: December 24, 1997 By /s/ John J. Stuart, Jr.
---------------------------------
John J. Stuart, Jr.
Chief Financial Officer
(Principal Accounting Officer)
22
<PAGE>
Exhibit 11
Statement re Computation of Per Share Earnings.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------------------------------
October 1, October 2, October 3, September 27, September 29,
1995 1994 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss $(4,137,500) $(2,463,900) $(1,507,600) $ (895,800) $ (319,000)
Cumulative dividends
on Preferred Stock (31,000) (33,200) (31,400) (32,000) (34,800)
----------- ----------- ----------- ----------- ----------
$(4,168,500) $(2,497,100) $(1,539,000) $ (927,800) $ (353,800)
=========== =========== =========== =========== ==========
Common Stock:
Shares outstanding at
beginning of period 14,710,713 13,152,534 12,608,128 10,495,386 9,445,588
Pro rata shares:
Shares sold 63,033 887,870 - 692,308 -
Shares issued to employee
stock bonus trust 29,703 14,893 8,105 103,211 85,669
Shares issued to affiliated
company in settlement of
note payable - - - - 200,000
Stock options and
warrants exercised 104,320 86,236 236,638 125,261 224,671
Shares issued in exchange
for services performed - - - - -
Preferred Stock converted
to common stock 58,692 - 12,916 14,762 -
----------- ----------- ----------- ----------- ----------
Weighted average number
of common and common
equivalent shares
outstanding 14,966,461 14,141,533 12,865,787 11,430,928 9,955,928
=========== =========== =========== =========== ==========
Net loss per share $(0.28) $(0.18) $(0.12) $(0.08) $(0.04)
====== ====== ====== ====== ======
</TABLE>
<PAGE>
Irvine Sensors Corporation
________________________________________________________________________________
________________________________________________________________________________
Annual Report 1995
<PAGE>
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
<PAGE>
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
<PAGE>
Irvine Sensors Corporation
Consolidated Balance Sheet
<TABLE>
<CAPTION>
October 1, October 2,
1995 1994
- - --------------------------------------------------------------------------------------------------
<S> <C> <C>
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
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
Irvine Sensors Corporation
Consolidated Statement of Operations
<TABLE>
Fiscal Year Ended
---------------------------------------
October 1, October 2, October 3,
1995 1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
Irvine Sensors Corporation
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
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
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
---------- -------- ------- ------- ------ ---- ----------- ------------ -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
Irvine Sensors Corporation
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
October 1, October 2, October 3,
1995 1994 1993
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 $ - $ -
------------ ----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
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 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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Preferred Stock Common
Series B Series C Stock
-----------------------------------
<S> <C> <C> <C>
Distribution dates:
April 1992 625 - 31,200
March 1993 340 45 19,200
October 1994 880 297 58,900
-----------------------------------
1,845 342 109,300
===================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1995
As Reported As Restated
------------------------------
<S> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
October 1, October 2,
1995 1994
---------- ----------
<S> <C> <C>
Accounts receivable:
U.S. Government $2,094,500 $1,528,500
Other customers 293,500 56,000
---------- ----------
$2,388,000 $1,584,500
========== ==========
</TABLE>
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.
<TABLE>
<CAPTION>
October 1, October 2,
1995 1994
---------- ----------
<S> <C> <C>
Inventory:
Raw materials $ 488,600 $ -
Work in process 1,842,600 253,100
Finished goods 599,700 -
---------- ----------
$2,930,900 $ 253,100
========== ==========
</TABLE>
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
<PAGE>
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 1, October 2,
1995 1994
-------------------------
<S> <C> <C>
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
=========== ===========
</TABLE>
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.
<TABLE>
<CAPTION>
October 1, October 2,
1995 1994
--------------------------
<S> <C> <C>
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
======== ========
</TABLE>
Note 9 - Notes Payable
Current and long-term debt consists of the following:
<TABLE>
<CAPTION>
October 1, October 2,
1995 1994
-------------------------
<S> <C> <C>
Capitalized lease
obligations $284,400 $ 20,200
Less current portion 206,400 18,600
-------- --------
$ 78,000 $ 1,600
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
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 $ -
===========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Capital Operating
leases leases
-------- ---------
<S> <C> <C>
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
========
</TABLE>
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
<PAGE>
Irvine Sensors Corporation
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
Stock option activity is summarized as follows:
<TABLE>
Option Price
Shares Per Share
---------- -----------------
<S> <C> <C>
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
========
</TABLE>
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
<PAGE>
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
<PAGE>
Irvine Sensors Corporation
Corporate Information
- - --------------------------------------------------------------------------------
<TABLE>
<C> <S>
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.
</TABLE>
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Carson Alexiou Corporation
3001 Redhill Ave. Bldg. III, Suite 208
Costa Mesa, California 92626
State of Incorporation: Massachusetts
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 2-85501) of
Irvine Sensors Corporation of our report dated December 5, 1995, except for the
last paragraph of Note 6 which is as of December 16, 1997, which appears on page
17 of the 1995 Annual Report to Shareholders of Irvine Sensors Corporation,
which is incorporated by reference in Irvine Sensors Corporation's Annual Report
on Form 10-K/A for the year ended October 1, 1995. We also consent to the
incorporation by reference of our report on the Financial Statement Schedules,
which appears on page 17 of this Form 10-K/A.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
January 5, 1998
23
<PAGE>
Exhibit 23.2
Consent of Patent Counsel
CONSENT OF PATENT COUNSEL
I hereby consent to the reference to me in this Annual Report - Form 10-K
of Irvine Sensors Corporation under the section entitled "Patents and
Trademarks."
/s/ Thomas J. Plante
----------------------
THOMAS J. PLANTE, Esq.
Irvine, California
December 22, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED OCTOBER 1, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-03-1994
<PERIOD-END> OCT-01-1995
<CASH> 4,367,100
<SECURITIES> 0
<RECEIVABLES> 2,388,000
<ALLOWANCES> 10,000
<INVENTORY> 2,930,900
<CURRENT-ASSETS> 9,927,500
<PP&E> 10,084,500
<DEPRECIATION> 4,434,900
<TOTAL-ASSETS> 15,609,200
<CURRENT-LIABILITIES> 3,545,400
<BONDS> 2,250,000
200
0
<COMMON> 155,700
<OTHER-SE> 9,494,100
<TOTAL-LIABILITY-AND-EQUITY> 15,609,200
<SALES> 7,877,000
<TOTAL-REVENUES> 8,041,400
<CGS> 7,298,700
<TOTAL-COSTS> 11,112,900
<OTHER-EXPENSES> 1,280,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,900
<INCOME-PRETAX> (4,136,500)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (4,137,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,137,500)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
