I doubt there are many Stockprowler readers out there, judging by our e-mail, that haven’t been caught in the market downdraft of the past 6 months. It has been very painful for all of us. Recalling the words of wisdom of Warren Buffet, and I’m paraphrasing him saying that… “no asset can outrun its fundamentals forever. Eventually, all stocks come back to earth.” The truth of the matter is that now most small caps have not only been brought back to earth, they have been pounded into the earth. I venture to say that from my experience, the sell off of 2000 has been measurably worse than the crash of ’87… though the damage has occurred over a protracted period this time around. We are fortunate now that the Presidential election debacle has been resolved. Al Gore, in his concession, was gracious and revealed, perhaps, the real Al Gore that voters never had a chance to see. America will heal its wounds and rally around its new president, George W. Bush, a man about whom many do not have great expectations for… but the same was said about Harry S. Truman many years ago. Time will tell… but I suspect we will all be pleasantly surprised.

     Tuesday, December 19, Alan Greenspan has a momentous decision to make. It is the opinion of Stockprowler.com that the Fed is at a critical juncture… that to merely indicate at this meeting that it will likely move to cut rates in the future is not enough. It is in our opinion that the Fed must cut interest rates at Tuesday’s meeting at least 25 basis points… and that may be too little too late. It is our belief that, contrary to what Greenspan believes, inflation is not the scourge at our door… it is the threat of recession or worse.

Stockprowler’s pick this week is…

Irvine Sensors, Corp. (Nasdaq: IRSN)

Corporate Web Site: http://www.irvine-sensors.com/

Shares Outstanding: 42.6 million

Public Float: 34.9 million

Insider Ownership: 18%

Institutional Ownership: (22) 2%

Market capitalization: $71.8 million

Closing Price Friday: $1.69

How many Stockprowler readers out there own a high quality Nikon or Canon 35mm camera or other truly excellent SLR (Single Lens Reflex) and are wondering if their cameras will be rendered obsolete with the advent of the digital camera? Well, don’t feel alone… there are nearly 25 million SLR cameras in use in the U.S. These cameras typically are well made and have very high quality optics… so what to do? This week’s pick, Irvine Sensors Corp. and its subsidiary, Silicon Film Technology, Inc. have developed a breakthrough technology that some are hailing as revolutionary as the Polaroid cameras of the 1950’s.

    Silicon Film's first generation Electronic Film System system, called EFS-1, is designed to provide a convenient and affordable way for owners of traditional 35mm SLR film cameras to participate in the explosive growth of digital photography. EFS-1 consists of the (e)film™ Cartridge, a self-contained digital imaging module that fits in a standard film compartment; the (e)port™ Carrier, which uploads the images to a computer, and the (e)box™ Storage module, which stores hundreds of images for future upload. Together, these components are designed to allow users to enjoy all the features and functions of their SLR camera system while capturing digital pictures.

     The EFS-1, which will soon be available to the public, combines a CMOS image sensor with miniaturized control and processing electronics, 64 MB of memory and two batteries. Innovative packaging is used to permit the entire assembly to fit into the space occupied by a standard 35mm film canister. Initial versions of the EFS are designed to fit in specific camera bodies. “The beauty of our technology is that we are not trying to replace traditional film - we are complimenting it,” said Douglas E. Howe, Silicon Film's chief marketing officer. “With EFS-1, users will have the capability of switching back and forth between film and high-quality digital imaging. We expect the learning curve to be fast because photographers will be using their own camera systems.” Headquartered in Irvine, California, Silicon Film Technologies, Inc. holds patents on many aspects of the technology.

