Delaware | 33-0676350 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
12 Morgan | |
Irvine, California | 92618 |
(Address of principal executive offices) | (Zip Code) |
Common Stock, Par Value $0.001 | OTCBB | |
Title of each class | Name of exchange on which registered | |
PART I | |
Item 1. Description of Business | 1 |
Understanding Our Market | 2 |
Our Strategic Plan | 2 |
Markets for Our Products | 2 |
Storage Area Networking Market | 2 |
Sales and Marketing | 2 |
Customers and Markets | 3 |
Customer Service and Support | 3 |
Engineering, Research and Development | 3 |
Manufacturing and Quality | 3 |
General and Administration | 4 |
Working Capital Practices | 4 |
Forward-Looking Statements—Cautionary Statement | 5 |
Risk Factors | 5 |
Item 2. Properties | 12 |
Item 3. Legal Proceedings | 12 |
Item 4. Submission of Matters to a Vote of Security Holders | 12 |
PART II | |
Item 5. Market for Company’s Common Equity and Related Matters | 13 |
Item 6. Selected Financial Data | 14 |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Overview | 15 |
Our change in strategies | 15 |
Our change in profitibility | 16 |
Our change in Inventory Reserves and its Impact on our Operating Results | 16 |
Results of Operations: Comparison of the Years Ended January 31, 2004 and 2003 | 16 |
Results of Operations: Comparison of the Years Ended January 31, 2003 and 2002 | 18 |
Liquidity and Capital Resources | 19 |
Effects of Inflation and Currency Exchange Rates | 20 |
New Accounting Standards | 21 |
Critical Accounting Policies and Estimates | 21 |
Other Matters | 22 |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 22 |
Item 8. Financial Statements and Supplementary Data | 22 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 22 |
Item 9a Controls and Procedures | 22 |
PART III | |
Item 10. Directors and Executive Officers of the Company | 23 |
Other Senior Managers | 24 |
Item 11. Executive Compensation | 25 |
Compliance with Section 16(a) of the Exchange Act | 26 |
Item 12. Security Ownership of Certain Beneficial Owners and Management | 27 |
Item 13. Certain Relationships and Related Transactions | 28 |
PART IV | |
Item 14. Principal Account Fees and Services | 29 |
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K | 29 |
Signatures | 31 |
Index to Consolidated Financial Statements | F-1 |
ii | ||
1 | ||
2 | ||
3 | ||
Fiscal Year 2004 | Fiscal Year 2003 | Fiscal Year 2002 | Fiscal Year 2001 | ||||
Consolidated | Consolidated | Consolidated | Less Sync | Net comparable | |||
Raw material | $ 3,002 | $3,736 | $ 6,599 | $1,172 | $5,427 | $ 5,659 | |
Work in process | 61 | 163 | 27 | - | 27 | 672 | |
Finished goods | 2,642 | 3,486 | 2,932 | 1,790 | 1,142 | 1,645 | |
5,705 | 7,385 | 9,558 | 2,962 | 6,596 | 7,976 | ||
Less: Valuation reserve | (3,411) | (3,809) | (5,459) | (2,432) | (3,027) | (3,340) | |
Net Inventory | $ 2,294 | $ 3,576 | $ 4,099 | $ 530 | $3,569 | $ 4,636 | |
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
9 | ||
10 | ||
11 | ||
12 | ||
Fiscal 2003 | |||||||
Quarter from February 1, 2002 to April 30, 2002 | $ | 0.25 | $ | 0.09 | |||
Quarter from May 1, 2002 to July 31, 2002 | $ | 0.35 | $ | 0.16 | |||
Quarter from August 1, 2002 to October 31, 2002 | $ | 0.19 | $ | 0.06 | |||
Quarter from November 1, 2002 to January 31, 2003 | $ | 0.05 | $ | 0.26 | |||
Fiscal 2004 | |||||||
Quarter from February 1, 2003 to April 30, 2003 | $ | 0.40 | $ | 0.20 | |||
Quarter from May 1, 2003 to July 31, 2003 | $ | 0.37 | $ | 0.19 | |||
Quarter from August 1, 2003 to October 31, 2003 | $ | 0.23 | $ | 0.14 | |||
Quarter from November 1, 2003 to January 31, 2004 | $ | 0.21 | $ | 0.11 |
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a) | ||||||||
Plan category | (a) | (b) | (c) | |||||||
Equity Compensation Plans Approved by Security Holders | 2,974,806 | $ | 1.11 | 1,998,208 | ||||||
Equity Compensation Plans Not Approved by Security Holders | 575,757* | $ | 0.74 | - | ||||||
Total | 3,550,563 | $ | 1.05 | 1,998,208 |
13 | ||
Fiscal Year Ended January 31, | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||
Statement of Operations Data: | ||||||||||||||||
Net revenue | $ 6,221 | $ 13,631 | $ 13,263 | $ 25,657 | $ 28,771 | |||||||||||
Net income (loss) from continuing operations | $ 1,984) | $ 1,742 | $ (10,650) | $ (17,728) | $ (3,387) | |||||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | (0.15 | ) | $ | 0.14 | $ | (0.66 | ) | $ | (2.98 | ) | $ | (0.80 | |||
Diluted | $ | (0.15 | ) | $ | 0.14 | $ | (0.66 | ) | $ | (2.98 | ) | $ | (0.80 | ) | ||
Balance Sheet Data: | ||||||||||||||||
Cash & cash equivalents | $ | 72 | $ | 808 | $ | 698 | $ | 9,953 | $ | 112 | ||||||
Short- term investments | - | 45 | - | - | - | |||||||||||
Restricted cash | - | 300 | 300 | 300 | - | |||||||||||
Working capital | 2,170 | 3,506 | 1,127 | 7,815 | 4,209 | |||||||||||
Total assets | 3,906 | 7,671 | 9,439 | 22,012 | 16,544 | |||||||||||
Total debt (including capital leases) | 65 | 542 | 828 | 4,093 | 2,878 | |||||||||||
Stockholders’ equity (deficit) | $ | 2,799 | $ | 4,910 | $ | 3,238 | $ | 10,136 | $ | (14,706 | ) |
14 | ||
15 | ||
Fiscal Years Ended January 31 | |||||||||||||||||||
2004 | Pct of Revenue | 2003 | Pct of Revenue | Difference | Pct | ||||||||||||||
NET REVENUES | |||||||||||||||||||
PRODUCT | $ | 5,224 | 84.0 | % | $ | 12,243 | 89.8 | % | $ | ( 7,109 | ) | 58.1 | % | ||||||
