Entorian Technologies Inc. (NASDAQ: ENTND), a leader in rugged,
mission-critical mobile and server computing solutions for use in
harsh, demanding environments, today announced financial results
for the third quarter ended September 30, 2009.
Total revenue for the third quarter was $11.8 million, including
$11.2 million of product revenue associated with the company’s
rugged technology solutions and $0.6 million of memory license
revenue. This compares to total revenue of $7.7 million in the
second quarter of 2009, which included $6.9 million of rugged
technology product revenue and $0.8 million of memory license
revenue.
“Our rugged computing solutions business increased during the
quarter as our OEM customer’s next-generation, fully rugged
notebook gained additional traction in the marketplace,” commented
Stephan Godevais, Entorian’s president and chief executive officer.
“Launched in the second quarter of 2009, this fully rugged notebook
showcases our enhanced protection technologies against drops, rain,
dust, dirt, spills and temperature extremes,” stated Mr.
Godevais.
Mr. Godevais continued, “More recently, we launched a second
ruggedized platform with our OEM customer. This rugged convertible
notebook provides critical features and ergonomic mobility in a
cost-effective solution that is ideal for first responders and
government agencies, as well as enterprise users in field service,
field sales and industrial manufacturing.”
In accordance with GAAP, gross profit for the third quarter of
2009 was $1.3 million, or 11 percent of revenue, compared to $1.1
million, or 14 percent, in the previous quarter. On a non-GAAP
basis, gross margin was 16 percent in the third quarter of 2009,
compared to 22 percent in the previous quarter.
On a GAAP basis, total operating expenses in the third quarter
of 2009 were $4.4 million, compared to $4.9 million in the previous
quarter. SG&A represented approximately 22 percent of net
revenue, including stock-based compensation expense of $251,000,
compared to 37 percent in the previous quarter. R&D was
approximately 16 percent of revenue, compared to 27 percent in the
previous quarter. On a non-GAAP basis, total operating expenses for
the quarter were $4.1 million, compared to $4.7 million in the
previous quarter.
Third quarter GAAP net loss was $3.3 million, or ($0.84) per
diluted share, compared to a net loss in the previous quarter of
$3.7 million, or ($0.96) per diluted share.
Excluding non-cash charges for stock-based compensation,
amortization and impairment of acquisition intangibles, fixed
assets and goodwill, the non-GAAP net loss for the third quarter
was $2.3 million, or ($0.59) per diluted share, compared to the
non-GAAP net loss of $2.9 million, or ($0.74) per diluted share, in
the previous quarter. The per share loss amounts have been adjusted
to reflect the impact of the company’s 1-for-12 reverse stock split
on October 30, 2009. A reconciliation of GAAP results to non-GAAP
results has been provided in the financial statement tables
following the text of this press release.
Inventory as of September 30, 2009 was $7.6 million, compared to
$4.8 million in the previous quarter. Capital expenditures were
$300,000 and depreciation expense was $200,000.
Cash, cash equivalents and investments on September 30, 2009
were $11.2 million, compared to $18.0 million on June 30, 2009.
Accounts receivable was $16.6 million, compared to $11.5 million in
the previous quarter.
Business Outlook
“As we enter the fourth quarter, we remain cautious regarding
our expectations due to our limited visibility of government
spending. We continue to work closely with our OEM customer for
future development of innovative rugged computing solutions and
further penetration of our target markets,” concluded Mr.
Godevais.
Recent Events
Following the close of the quarter, two events occurred that may
improve the company’s liquidity in the upcoming quarters. First,
the company is a claimant in the class action antitrust litigation
entitled In Re Dynamic Random Access Memory (DRAM) Antitrust
Litigation. The company submitted a claim in this litigation, and
on October 28, 2009, the judge approved the final distribution of
funds pursuant to a settlement. Based on the approved settlement,
the claims administrator informed the company that it is scheduled
to receive approximately $7.5 million, with payment to be made in
December 2009. However, any distribution is subject to a 30-day
appeal period, so this amount and timing could change. Additional
information is available in the company’s Form 8-K filed with the
SEC on November 3, 2009.
In addition, on November 6, 2009, Congress enacted the Worker,
Homeownership, and Business Assistance Act of 2009. This Act will
allow the company to carry back its 2008 taxable losses to years
not previously available. The company expects to receive an
additional refund, which could amount to approximately $5 million
of previously paid Federal income taxes.
Neither of these receivables is included in the company’s
September 30, 2009 assets.