     BusinessWeek magazine has selected Silicon Technology’s EFS-1 in its December 18th issue as a “Best product of 2000” (page 90). Stockprowler readers may view a demonstrational video of the product and a gallery of test images at the company web site: http://www.siliconfilm.com/mainindex.htm 

     Irvine Sensors Corporation and its subsidiaries are involved in various business activities related to miniaturized electronics and their applications. The Company's primary business groups consist of Irvine Sensors Corporation, Novalog, Inc., MicroSensors, Inc. and Silicon Film Technologies, Inc. The Company has a wide variety of technologies that have been derived from its early entry into the field of chip stacking, and is seeking to commercially exploit many of these technologies through subsidiaries organized to meet the needs of varying markets. In addition to the products developed through its subsidiaries, the Company has developed a family of standard products consisting of stacked chips, both packaged and unpackaged and incorporate numerous integrated circuits, both memory and otherwise, by improving speed and reducing size, weight, and power usage.

     Irvine Sensors Corporation reported revenues of $8,600,000 for the 39 weeks ended July 2, 2000 and a net loss of $9,000,000 for the same period. The company’s expenditures in research and development increased $481,400 or 32% during the third quarter of fiscal 2000 and $1,296,400 or 39% for the 39- week period ended July 2, 2000 compared to similar periods in fiscal 1999. Novalog has increased research and development spending in an effort to develop its next generation SIR circuit. MPD introduced a new flash product line and has consequently increased research and development expenses. The Silicon Film subsidiary has elevated its level of spending in response to increased efforts toward the launch of its Electronic Film System product.

Readers should be aware that in February 2000, Silicon Film effected a 1-for-3 reverse split of its issued common stock and, subsequent to such split, issued 1,466,667 shares of its Series C Convertible Preferred Stock (the "Series C Preferred") in a Private Placement. The Series C Preferred bears an 8% cumulative dividend, payable after three years, has a priority in liquidation and is convertible into common stock of Silicon Film, at the election of the holder, at the rate of 1 common share for each 1 share of Series C Preferred tendered for conversion. The net proceeds from this transaction were approximately $5.3 million. This transaction also resulted in a corresponding increase in minority interest in consolidated subsidiaries of approximately $5.3 million. After this transaction, the Irvine Sensors retains an 84% ownership of the common stock of Silicon Film, which is the basis for the allocation of minority interest. Upon conversion of all outstanding convertible preferred stock, the company's ownership position would be approximately 53% of Silicon Film's common stock. In addition, future exercise of authorized and outstanding warrants and options could reduce Irvine Sensor’s ownership of Silicon Film's common stock to below 40%.

     In addition to the imminent EFS-1 product launch by Silicon Film Technology, other Irvine Sensor subsidiaries have exciting products in the works. Its iNetworks Corp. subsidiary plans to market a router product in 2002 that will use Irvine Sensors' 3-dimensional (3-D) chip stacking and interconnect structures to compress the equivalent of eight "state-of-the-art", seven feet-high router bays into a single bay, a result with significant advantages in terms of throughput, power, operational flexibility and economics. This design approach is an outgrowth of the "Silicon Brain™" initiative that Irvine Sensors has been developing for several years through its own funding and various U.S. Government-funded R&D programs. The commercialization of this development was focused in February of this year with the award of another R&D contract specifically targeting this "super switch" application. The company’s objective is to meet the ever increasing demand for Internet capacity head-on by developing an electro-optical 'SuperRouter™' that offers 100 times the throughput of what is available today.

     On October 10, the RedHawk Vision, Inc. subsidiary of Irvine Sensor announced that it will begin beta testing the Windows version of its Video Pics(TM) plug-in software later this month. Video Pics is designed to allow video professionals working with Adobe Premiere® software to extract and produce 35mm quality photographs from digital video sources. RedHawk Vision, Inc. designs, develops and produces proprietary imaging technologies and software for the digital enhancement of video data and extraction of 35mm quality photographs from any video source, including personal camcorders, the Internet and broadcast media. The company's patented software processes information content from multiple frames of video, reduces noise, and enhances the image color, detail and resolution of any selected frame. RedHawk Vision also provides services for image extraction from video for forensic specialists and video professionals.

     IRSN closed Friday at 1 11/16 on 215,800 shares traded. Shares of Irvine Sensors traded as high as 18 3/4 earlier this year. Stockprowler views IRSN has a moderate risk speculation with very high potential reward.