SERVICES | 997 | 16.0 | % | 1,388 | 10.2 | % | (391 | ) | 28.2 | % | |||||||||
TOTAL NET REVENUES | $ | 6,221 | 100.0 | % | 13,631 | 100.0 | % | $ | (7,410 | ) | 54.4 | % |
Fiscal Years Ended | |||||||||||||||||||
January 31, 2004 | January 31, 2003 | ||||||||||||||||||
Expense | Pct of Revenue | Expense | $ | Pct of Revenue | Difference | Pct | |||||||||||||
Selling and marketing | $ | 456 | 7.3 | % | $ | 830 | 6.1 | % | $ | (374 | ) | (45.1) | % | ||||||
Engineering, research and development | 1150 | 18.5 | % | 1172 | 8.6 | % | (22 | ) | (1.9) | % | |||||||||
General and administrative | 1,457 | 23.4 | % | 2139 | 15.7 | % | (682 | ) | (31.9) | % | |||||||||
Other operating expenses | 341 | 5.5 | % | 480 | 3.5 | % | (139 | ) | (29.0) | % | |||||||||
Total | $ | 3,404 | 54.7 | % | 4,621 | 33.9 | % | (1,217 | ) | (26.3) | % |
16 | ||
17 | ||
18 | ||
The following table presents, at January 31, 2004, our obligations and commitments to make future payments under contracts and contingent commitments. | |||||||||||||
Payment Due by Period as of January 31, 2003 | |||||||||||||
(In thousands) | Less than | 1-3 | 4-5 | After 5 | |||||||||
Contractual Obligations | Total | 1 Year | Years | Years | Years | ||||||||
Short Term Debt | $ 65 | $ 65 | $ - | $ - | $ - | ||||||||
Operating Leases | 153 | 153 | - | $ - | $ - | ||||||||
Total Contractual Cash Obligations | $ 218 | $ 218 | $ - | $ - | $ - |
19 | ||
20 | ||
21 | ||
We maintain controls and procedures designed to ensure that we are able to collect the information required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Our Chief Executive and Chief Financial Officers are responsible for establishing and maintaining these procedures and, as required by the rules of the SEC, evaluate their effectiveness. Based on their evaluation of our controls and procedures which took place as of a date within 107 days prior to the filing date of this report, Chief Executive and Chief Financial Officers believe that these procedures are effective to ensure that Entrada Networks is able to collect, process and disclose the information we are required to disclose in the reports it files with the SEC within the required time periods.
(b) Changes in Internal Controls.
We maintain a system of internal controls designed to provide reasonable assurance that: transactions are executed in accordance with our management’s general or specific authorization; transactions are recorded as necessary to (1) to permit preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, and (2) to maintain accountability for assets; access to assets is permitted only in accordance with our management’s general or specific authorization; and the recorded accountability for assets is compared with the exiting assets at reasonable intervals and appropriate action is take with respect to any difference.
Since the date of the most recent evaluation of our internal controls by the Chief Executive and Chief Financial Officers, there have been no significant changes in such controls or in other factors that could have significantly affected those controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
22 | ||
Name | Age | Position |
Kanwar J.S. Chadha | 57 | Chairman, President, Chief Executive Officer, Director |
Davinder Sethi | 56 | Vice Chairman, Chief Financial Officer, Director (i) |
Leonard Hecht | 67 | Director (ii) Chairman of Audit Committee |
Rohit Phansalkar | 58 | Director (ii)(iii) |
Raymond Ngan | 30 | Director |
23 | ||
24 | ||
Annual Compensation | Long-Term Compensation | ||||||||
Other | Restricted | Securities | Long-Term | All | |||||
Annual | Stock | Underlying | Incentive | Other | |||||
Fiscal | Salary | Bonus | Compensation | Award(s) | Options | Plan | Compensation | ||
Name and Principal Position | Year | ($) | ($) | ($) | ($) | (#) | Payouts | ($) | |
Kanwar J.S. Chadha, Ph.D., | 2004 | 187,986 | 55,000 | - | 810,000 | - | |||
Chairman, CEO, | 2003 | 257,942 | - | - | 100,000 | - | - | - | |
President, Director | 2002 | 211,110 | - | - | - | 160,000 | - | - | |
Davinder Sethi, Ph.D. | |||||||||
Vice Chairman, CFO, | 2004 | 141,066 | 30,000 | - | - | 200,000 | - | - | |
Director | 2003 | 180,000 | - | - | 50,000 | - | - | - | |
2002 | 35,805 | - | - | - | 500,000 | - | - |
Option Grants in Last Fiscal Year | ||||||||||||||||||||||
Individual Grants | ||||||||||||||||||||||
Name | Number of Securities Underlying Options Granted (#) | Percent of Total Options Granted to Employees in Fiscal Year | Exercise or Base Price ($/Share) | Market Price on Date Granted ($/Share) | Expiration Date | Potential Realizable Value at Assumed Annual Rates of Stock Appreciation for Option Term (A) | ||||||||||||||||
5% ($) | 10% ($) | |||||||||||||||||||||
Kanwar J. S. Chadha | 660,000 | 43.5% | $ 0.22 | $ 0.22 | 2/3/2013 | $ 91,316 | $ 231,411 | |||||||||||||||
150,000 | 9.9 | 0.28 | 0.28 | 4/30/2013 | 26,414 | 66,937 | ||||||||||||||||
Davinder Sethi | 100,000 | 6.6 | 0.22 | 0.22 | 2/3/2013 | 13,836 | 35,062 | |||||||||||||||
100,000 | 6.6 | 0.28 | 0.28 | 4/30/2013 | $ 17,609 | $ 44,625 |
In accordance with Securities and Exchange Commission rules, these columns show gains that might exist for the respective options, assuming that the market price of our common stock appreciates from the date of the grant over the term of the option at rates of 5% and 10%, respectively.