Cautionary Language
This press release contains forward-looking statements. These
statements are generally accompanied by words such as “expect,”
“believe,” and similar expressions. These statements include our
expectations regarding the fourth quarter, as well as improved
liquidity in connection with a payment we expect to receive in
connection with the DRAM settlement and a tax refund we expect to
receive in connection with the Worker, Homeownership and Business
Assistance Act of 2009. We do not have sufficient backlog to rely
upon when forecasting results, so our future performance is very
difficult to predict. Our forward-looking statements are based on
our current expectations, estimates and assumptions and are subject
to many risks, uncertainties and unknown future events that could
cause actual results to differ materially. Risks and uncertainties
that may cause future results to differ include, but are not
limited to, the risk of a change in our relationship with our OEM
customer with which we have an exclusive sales and marketing
agreement regarding certain ruggedized computer notebook products;
a change in the efforts by our OEM customer to sell our rugged
computing products; the timing and volume of sales of our products
by our OEM customer; a shortage of critical parts, which could
negatively impact our ability to fulfill orders; fluctuating demand
for, and life cycles of, our products; inconsistency in forecasts
provided to us by our largest customer, resulting in increased
inventory exposure as we build to our customer’s current forecast;
operational risks from our reliance on suppliers, subcontractors
and third-party manufacturers for the production of ruggedized
products; a failure by us to develop new products that are
successfully qualified and utilized by customers; our ability to
manufacture and ship products within a particular reporting period;
the risk that foreign or domestic manufacturers develop products
that compete successfully with our own on cost or other
functionality; our ability to enforce our intellectual property
rights or to defend claims that we infringe the intellectual
property rights of others, and the significant costs to us of
related litigation; the risk that our average selling prices
decline during the period more than we expect because of
competitive pressures, substituted products or overall reduced
demand for our products; risks associated with budget constraints
of federal, state and local governments that could negatively
impact sales of our ruggedized products; risks associated with the
failure of our ruggedized products to meet the military
specification MIL-STD-810F; risks related to product liability and
warranty claims in the event our products do function according to
specification or include defective parts; the risks of seasonality,
to which we are subject; and the risks associated with our
dependence on a few key personnel to manage our business
effectively. In addition, currently we are not in compliance with
NASDAQ’s listing requirements and we cannot provide any assurance
that we will satisfy these requirements. If we are delisted from
NASDAQ, liquidity of our shares would be adversely affected.
For a discussion of these and other factors that could impact
our financial results and cause actual results to differ materially
from those in the forward-looking statements, please refer to our
recent filings with the Securities and Exchange Commission, and in
particular, our Form 10-K filed on March 12, 2009. The foregoing
information concerning our business outlook represents our outlook
as of the date of this news release, and we undertake no obligation
to update or revise any forward-looking statements, whether as a
result of new developments or otherwise.
Non-GAAP Financial Measurements
In addition to the GAAP results provided by this document, the
company has provided non-GAAP financial measurements that present
operating income, net income and earnings per diluted share on a
basis excluding non-cash charges for stock-based compensation and
amortization and impairment of acquisition intangibles, fixed
assets and goodwill, and the associated income tax effect. Details
of these excluded items are presented in one of the tables below,
which reconcile the GAAP results to non-GAAP financial measurements
described in this press release. Entorian has chosen to provide
non-GAAP financial measurements to investors because it believes
that excluding certain charges represents a better basis for the
comparison of its current results to the results of its peer
companies. In addition, the company believes that it provides a
means to highlight the results of core ongoing operations to
investors. The presentation of this additional information is not
meant to be considered in isolation or as a substitute for results
prepared in accordance with GAAP.
About Entorian Technologies
Entorian Technologies Inc. (NASDAQ: ENTN) is a leader in rugged,
mission-critical mobile and server computing solutions for use in
harsh, demanding environments through its subsidiary, Augmentix
Corporation. Its Augmentix-produced servers and mobile products
combine best-in-class technologies and standardized components from
industry leader Dell, with proven ruggedization methods from
Augmentix. These rugged systems are environmentally robust and
technologically advanced. For more information, go to
www.entorian.com and www.augmentix.com.
Entorian is a trademark of Staktek Group LP and Augmentix is a
trademark of Augmentix Corporation.
ENTORIAN TECHNOLOGIES INC. CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS (in thousands, except per share data; unaudited)
Three Months Ended Sept. 30, June 30, Sept.
