Delaware | 33-0676350 | |
(State or other jurisdiction | (I.R.S. employer | |
of incorporation or organization) | Identification No.) |
2 | ||
3 | ||
ENTRADA NETWORKS, INC. | |||||||||||||
AND SUBSIDIARIES | |||||||||||||
CONSOLIDATED CONDENSED PRO FORMA BALANCE SHEETS | |||||||||||||
(In Thousands) | |||||||||||||
Entrada | Microtek | ||||||||||||
April 30, 2004 | March 31, 2004 | Adjustments | Pro Forma | ||||||||||
ASSETS | |||||||||||||
CURRENT ASSETS | |||||||||||||
Cash and cash equivalents | $ | 178 | $ | 268 | $ | - | $ | 446 | |||||
Accounts receivable, net | 287 | 607 | 894 | ||||||||||
Inventory, net | 2,251 | 28 | 2,279 | ||||||||||
Prepaid expenses and other current assets | 269 | 337 | 606 | ||||||||||
TOTAL CURRENT ASSETS | 2,985 | 1,240 | 4,225 | ||||||||||
PROPERTY AND EQUIPMENT, NET | 505 | 210 | 715 | ||||||||||
OTHER ASSETS | |||||||||||||
Deposits | 43 | 43 | |||||||||||
Intangible assets | 735(4 | ) | 735 | ||||||||||
TOTAL OTHER ASSETS | 43 | - | 735 | 778 | |||||||||
TOTAL ASSETS | $ | 3,533 | $ | 1,450 | $ | 735 | $ | 5,718 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
CURRENT LIABILITIES | |||||||||||||
Short-term debt | |||||||||||||
Bank | $ | 123 | $ | 12 | $ | - | $ | 135 | |||||
Other | 457 | (274)(3 | ) | 1,083 | |||||||||
900(3 | ) | ||||||||||||
Total Short Term Debt | 580 | 12 | 626 | 1,218 | |||||||||
Accounts payable | 210 | 368 | 578 | ||||||||||
Other current and accrued liabilities | 600 | 703 | 1,303 | ||||||||||
TOTAL LIABILITIES | 1,390 | 1,083 | 626 | 3,099 | |||||||||
STOCKHOLDERS' EQUITY | |||||||||||||
Common stock, $.001 par value; 50,000 shares authorized; 13,901 | |||||||||||||
shares issued and outstanding at January 31, 2004; | 13 | 1(1 | ) | 14 | |||||||||
Treasury Stock | (102 | ) | (102 | ) | |||||||||
Additional paid-in capital | 52,057 | 73 | 249(1 | ) | 52,671 | ||||||||
(73)(2 | ) | ||||||||||||
365(3 | ) | ||||||||||||
Accumulated deficit | (49,825 | ) | 294 | (294)(2 | ) | (49,964 | ) | ||||||
(139)(5 | ) | ||||||||||||
TOTAL STOCKHOLDERS' EQUITY | 2,143 | 367 | 109 | 2,619 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 3,533 | $ | 1,450 | $ | 747 | $ | 5,718 | |||||
4 | ||
ENTRADA NETWORKS, INC. | |||||||||||||
AND SUBSIDIARIES | |||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||
FOR THE QUARTER ENDED APRIL 30, 2004 | |||||||||||||
(In Thousands, except per share amounts) | Entrada |
|
| Microtek | |||||||||
Quarter Ended April 30 | Quarter Ended March 31 | Adjustments | Proforma | ||||||||||
2004 | 2004 | ||||||||||||
NET REVENUES | |||||||||||||
PRODUCT | $ | 205 | $ | 744 | $ | - | $ | 949 | |||||
SERVICES | 175 | 353 | 528 | ||||||||||
TOTAL NET REVENUES | 380 | 1,097 | 1,477 | ||||||||||
COST OF REVENUE | |||||||||||||
PRODUCT | 272 | 378 | 650 | ||||||||||
SERVICES | 66 | 190 | 256 | ||||||||||
TOTAL COST OF REVENUE | 338 | 568 | 906 | ||||||||||
GROSS PROFIT | 42 | 529 | 571 | ||||||||||
OPERATING EXPENSES | |||||||||||||
Selling and marketing | 78 | 89 | 167 | ||||||||||
Engineering, research and development | 240 | - | 240 | ||||||||||
General and administrative | 403 | 315 | 718 | ||||||||||
TOTAL OPERATING EXPENSES | 721 | 404 | 1,125 | ||||||||||
INCOME (LOSS) FROM OPERATIONS | (679 | ) | 125 | (554 | ) | ||||||||
OTHER CHARGES/ INCOME | |||||||||||||
Interest expense, net | (59 | ) | - | (139)(2 | ) | (198 | ) | ||||||
Other income | - | 2 | 2 | ||||||||||