25 | ||
Aggregated Option Exercises in Fiscal Year 2004 and January 31, 2004 Option Values | |||||||||||||||||||
Name | Shares Acquired On Exercise (#) | Value Realized ($) | Number of Securities Underlying Unexercised Options at Fiscal Year-End (#) | Value of Unexercised In-the-Money Options at Fiscal Year-End ($) (A) | |||||||||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||
Kanwar J. S. Chadha | - | - | 569,497 | 240,503 | - | - | |||||||||||||
Davinder Sethi | - | - | 416,667 | 283,333 | $ | 14,666.68 | $ | 7,333.32 |
Options are "in-the-money" if, on January 31, 2004, the market price of the Common Stock ($0.19) exceeded the exercise price of such options. The value of such options is calculated by determining the difference between the aggregate market price of the Common Stock covered by such options on January 31, 2004, and the aggregate exercise price of such options.
Dr. Kanwar J.S. Chadha, Chairman, President, Chief Executive Officer and Director, has an agreement dated December 1, 2000, that provides for the immediate vesting of options, and for the Company’s loan of funds to Dr. Chadha for the purposes of exercising such options, in the event of a change in control of Entrada. We had entered into an employment agreement with Dr. Chadha that ran through April 14, 2004 and an employment agreement with Dr. Davinder Sethi, our Chief Financial Officer, that runs through October 31, 2005. Dr. Chadha’s employment agreement was amended on April 30, 2004 and it now runs through April 14, 2008.
26 | ||
Number of | Percentage of | ||
Title of Class | Name of Beneficial Owner (A) | Shares | Outstanding (H) |
Common | Kanwar J.S. Chadha 12 Morgan, Irvine, CA 92618 | 1,371,769 (B) | 9.9% |
Common | Leonard N. Hecht 12 Morgan, Irvine, CA 92618 | 361,621 (C) | 2.6% |
Common | Rohit Phansalkar 12 Morgan, Irvine, CA 92618 | 471,833 (D) | 3.3% |
Common | Davinder Sethi 12 Morgan, Irvine, CA 92618 | 1,287,823 (E) | 8.8% |
Common | Raymond Ngan | 311,534 (F) | 2.2% |
All Directors and Executive Officers as a group | 3,804,580 | 23.3% | |
Springboard Harper | 741,249 | 5.3% | |
Total All Affiliates | 4,545,829 | 27.9% |
27 | ||
30 | ||
28 | ||
Fiscal Year 2004 | Fiscal Year 2003 | |
Audit Fees(1) | $ 61,433 | $ 81,923 |
Audit-related fees(2) | 20,735 | — |
Tax fees(3) | 15,000 | 15,000 |
All other fees(4) | 4,078 | 34,486 |
Total | $ 96,246 | $ 131,409 |
(1) | Represents fees for professional services provided in connection with the audit of our annual financial statements and review of our quarterly financial statements. |
(2) | During fiscal year 2004, we incurred fees for assurance services in connection with the audit of our 401-K Plan and audit related services in connection with the filing our Form S-3 and Form SB-2. |
(3) | Represents fees in connection with preparation of our federal and state tax returns. |
(4) | During fiscal years 2004 and 2003, fees include review of responses to SEC inquiries, Form 8-K filings and Form S-4. |
(a) Exhibits and Consolidated Financial Statement Schedules |
1.Financial Statements: (see index to financial statements at page F-1) |
Report of Independent Certified Public Accountants |
Consolidated Balance Sheets at January 31, 2004 and 2003 |
Consolidated Statements of Operations for the Years Ended January 31, 2004, 2003 and 2002 |
Consolidated Statement of Stockholders' Equity for the Years Ended January 31, 2004, 2003 and 2002 |
Consolidated Statements of Cash Flows for the Years Ended January 31, 2004, 2003 and 2002 |
Notes to Consolidated Financial Statements |
29 | ||
2.Exhibits: |
2 Amended and Restated Agreement and Plan of Merger between Sync Research, Inc, a Delaware Corporation, and Osicom Technologies, Inc., a New Jersey Corporation - (A) |
3.1 Amended and Restated Certificate of Incorporation dated June 25, 1999 - (B) |
3.2 Amended and Restated By-Laws of Registrant - (C) |
3.3 Series A Preferred Stock Certificate of Designation dated May 11, 2000 - (D) |
3.4 Certificate of Amendment to the Certificate of Incorporation dated August 31, 2000 |
4.1 Amended and Restated 1991 Stock Plan (amended as of June 12, 1998) and form of Option Agreement – (E) |
4.2 Amended 1995 Employee Stock Purchase Plan (amended as of September 27, 1996) and form of Subscription Agreement – (F) |
4.3 Amended and Restated 1995 Directors' Option Plan (amended as of June 12, 1998) and form of Option Agreement – (E) |
4.4 Amended and Restated 1996 Non-Executive Stock Option Plan (amended as of August 21, 1998) – (G) |
4.5 2000 Stock Incentive Plan dated October 12, 2000 – (H) |
4.6 Securities Purchase Agreement dated January 15, 2002-(K) |
9.1 Amended and Restated Shareholders' Agreement dated April 25, 1994 – (I) |
10.1 401(k) Plan – (I) |