30, 2009 2009 2008
Revenue: Product $ 11,237 $ 6,928 $ 17,750 License 551
822 713 Total revenue 11,788
7,750 18,463 Cost of revenue: Product (1) 9,908 6,026 16,861
Amortization of acquisition intangibles 626 626 970 Impairment of
acquisition intangibles and fixed assets - -
3,937 Total cost of revenue 10,534
6,652 21,768 Gross profit (loss)
1,254 1,098 (3,305 ) Operating expenses: Selling, general and
administrative (1) 2,616 2,829 5,132 Research and development (1)
1,937 2,107 2,089 Restructuring (133 ) 120 192 Amortization of
acquisition intangibles 23 35 165 Impairment of acquisition
intangibles - - 4,312 Goodwill impairment -
(159 ) 4,952 Total operating expenses 4,443
4,932 16,842 Loss from
operations (3,189 ) (3,834 ) (20,147 ) Other income (expense):
Interest income 34 42 218 Interest expense (156 ) (194 ) (195 )
Other, net 53 269 6 Total
other income (expense), net (69 ) 117
29 Loss before income taxes (3,258 ) (3,717 ) (20,118 )
Provision (benefit) for income taxes 2 22
(528 ) Net loss $ (3,260 ) $ (3,739 ) $ (19,590 )
Loss per share: Basic $ (0.84 ) $ (0.96 ) $ (5.02 ) Diluted $ (0.84
) $ (0.96 ) $ (5.02 ) Shares used in computing loss per share:
Basic 3,897 3,903 3,904 Diluted 3,897 3,903 3,904 (1)
Includes stock-based compensation expense as follows: Cost of
revenue $ 5 $ 3 $ 97 Selling, general and administrative expense
251 272 388 Research and development expense 66
57 108 $ 322 $ 332 $ 593
ENTORIAN TECHNOLOGIES INC. CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS (in thousands, except per share data;
unaudited) Nine Months Ended Sept. 30, Sept. 30,
2009 2008 Revenue: Product $ 31,107 $
32,639 License 1,469 3,349 Total
revenue 32,576 35,988 Cost of revenue: Product (1) 25,500 34,156
Amortization of acquisition intangibles 1,877 2,161 Impairment of
acquisition intangibles and fixed assets -
4,097 Total cost of revenue 27,377
40,414 Gross profit (loss) 5,199 (4,426 ) Operating
expenses: Selling, general and administrative (1) 8,643 12,088
Research and development (1) 6,229 4,486 Restructuring 2,303 406
Amortization of acquisition intangibles 94 518 Impairment of
acquisition intangibles - 4,312 Goodwill impairment (159 )
4,952 Total operating expenses 17,110
26,762 Loss from operations (11,911 ) (31,188 ) Other
income (expense): Interest income 154 1,076 Interest expense (473 )
(201 ) Other, net 249 63 Total other
income (expense), net (70 ) 938 Loss before
income taxes (11,981 ) (30,250 ) Provision (benefit) for income
taxes 38 (795 ) Net loss $ (12,019 ) $ (29,455
) Loss per share: Basic $ (3.08 ) $ (7.55 ) Diluted $ (3.08 ) $
(7.55 ) Shares used in computing loss per share: Basic 3,903 3,899
Diluted 3,903 3,899 (1) Includes stock-based
compensation expense as follows: Cost of revenue $ 16 $ 264
Selling, general and administrative expense 719 1,356 Research and
development expense 211 339 $ 946
$ 1,959 ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in
thousands, except per share data; unaudited)
Three Months Ended Sept. 30, June 30, Sept. 30, 2009
2009 2008 GAAP loss from operations $
(3,189 ) $ (3,834 ) $ (20,147 ) Non-GAAP adjustments: Amortization
of acquisition intangibles 649 661 1,135 Impairment of acquisition
intangibles and fixed assets - - 8,249 Goodwill impairment - (159 )
4,952 Stock-based compensation expense 322 332
593 Total non-GAAP adjustments 971
834 14,929 Non-GAAP loss from
operations $ (2,218 ) $ (3,000 ) $ (5,218 ) GAAP net
loss $ (3,260 ) $ (3,739 ) $ (19,590 ) Total non-GAAP adjustments
affecting income from operations 971 834 14,929 Tax adjustment*
- - 27 Non-GAAP net loss
$ (2,289 ) $ (2,905 ) $ (4,634 ) Shares used in calculating
non-GAAP diluted loss per share 3,897 3,903 3,904 Non-GAAP
diluted loss per share $ (0.59 ) $ (0.74 ) $ (1.19 ) * The
non-GAAP tax adjustment represents the tax effect of the non-GAAP
adjustments. ENTORIAN TECHNOLOGIES INC. RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share
data; unaudited) Nine Months Ended Sept. 30, Sept.
