Irvine Sensors Releases Fiscal 2011 First Half Results

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May 18, 2011, 04:15 ET

COSTA MESA, Calif., May 18, 2011 /PRNewswire/ -- Irvine Sensors Corporation (OTCBB: IRSN) today reported operating results for its second quarter and first half of fiscal 2011, the 13 and 26 weeks ended April 3, 2011.

Total revenues for the 13 weeks ended April 3, 2011 were $3,370,400, an approximate 24% increase from $2,721,400 in the 13 weeks ended March 28, 2010. Total revenues in the fiscal 2011 26-week period were $7,671,300, up 29% from $5,931,600 in the first half of fiscal 2010. The revenue increase in the current periods was primarily due to increased sales of Irvine Sensors' thermal imaging cores.

Net loss attributable to the Company increased in the current fiscal year periods, from $3,419,600 in the 13-week period ended March 28, 2010 to $7,550,600 in the 13-week period ended April 3, 2011, and from $5,136,300 in the 26-week period ended March 28, 2010 to $18,382,800 in the 26-week period ended April 3, 2011, largely as a result of non-cash expenses recorded in connection with financings in the periods that included convertible debt instruments deemed to include embedded derivatives. The resulting accrued derivative liability is subject to elimination if the convertible debt instruments are ultimately converted to common stock pursuant to their terms. There can be no assurance, however, that the convertible debt instruments will be converted to common stock or that the resulting accrued derivative liability will be eliminated.

Working capital, which improved substantially in the first quarter of fiscal 2011 as a result of equity and debt financings, continued to improve in the second quarter of fiscal 2011 as Irvine Sensors issued an additional $5.2 million of long-term debt instruments to its institutional investors. These proceeds facilitated the payment in full of short-term debt of approximately $2.7 million in March 2011.

Excluding non-cash charges for changes in fair value of derivative instruments, non-cash interest expense, stock-based compensation and depreciation and amortization, non-GAAP net loss was $2,715,800 in the 13-week period ended April 3, 2011 compared to non-GAAP net loss of $3,023,600 in the 13-week period ended March 28, 2010. Similarly, non-GAAP net loss was $5,417,800 in the 26-week period ended April 3, 2011 compared to non-GAAP net loss of $4,785,800 in the 26-week period ended March 28, 2010. See "Use of Non-GAAP Financial Information" below for important information regarding the Company's use of non-GAAP financial measures.

Use of Non-GAAP Financial Information – Irvine Sensors reports net income (loss) in accordance with accounting principles generally accepted in the United States ("GAAP") and, commencing with this press release, supplementally on a non-GAAP basis. The Company's presentation of non-GAAP net income (loss) attributable to the Company in this press release excludes the impact of changes in fair value of derivative instruments, non-cash interest expense, stock-based compensation and depreciation and amortization expense. Stock-based compensation expense primarily includes the impact of stock options issued by the Company. A reconciliation of these GAAP and non-GAAP financial measures for all periods presented is found in the attached "Unaudited Reconciliation of Non-GAAP Adjustments."

Irvine Sensors believes that the presentation of non-GAAP net income (loss) provides useful supplemental information to management and investors regarding financial and business trends related to the Company's financial condition and results of operations. The Company also believes that examination of non-GAAP net income (loss) can facilitate consistency and comparability among and between prior periods, as well as comparison with other companies that present similar non-GAAP financial measures. However, the Company's presentation of non-GAAP information is not necessarily equivalent to non-GAAP measures presented by other reporting companies and should be considered in that context. The Company's management generally uses non-GAAP income (loss) to evaluate the Company's operating performance because management believes that the exclusion of the non-cash items described above, including the changes in the fair value of derivative instruments, provides insight into the Company's core ongoing operating results, particularly from a cash generation or use perspective, and underlying business trends affecting the Company's performance. Irvine Sensors has chosen to provide this non-GAAP information to investors to enable them to perform additional analyses of past, present and future operating performance and as a supplemental means to evaluate the Company's ongoing core operations. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

Irvine Sensors Corporation (www.irvine-sensors.com), headquartered in Costa Mesa, California, is a technology company engaged in the design, development, manufacture and sale of security, software, vision systems and miniaturized electronic products and higher level systems incorporating such products for defense, information technology and physical security for government and commercial applications. Irvine Sensors also conducts research and development related to high density electronics, miniaturized sensors, optical interconnection technology, high speed network security, image processing and low-power analog and mixed-signal integrated circuits for diverse systems applications.