10.2 Third Amendment to Lease for 10C Commerce Way, Norton, MA dated July 28, 1999 – (J) |
10.3 Lease for 10070 Mesa Rim Road, San Diego, CA dated May 25, 2000 |
10.4 Amended lease for 9020 Junction Drive, Annapolis Junction, MD dated April 22, 1999 |
A Form S-4/A filed August 3, 2000. |
B Form 10-Q for the fiscal quarter ended June 30, 1999, filed August 16, 1999. |
C Form 10-K for the year ended December 31, 1999, filed March 24, 2000. |
D Form 8-K filed May 19, 2000. |
E Form 10-Q for the fiscal quarter ended June 30, 1998, filed August 14, 1998. |
F Form 10-Q for the fiscal quarter ended September 30, 1996, filed November 14, 1996. |
G Form 10-Q for the fiscal quarter ended September 30, 1998, filed November 16, 1998. |
H Form 14C filed November 6, 2000. |
I Form S-1, as amended, which became effective on November 9, 1995. |
J Form 10-Q for the fiscal quarter ended September 30, 1999, filed November 15, 1999. |
K Form 8-K filed January 25, 2002 |
L Form S-8 filed December 14, 2000 |
M Form S-3 filed November 26, 2003 |
N Form S-3/A filed December 1, 2003 |
Our Form 8-K filed April 14, 2003 providing our fiscal year ended January 31, 2003 earnings release. |
Our Form 8-K filed July 8, 2003 providing financial impact of Cisco discontinuing purchasing an adapter card. |
Our Form 8-K filed August 25, 2003 providing our Q2 FY2004 earnings release for the period ended July 31, 2003 |
Our Form 8-K filed November 26, 2003 covering our agreement to sell 3,000,000 shares of our common stock for $0.20 per share. |
Our Form 8-K filed December 1, 2003 providing our Q3 FY2004 earnings release for the period ended October 31, 2003 |
Our Form 8-K filed December 1, 2003 covering additional information about our agreement to sell 3,000,000 shares of our common stock for $0.20 per share. |
31.1 Statement Under Oath for Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. |
31.2 Statement Under Oath for Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. |
32.1 Statement Under Oath for Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. |
32.2 Statement Under Oath for Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. |
30 | ||
By: /s/ Davinder SethiDate: May 14, 2004 |
Davinder Sethi, Ph.D. |
Chief Financial Officer |
Principal Accounting Officer |
By:/s/ Kanwar J.S. Chadha Date: May 14, 2004 |
Kanwar J.S. Chadha, Ph.D. |
Chairman and Director |
President and Chief Executive Officer |
By:/s/ Leonard Hecht Date: May 14, 2004 |
Leonard Hecht |
Director |
By:/s/ Rohit Phansalkar Date: May 14, 2004 |
Rohit Phansalkar |
Director |
By:/s/ Davinder Sethi Date: May 14, 2004 |
Davinder Sethi, Ph.D. |
Vice Chairman and Director |
By: Date: May 14, 2004 |
Raymond Ngan |
Director |
31 | ||
Page | |
Report of Independent Certified Public Accountant | F-2 |
Consolidated Balance Sheets as of January 31, 2004 and 2003 | F-3 |
Consolidated Statements of Operations for the years ended January 31, 2004, 2003, and 2002 | F-4 |
Consolidated Statements of Stockholders' Equity for the years ended January 31, 2004, 2003, and 2002 | F-5 |
Consolidated Statements of Cash Flows for the years ended January 31, 2004, 2003, and 2002 | F-6 |
Notes to Consolidated Financial Statements | F- 7to F-21 |
30 F-1 | ||
/s/ BDO Seidman, LLP |
BDO Seidman, LLP |
Los Angeles, California |
March 25, 2004, except for Note P, which is as of May 14, 2004 |
F-2 | ||
ENTRADA NETWORKS, INC. | |||||||
AND SUBSIDIARIES | |||||||
(In Thousands) | As of | ||||||
January 31, 2004 | January 31, 2003 | ||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash and equivalents | $ | 72 | $ | 808 | |||
Short-term investments | - | 45 | |||||
Accounts receivable, net (Note R) | 561 | 1,329 | |||||
Inventory, net (Notes B, and R) | 2,294 | 3,576 | |||||
Prepaid expenses and other current assets | 350 | 509 | |||||
TOTAL CURRENT ASSETS | 3,277 | 6,267 | |||||
PROPERTY AND EQUIPMENT, NET (Note C) | 590 | 1,073 | |||||
OTHER ASSETS | |||||||
Deposits | 39 | 31 | |||||
Restricted Cash | - | 300 | |||||
TOTAL OTHER ASSETS | 39 | 331 | |||||
TOTAL ASSETS | $ | 3,906 | $ | 7,671 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
CURRENT LIABILITIES | |||||||
Accounts payable | $ | 383 | $ | 810 | |||
Other current and accrued liabilities (Note E) | 659 | 1,409 | |||||
Short-term debt (Note D) | 65 | 474 | |||||
Current maturities of long term debt and capital leases (Note G) | - | 68 | |||||
TOTAL LIABILITIES | 1,107 | 2,761 | |||||
COMMITMENTS AND CONTINGENCIES (Notes H and I) | |||||||
STOCKHOLDERS' EQUITY (Note J) | |||||||
Preferred stock, $.001 par value; 2,000 shares authorized; -0- shares issued. | |||||||
Common stock, $.001 par value; 50,000 shares authorized; 13,901 shares | |||||||
issued and outstanding at January 31, 2004; 12,937 shares issued | |||||||