30, 2009 2008 GAAP loss from operations
$ (11,911 ) $ (31,188 ) Non-GAAP adjustments: Amortization of
acquisition intangibles 1,971 2,679 Impairment of acquisition
intangibles and fixed assets - 8,409 Goodwill impairment (159 )
4,952 Stock-based compensation expense 946
1,959 Total non-GAAP adjustments 2,758
17,999 Non-GAAP loss from operations $ (9,153 ) $ (13,189 )
GAAP net loss $ (12,019 ) $ (29,455 ) Total non-GAAP
adjustments affecting income from operations 2,758 17,999 Tax
adjustment* - 35 Non-GAAP net loss $
(9,261 ) $ (11,421 ) Shares used in calculating non-GAAP
diluted loss per share 3,903 3,899 Non-GAAP diluted loss per
share $ (2.37 ) $ (2.93 ) * The non-GAAP tax adjustment
represents the tax effect of the non-GAAP adjustments.
ENTORIAN TECHNOLOGIES INC. CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands) Sept. 30, Dec. 31, 2009
2008 (unaudited) ASSETS Current assets: Cash and cash
equivalents $ 2,536 $ 15,651 Investments 8,647 1,639 Accounts
receivable, net of allowances of $186 in 2009 and $597 in 2008
16,585 5,256 Inventories 7,552 5,018 Prepaid expenses 500 510
Income tax recoverable 1,646 1,571 Deferred tax asset 272 271 Other
current assets 443 1,592 Total current
assets 38,181 31,508 Property, plant
and equipment, net 3,624 4,439 Long-term investments - 7,337 Other
intangible assets, net 8,750 10,611 Other assets 111
81 Total assets $ 50,666 $ 53,976
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 14,438 $ 4,995 Accrued compensation 199 1,951
Accrued liabilities 1,558 1,490 Deferred revenue 876
45 Total current liabilities 17,071
8,481 Other accrued liabilities 69 180 Deferred tax
liabilities 170 170 Convertible notes payable 3,633 3,847 Related
party convertible notes payable 6,428 6,805 Stockholders'
equity: Capital stock 150,371 149,428 Treasury stock (25,947 )
(25,850 ) Accumulated other comprehensive income 1 26 Accumulated
deficit (101,130 ) (89,111 ) Total stockholders'
equity 23,295 34,493 Total liabilities
and stockholders' equity $ 50,666 $ 53,976
ENTORIAN TECHNOLOGIES INC. RECONCILIATION OF ADDITIONAL GAAP TO
NON-GAAP FINANCIAL MEASURES (in thousands; unaudited)
Quarter Ended Sept. 30, June 30, Sept. 30, 2009
2009 2008 Gross profit (loss) $
1,254 $ 1,098 $ (3,305 ) Non-GAAP adjustments: Amortization of
acquisition intangibles 626 626 970 Impairment of acquisition
intangibles and fixed assets - - 3,937 Stock-based compensation
5 3 97 Non-GAAP gross
profit $ 1,885 $ 1,727 $ 1,699 Total
revenue $ 11,788 $ 7,750 $ 18,463 Non-GAAP gross margin
percentage 16 % 22 % 9 % Operating expenses $ 4,443 $ 4,932
$ 16,842 Non-GAAP adjustments: Amortization of acquisition
intangibles 23 35 165 Impairment of acquisition intangibles - -
4,312 Goodwill impairment - (159 ) 4,952 Stock-based compensation
317 329 496 Non-GAAP
operating expenses $ 4,103 $ 4,727 $ 6,917
Selling, general and administrative expense $ 2,616 $
2,829 $ 5,132 Non-GAAP adjustments: Stock-based compensation
251 272 388 Non-GAAP selling,
general and administrative expense $ 2,365 $ 2,557 $
4,744 Non-GAAP SG&A as a percentage of total
revenue 20 % 33 % 26 % Research and development expense $
1,937 $ 2,107 $ 2,089 Non-GAAP adjustments: Stock-based
compensation 66 57 108
Non-GAAP research and development expense $ 1,871 $ 2,050
$ 1,981 Non-GAAP R&D as a percentage of
total revenue 16 % 26 % 11 %
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