IRVINE SENSORS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	13 Weeks Ended		26 Weeks Ended
	April 3, 2011	March 28, 2010	April 3, 2011	March 28, 2010
Total revenues	$ 3,370,400	$ 2,721,400	$ 7,671,300	$ 5,931,600
Cost and expenses
Cost of revenues	3,085,200	2,173,200	7,124,400	4,612,200
General and administrative expense	2,143,500	1,476,600	4,057,900	3,128,000
Research and development expense	704,200	601,000	1,238,100	1,356,200
Total costs and expenses	5,932,900	4,250,800	12,420,400	9,096,400
Gain on sale or disposal of assets	-	-	-	12,500
Loss from operations	(2,562,500)	(1,529,400)	(4,749,100)	(3,152,300)
Interest expense	(3,026,300)	(131,200)	(5,182,600)	(246,100)
Provision for litigation judgment	-	-	-	(20,200)
Litigation settlement expense	-	(1,820,700)	-	(1,820,700)
Change in fair value of derivative liability	(1,957,800)	14,500	(8,440,500)	60,000
Other income (expense)	(4,000)	700	(10,600)	(300)
Loss from continuing operations before
provision for income taxes	(7,550,600)	(3,466,100)	(18,382,800)	(5,179,600)
Benefit for income taxes	-	46,500	-	43,300
Net loss	(7,550,600)	(3,419,600)	(18,382,800)	(5,136,300)
Less net loss attributable to noncontrolling interests in subsidiary	-	-	-	-
Net income (loss) attributable to Irvine Sensors Corporation	$(7,550,600)	$ (3,419,600)	$(18,382,800)	$ (5,136,300)
Basic and diluted net loss attributable to Irvine Sensors Corporation per common share	$ (0.08)	$ (0.24)	$ (0.26)	$ (0.54)
Weighted average number of common shares outstanding, basic and diluted	100,200,300	14,351,900	70,906,300	12,246,700

IRVINE SENSORS CORPORATION

UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS

The following non-GAAP adjustments are based upon the Company's unaudited consolidated statements of operations for the periods shown. These adjustments are not in accordance with or an alternative for GAAP. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Irvine Sensors intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance, and may change its reporting of such non-GAAP results in the future as a result of such assessment.


	13 Weeks Ended		26 Weeks Ended
	April 3, 2011	March 28, 2010	April 3, 2011	March 28, 2010
GAAP Net loss attributable to Irvine Sensors Corporation	$(7,550,600)	$(3,419,600)	$(18,382,800)	$(5,136,300)
Plus:
Change in fair value of derivative instruments	1,957,800	(14,500)	8,440,500	(60,000)
Non-cash interest expense	2,359,200	-	3,399,000	-
Stock-based compensation	243,400	26,300	577,500	26,300
Depreciation and amortization	274,400	384,200	548,000	384,200
Non-GAAP Net loss attributable to Irvine Sensors Corporation	$(2,715,800)	$(3,023,600)	$(5,417,800)	$(4,785,800)

IRVINE SENSORS CORPORATION CONSOLIDATED BALANCE SHEETS
	April 3, 2011 (Unaudited)	October 3, 2010
Assets
Current assets:
Cash and cash equivalents	$ 4,705,700	$ 281,600
Accounts receivable, net of allowance for doubtful accounts
of $13,600 and $15,000, respectively	1,460,200	382,100
Unbilled revenues on uncompleted contracts	440,100	630,300
Inventory, net	973,600	1,715,800
Prepaid expenses and other current assets	406,400	182,300
Total current assets	7,986,000	3,192,100
Property and equipment, net (including construction in process
of $203,700 and $35,000, respectively)	2,641,300	2,730,000
Intangible assets, net	11,400	12,400
Deferred financing costs	1,199,900	302,900
Deposits	171,400	87,400
Total assets	$ 12,010,000	$ 6,324,800
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable	$ 686,800	$ 4,724,100
Accrued expenses	2,335,800	4,097,700
Accrued estimated loss on contracts	29,000	29,000
Advance billings on uncompleted contracts	451,000	321,800
Advances against accounts receivable	-	99,700
Deferred revenue	814,000	1,515,400
Restructured debt, net of debt discounts	-	163,100
Secured promissory note, current portion	1,262,700	402,500
Debentures, net of debt discounts	-	1,935,200
Unsecured convertible promissory notes, net of discounts	1,448,900	-
Settlement agreements obligations, current portion	797,200	-
Total current liabilities	7,825,400	13,288,500
Secured promissory note	1,237,300	2,097,500
Senior subordinated secured promissory notes	4,013,800	-
Subordinated secured convertible promissory notes, net of discounts	2,878,600	-
Settlement agreement obligations	250,800	-
Derivative liability	17,634,600	4,000
Executive Salary Continuation Plan liability	1,000,100	1,030,700
Total liabilities	34,840,600	16,420,700
Commitments and contingencies (Note 7)
Stockholders' deficit:
Convertible preferred stock, $0.01 par value, 1,000,000 and
1,000,000 shares authorized, respectively;	300	500
Series B – 1,800 and 1,900 shares issued and outstanding, respectively (1);
liquidation preference of $1,785,600 and $1,892,700, respectively
Series C – 30,700 and 37,500 shares issued and outstanding, respectively (1);
liquidation preference of $921,200 and $1,125,000, respectively
Common stock, $0.01 par value, 500,000,000 and 150,000,000
shares authorized, respectively; 103,053,100 and 33,535,400 shares
issued and outstanding, respectively (1)	1,030,600	335,400
Common stock held by Rabbi Trust	(1,169,600)	(1,169,600)
Deferred compensation liability	1,169,600	1,169,600
Paid-in capital	169,992,300	165,039,200
Accumulated deficit	(194,178,200)	(175,795,400)
Irvine Sensors Corporation stockholders' deficit	(23,155,000)	(10,420,300)
Noncontrolling interest	324,400	324,400
Total stockholders' deficit	(22,830,600)	(10,095,900)
Total liabilities and stockholders' deficit	$ 12,010,000	$ 6,324,800