and outstanding at January 31, 2003 | 13 | 13 | |||||
Treasury Stock (402,616 shares at cost) | (127 | ) | - | ||||
Additional paid-in capital | 52,001 | 52,001 | |||||
Accumulated deficit | (49,088 | ) | (47,104 | ) | |||
TOTAL STOCKHOLDERS' EQUITY | 2,799 | 4,910 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 3,906 | $ | 7,671 | |||
F-3 | ||
ENTRADA NETWORKS, INC. | |||||||||||||
AND SUBSIDIARIES | |||||||||||||
(In Thousands, except per share amounts) | |||||||||||||
Years Ended January 31 | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
NET REVENUES | |||||||||||||
PRODUCT | $ | 5,224 | $ | 12,243 | $ | 10,125 | |||||||
SERVICES | 997 | 1,388 | 3,138 | ||||||||||
TOTAL NET REVENUES | 6,221 | 13,631 | 13,263 | ||||||||||
COST OF REVENUE | |||||||||||||
PRODUCT | 4,532 | 6,909 | 6,868 | ||||||||||
SERVICES | 326 | 206 | 889 | ||||||||||
TOTAL COST OF REVENUE | 4,858 | 7,115 | 7,757 | ||||||||||
GROSS PROFIT | 1,363 | 6,516 | 5,506 | ||||||||||
OPERATING EXPENSES | |||||||||||||
Selling and marketing | 456 | 830 | 3,438 | ||||||||||
Engineering, research and development | 1,150 | 1,172 | 6,499 | ||||||||||
General and administrative | 1,457 | 2,139 | 4,035 | ||||||||||
Other operating expenses | 341 | 480 | 1,741 | ||||||||||
Non-recurring one-time charges (Note F) | - | - | 248 | ||||||||||
TOTAL OPERATING EXPENSES | 3,404 | 4,621 | 15,961 | ||||||||||
INCOME (LOSS) FROM OPERATIONS | (2,041 | ) | 1,895 | (10,455 | ) | ||||||||
OTHER INCOME (EXPENSE) | |||||||||||||
Interest expense, net | (14 | ) | (69 | ) | (195 | ) | |||||||
Other income (expense) | 71 | (84 | ) | - | |||||||||
TOTAL OTHER INCOME (EXPENSE) | 57 | (153 | ) | (195 | ) | ||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | (1,984 | ) | 1,742 | (10,650 | ) | ||||||||
INCOME (LOSS) ON DISCONTINUED | |||||||||||||
OPERATIONS (Note A) | - | - | 3,401 | ||||||||||
NET INCOME (LOSS) | $ | (1,984 | ) | $ | 1,742 | $ | (7,249 | ) | |||||
INCOME (LOSS) PER COMMON SHARE (Note M): | |||||||||||||
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 13,528 | 12,801 | 10,994 | ||||||||||
NET INCOME (LOSS) PER COMMON SHARE: | |||||||||||||
CONTINUING OPERATIONS | $ | (0.15 | ) | $ | 0.14 | $ | (0.97 | ) | |||||
DISCONTINUED OPERATIONS | - | - | $ | 0.31 | |||||||||
BASIC AND DILUTED NET LOSS PER COMMON SHARE | $ | (0.15 | ) | $ | 0.14 | $ | (0.66 | ) | |||||
F-4 | ||
ENTRADA NETWORKS, INC. | |||||||||||||||||||
AND SUBSIDIARIES | |||||||||||||||||||
(In Thousands) | |||||||||||||||||||
COMMON | ADDITIONAL | TOTAL | |||||||||||||||||
STOCK | TREASURY | PAID IN | ACCUMULATED | STOCKHOLDERS' | |||||||||||||||
Shares | Amount | STOCK | CAPITAL | DEFICIT | EQUITY | ||||||||||||||
BALANCE AT JANUARY 31, 2001 | 10,993 | $ | 11 | - | $ | 51,722 | $ | (41,597 | ) | $ | 10,136 | ||||||||
Silicon Valley Bank Warrants | - | - | 42 | - | 42 | ||||||||||||||
Beneficial conversion feature of | - | ||||||||||||||||||
convertible note | - | - | 229 | - | 229 | ||||||||||||||
Stock issuance program | 586 | 1 | 79 | - | 80 | ||||||||||||||
Net Loss | (7,249 | ) | (7,249 | ) | |||||||||||||||
BALANCE AT JANUARY 31, 2002 | 11,579 | 12 | - | 52,072 | (48,846 | ) | 3,238 | ||||||||||||
Stock issuance program | 1,358 | 1 | 188 | - | 189 | ||||||||||||||
Acquisition of beneficial conversion | |||||||||||||||||||
f eature (Note G ) | - | - | (259 | ) | - | (259 | ) | ||||||||||||
Net income | - | - | - | 1,742 | 1,742 | ||||||||||||||
BALANCE AT JANUARY 31, 2003 | 12,937 | 13 | - | 52,001 | (47,104 | ) | 4,910 | ||||||||||||
Treasury Stock | $ | (127 | ) | ||||||||||||||||
Warrants Exercised | 964 | - | - | - | - | ||||||||||||||
Net Loss | - | - | - | (1,984 | ) | (1,984 | ) | ||||||||||||
BALANCE AT JANUARY 31, 2004 | 13,901 | $ | 13 | $ | (127 | ) | $ | 52,001 | $ | (49,088 | ) | $ | 2,799 |
F-5 | ||
ENTRADA NETWORKS, INC. | ||||||||||
AND SUBSIDIARIES | ||||||||||
(In Thousands) | 2004 |
|
| 2003 |
|
| 2002 | |||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
Net income (loss) | $ | (1,984 | ) | $ | 1,742 | $ | (7,249 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||||||
Depreciation and amortization | 486 | 606 | 2,700 | |||||||
Non cash write off | - | 1,062 | - | |||||||
Non cash interest | - | 104 | - | |||||||
Write off of fixed assets | 1 | 153 | - | |||||||
Accounts receivable and inventory reserve (Note R) | 1002 | - | 2,412 | |||||||
Warrants issued in conjunction with credit facility | - | - | 42 | |||||||
Gain on extinguishment of convertible note | - | (134 | ) | |||||||
Issuance of common stock in payment of expenses | - | 100 | 80 | |||||||
Changes in assets and liabilities net of effects of business entity acquisition: | ||||||||||
(Increase) decrease in accounts receivable | 807 | 648 | 2,720 | |||||||
(Increase) decrease in inventories | 175 | (538 | ) | (1,582 | ) | |||||
(Increase) decrease in prepaid and other current assets | 517 | 17 | 65 | |||||||
Increase (decrease) in accounts payable | (428 | ) | (1,722 | ) | (722 | ) | ||||
Increase (decrease) in accrued expenses | (584 | ) | (1,474 | ) | (2,620 | ) | ||||
Increase (decrease) in other current liabilities | (164 | ) | 196 | - | ||||||
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES | (172 | ) | 760 | (4,154 | ) | |||||
CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||||
Purchase of property and equipment | (4 | ) | (26 | ) | (2,055 | ) | ||||
Short-term investments | (82 | ) | (45 | ) | - | |||||
NET CASH USED IN INVESTING ACTIVITIES | (86 | ) | (71 | ) | (2,055 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Acquisition of beneficial conversion feature (Note G) | - | (259 | ) | - | ||||||
Proceeds from issuances of common stock (Note J) | - | 4 | ||||||||
Net proceeds from short-term debt (Note D) | (410 | ) | (211 | ) | (2,882 | ) | ||||
Proceeds (repayment) from long-term debt, net (Note G) | - | 30 | 250 | |||||||
Repayment of capital lease obligations (Note H) | (68 | ) | (143 | ) | (414 | ) | ||||
Proceeds from exercise of stock options (Note K) | - | - | - | |||||||
NET CASH USED IN FINANCING ACTIVITIES | (478 | ) | (579 | ) | (3,046 | ) | ||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (736 | ) | 110 | (9,255 | ) | |||||
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR | 808 | 698 | 9,953 | |||||||
CASH AND CASH EQUIVALENTS - END OF YEAR | $ | 72 | $ | 808 | $ | 698 | ||||
See accompanying notes to consolidated financial statements. |
F-6 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except share and per share amounts) |
Item | Amount (millions) | Description |
Inventory impairment | $ 2.2 | This adjustment records a full reserve against the cost basis of Sync’s inventory based upon the intent to abandon the inventory. This assumes that as a discontinued operation, the inventory value is zero as the need to dispose of inventory would result in minimal return. |
Severance | 1.1 | This adjustment records the costs associated with the termination of our employees and assumes the elimination of all of the Sync employees: 45 people including 8 change of control/contract personnel. |
Vendor payables | 1.1 | We recorded an accrual for costs due and payable under the termination provisions of an agreement with a contract manufacturing vendor. |
Lease termination accrual | 0.7 | We recorded an accrual for the remaining lease costs and lease related costs for the physical location of the discontinued operations, net of sub lease income. |
Goodwill impairment | 4.3 | Assumes 4.2 million shares at $2.75 per share offset by the valuation of Sync Research of $8.4 million at August 30, 2000 with the addition of $1.1 million merger expenses. |
Fixed asset impairment | 1.0 | This adjustment assumed that the Sync fixed asset book value would be fully reserved as a discontinued operation due to the abandonment of fixed assets. |
Total Loss | $10.4 | |
F-7 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
2004 | 2003 | ||||||
Raw material | $ | 3,002 | $ | 3,736 | |||
Work in process | 61 | 163 | |||||
Finished goods | 2,642 | 3,486 | |||||
Total Inventory | 5,705 | 7,385 | |||||
Less: Valuation reserve | (3,411 | ) | (3,809 | ) | |||
Total Net Inventory | $ | 2,294 | $ | 3,576 | |||
F-8 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
F-9 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
Fiscal Year | |||
2004 | 2003 | 2002 | |
Net income (loss) As reported: | $ (1,984) | $ 1,742 | $ (7,249) |
Add: Stock based employee compensation expense | 117 | - | - |
Deduct: Total stock based employee compensation expense determined under fair value method | (250) | (15) | (836) |
Pro forma income (loss) per share: | (2,117) | 1,727 | (8,085) |
Basic and diluted EPS as reported | $ (0.15) | $ 0.14 | $ (0.66) |
Pro forma basic and diluted EPS | $ (0.15) | $ 0.13 | $ (0.74) |
F-10 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
2004 |
|
| 2003 | ||||
Manufacturing, engineering and plant equipment and software | $ | 8,469 | $ | 8,471 | |||
Office furniture and fixtures | 275 | 275 | |||||
Leasehold and building improvements | 249 | 249 | |||||
Total property and equipment | 8,993 | 8,995 | |||||
Less: Accumulated depreciation and amortization | (8,403 | ) | (7,922 | ) | |||
Net book value | $ | 590 | $ | 1,073 | |||
Fiscal 2004 | Fiscal 2003 | ||||||
Floating interest rate loan based on 2.5% over lender’s | |||||||
prime rate secured by all of our tangible assets | $ | 65 | $ | 474 | |||
Fiscal Year | |||||||
2004 | 2003 | ||||||
Payroll and employee benefits | $ | 102 | $ | 202 | |||
Accrued accounts payable | 55 | 269 | |||||
Sales tax payable | 29 | 35 | |||||
Deferred maintenance | 394 | 559 | |||||
Accrued audit | 60 | 23 | |||||
Office lease | - | 257 | |||||
Other | 19 | 64 | |||||
Total | $ | 659 | $ | 1,409 | |||
F-11 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
2004 |
|
| 2003 | ||||
Obligations under finance leases (See Note H) | - | $ | 68 | ||||
Sub Total | - | 68 | |||||
Less: Current portion | - | 68 | |||||
Total | - | - | |||||
F-12 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
50,000,000 shares of Common Stock ($.001 par value) | |
2,000,000 shares of Preferred Stock ($.001 par value) |
Weighted Average | |||||||
Number of Shares | Exercise Price | ||||||
Shares under option at January 31, 2001 | 3,407,347 | $ | 4.08 | ||||
Granted | 1,376,400 | $ | 0.61 | ||||
Canceled | (1,777,981 | ) | $ | 3.39 | |||
Shares under option at January 31, 2002 | 3,005,766 | $ | 2.89 | ||||
Granted | 85,500 | $ | 0.14 | ||||
Cancelled | (1,584,524 | ) | $ | 3.59 | |||
Shares under option at January 31, 2003 | 1,506,742 | $ | 2.65 | ||||
Granted | 1,521,583 | $ | 0.23 | ||||
Cancelled | (53,519 | ) | $ | 0.54 | |||
Shares under option at January 31, 2004 | 2,974,806 | $ | 1.11 | ||||
F-13 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
Outstanding | Exercisable | |||||||||||||||
Weighted Average | Weighted Average | |||||||||||||||
Exercise PricePer Share | Shares | Life (Years | ) | Exercise Price | Shares | Exercise Price | ||||||||||
$0.10 - $0.15 | 813,250 | 7.98 | $ | 0.13 | 610,516 | $ | 0.13 | |||||||||
$0.17 - $0.20 | 109,000 | 8.13 | $ | 0.19 | 73,792 | $ | 0.18 | |||||||||
$0.22 – $0.22 | 1,041,883 | 9.02 | $ | 0.22 | 943,576 | $ | 0.22 | |||||||||
$0.28- $4.00 | 623,373 | 7.87 | $ | 1.50 | 287,873 | $ | 2.91 | |||||||||
$4.06 - $20.00 | 387,300 | 6.21 | $ | 5.33 | 387,300 | $ | 5.33 | |||||||||
$0.10 - $20.00 | 2,974,806 | 8.09 | $ | 1.11 | 2,303,057 | $ | 1.39 | |||||||||
2004 | 2003 | |
Risk free interest rate | 4.2% | 4.1% |
Stock volatility factor | 183% | 196% |
Weighted average expected option life | 8.09 years | 8.07 years |
Expected dividend yield | 0.0% | 0.0% |
Fair value of options granted | $0.01 to $0.23 | $0.01 to $0.16 |
Weighted average fair value of options granted | $0.23 | $0.13 |
F-14 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
2004 | 2003 | 2002 | ||||||||
Net income (loss) available to common shareholders used in basic EPS | $ | (1,984 | ) | $ | 1,742 | $ | (7,249 | ) | ||
Average number of common shares used in basic EPS | 13,528,059 | 12,800,555 | 10,994,240 | |||||||
2004 | 2003 | 2002 | |||||||||||
Net income (loss) available to common shareholders | |||||||||||||
used in basic EPS | $ | (1,984 | ) | $ | 1,742 | $ (7,249) | |||||||
Average number of common shares used in basic EPS | 13,528,059 | 12,800,555 | 10,994,240 | ||||||||||
Effect of dilutive securities: stock benefit plans | 239,426 | 84,134 | - | ||||||||||
Average number of common shares and dilutive | |||||||||||||
potential common stock used in diluted EPS | 13,767,485 | 12,884,689 | 10,994,240 | ||||||||||
F-15 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
Percent net revenues | Percent net receivables | |||||
Description | Fiscal years ended January 31, | Fiscal years ended January 31, | ||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |
Cisco | 56.7% | 56.9% | 19.6% | -% | 45.9% | 47.0% |
MCI WorldCom | - | - | - | - | 31.9 | - |
Ingram Micro | - | - | - | 14.0 | 10.9 | - |
Wells Fargo Bank - | - | - | - | - | 14.2 | - |
Solectron | - | - | 11.3 | - | - | 11.7 |
IntegraSys | -% | -% | -% | 62.0% | -% | -% |
Tranche | Number of Tranche Shares to be Purchased by SBI Brightline IV | Purchase Price | Number of Tranche Shares to be Purchased by Triology Investment Fund I | Purchase Price | |||||||||
First Tranche | 1,500,000 | $ | 300,000 ($0.20 per share | ) | 750,000 | $ | 150,000 ($0.20 per share | ) | |||||
Second Tranche | 1,500,000 | $ | 412,500 ($0.275 per share | ) | 750,000 | $ | 150,000 ($0.20 per share | ) | |||||
Third Tranche | 1,500,000 | $ | 412,500 ($0.275 per share | ) | 750,000 | $ | 206,250 ($0.275 per share | ) | |||||
Fourth Tranche | 1,500,000 | $ | 450,000 ($0.30 per share | ) | 750,000 | $ | 206,250 ($0.275 per share | ) | |||||
TOTAL | 6,000,000 | $ | 1,575,000 | 3,000,000 | $ | 712,500 |
F-16 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
The Company may elect to sell all or part of Tranche Shares in the order listed above to the Purchasers at any time commencing on the date on which the Registration Statement of the Company covering the resale of the Shares is declared effective. The Company plans to file this Registration Statement in May 2004.
Balance at January 31, 2001 | 3,340 | |||
Additions charged to costs and expenses | 2,200 | |||
Amounts used during year | (81 | ) | ||
Balance at January 31, 2002 | 5,459 | |||
Additions charged to costs and expenses | 1,062 | |||
Amounts used during year | (2712 | ) | ||
Balance at January 31, 2003 | 3,809 | |||
Additions charged to costs and expenses | 1,097 | |||
Amounts used during year | (1,495 | ) | ||
Balance at January 31, 2004 | $ | 3,411 | ||
F-17 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
Balance at January 31, 2001 | 400 | |||
Additions charged to costs and expenses | 692 | |||
Amounts used during year | ( 335 | ) | ||
Balance at January 31, 2002 | 757 | |||
Additions charged to costs and expenses | 16 | |||
Amounts used during year | ( 561 | ) | ||
Balance at January 31, 2003 | 212 | |||
Reductions charged to costs and expenses | (95 | ) | ||
Amounts used during year | (78 | ) | ||
Balance at January 31, 2004 | $ | 39 | ||
F-18 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
First |
|
| Second |
|
| Third |
|
| Fourth |
|
| Total |
| |||
|
| Quarter |
|
| Quarter |
|
| Quarter |
|
| Quarter |
|
| Year | ||
Year ended January 31, 2004: | ||||||||||||||||
Net revenue | $ | 2,708 | $ | 2,053 | $ | 931 | $ | 529 | 6,221 | |||||||
Gross profit | 1,212 | 761 | 373 | (983 | ) | 1,363 | ||||||||||
Net income (loss) | 233 | (546 | ) | (230 | ) | (1,441 | ) | (1,984 | ) | |||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.02 | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.15 | ) | ||
Diluted | $ | 0.02 | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.15 | ) | ||
First |
|
| Second |
|
| Third |
|
| Fourth |
|
| Total |
| |||
|
| Quarter |
|
| Quarter |
|
| Quarter |
|
| Quarter |
|
| Year | ||
Year ended January 31, 2003: | ||||||||||||||||
Net revenue | $ | 3,223 | $ | 3,366 | $ | 4,059 | $ | 2,983 | 13,631 | |||||||
Gross profit | 1,317 | 1,541 | 2,188 | 1,470 | 6,516 | |||||||||||
Net income | 152 | 349 | 866 | 375 | 1,742 | |||||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.01 | $ | 0.03 | $ | 0.07 | $ | 0.03 | $ | 0.14 | ||||||
Diluted | $ | 0.01 | $ | 0.03 | $ | 0.07 | $ | 0.03 | $ | 0.14 | ||||||
F-19 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
Fiscal year ended January 31 | |||||||
2004 | 2003 | ||||||
Net Revenues: | |||||||
United States | $ | 5,550 | $ | 12,638 | |||
Europe | 671 | 993 | |||||
Total net revenues | $ | 6221 | $ | 13,631 |
Fiscal year ended January 31 | |||||||
2004 | 2003 | ||||||
Net Revenues: | |||||||
Network adapter cards | $ | 4,701 | $ | 11,715 | |||
Frame relay network products | 523 | 528 | |||||
Service and support | 997 | 1,388 | |||||
Total net revenue | $ | 6,221 | $ | 13,631 | |||
F-20 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
Rixon Networks | Sync Research | Torrey Pines Networks | Total | ||||||||||
Fiscal year ended January 31, 2004 | |||||||||||||
Total Revenues | $ | 4,702 | $ | 1,519 | $ | - | 6,221 | ||||||
Net Income (loss) | (2,328 | ) | 706 | (362 | ) | (1,984 | ) | ||||||
Depreciation and amortization expense | 269 | 52 | 165 | 486 | |||||||||
Inventory reserve additions | 1,096 | - | - | 1,097 | |||||||||
Capital asset additions | 4 | - | - | 4 | |||||||||
Total Assets | $ | 2,544 | $ | 744 | $ | 618 | $ | 3,906 |
Rixon Networks | Sync Research | Torrey Pines Networks | Total | ||||||||||
Fiscal year ended January 31, 2003 | |||||||||||||
Total Revenues | 11,718 | 1,913 | - | $ | 13,631 | ||||||||
Net income (loss) | 1,603 | 429 | (290 | ) | 1,742 | ||||||||
Depreciation and amortization expense | 379 | 66 | 161 | 606 | |||||||||
Inventory reserve additions | 1,066 | (4 | ) | - | 1,062 | ||||||||
Capital asset additions | 15 | - | 11 | 26 | |||||||||
Total Assets | $ | 5,828 | $ | 1,414 | $ | 429 | $ | 7,671 |
F-21 | ||