TOTAL OTHER CHARGES/ INCOME | (59 | ) | 2 | (139 | ) | (196 | ) | ||||||
NET INCOME (LOSS) | $ | (738 | ) | $ | 127 | (139 | ) | $ | (750 | ) | |||
INCOME (LOSS) PER COMMON SHARE : | |||||||||||||
BASIC AND DILUTED | |||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 13,901 | 1,302(1 | ) | 15,203 | |||||||||
NET INCOME (LOSS) PER COMMON SHARE: | |||||||||||||
BASIC AND DILUTED NET LOSS PER COMMON SHARE | $ | (0.05 | ) | $ | - | $ | - | $ | (0.05 | ) | |||
5 | ||
ENTRADA NETWORKS, INC. | |||||||||||||
AND SUBSIDIARIES | |||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||
FOR THE FISCAL YEAR ENDED JANUARY 31, 2004 | |||||||||||||
(In Thousands, except per share amounts) | Entrada | Microtek | |||||||||||
Year Ended January 31 | Year Ended December 31 | Adjustments | Pro forma | ||||||||||
2004 | 2003 | ||||||||||||
NET REVENUES | |||||||||||||
PRODUCT | $ | 5,224 | $ | 2,927 | $ | - | $ | 8,151 | |||||
SERVICES | 997 | 587 | 1,584 | ||||||||||
TOTAL NET REVENUES | 6,221 | 3,514 | 9,545 | ||||||||||
COST OF REVENUE | |||||||||||||
PRODUCT | 4,532 | 1,743 | 6,275 | ||||||||||
SERVICES | 326 | 237 | 563 | ||||||||||
TOTAL COST OF REVENUE | 4,858 | 1,980 | 6,648 | ||||||||||
GROSS PROFIT | 1,363 | 1,534 | 2,897 | ||||||||||
OPERATING EXPENSES | |||||||||||||
Selling and marketing | 456 | 296 | 752 | ||||||||||
Engineering, research and development | 1,150 | - | 1,150 | ||||||||||
General and administrative | 1,457 | 1,276 | 2,733 | ||||||||||
Other operating expenses | 341 | - | 341 | ||||||||||
TOTAL OPERATING EXPENSES | 3,404 | 1,572 | 4,976 | ||||||||||
LOSS FROM OPERATIONS | (2,041 | ) | (38 | ) | (2,079 | ) | |||||||
OTHER CHARGES/ INCOME | |||||||||||||
Interest expense, net | (14 | ) | - | (554)(2 | ) | (568 | ) | ||||||
Other income | 71 | 2 | 73 | ||||||||||
TOTAL OTHER CHARGES/ INCOME | 57 | 2 | (554 | ) | (495 | ) | |||||||
NET LOSS | $ | (1,984 | ) | $ | (36 | ) | $ | (554 | ) | $ | (2,574 | ) | |
LOSS PER COMMON SHARE : | |||||||||||||
BASIC AND DILUTED | |||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 13,528 | 1,302(1 | ) | 14,830 | |||||||||
NET LOSS PER COMMON SHARE: | |||||||||||||
BASIC AND DILUTED NET LOSS PER COMMON SHARE | $ | (0.15 | ) | $ | - | $ | - | $ | (0.17 | ) | |||
6 | ||
Financial Statements | |
Balance Sheets | 8 |
Statement of Operations | 9 |
Statement of Cash Flows | 10 |
Summary of Accounting Policies | 11 |
Notes to Financial statements | 12 |
7 | ||
Microtek Systems, Inc. | |||||||
BALANCE SHEETS | |||||||
(In Thousands) | March 31, | December 31, | |||||
2004 | 2003 | ||||||
Assets | Unaudited | Audited | |||||
Current assets | |||||||
Cash and cash equivalents (Note 1) | $ | 268 | $ | 274 | |||
Accounts receivable, less allowance for | |||||||
doubtful accounts of $40 | 604 | 599 | |||||
Other receivables | 3 | 3 | |||||
Inventory | 28 | 7 | |||||
Prepaid costs and expenses | 337 | 395 | |||||
Total current assets | 1,240 | 1,278 | |||||
Property, plant and equipment | |||||||
Computer equipment and software | 368 | 359 | |||||
Furniture and fixtures | 100 | 99 | |||||
Automobiles | 35 | 35 | |||||
TotalProperty, plant and equipment | 503 | 493 | |||||
Less accumulated depreciation | 293 | 284 | |||||
Net property and equipment | 210 | 209 | |||||
Total assets | $ | 1,450 | $ | 1,487 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities | |||||||
Note payable, current portion (Note 2) | 2 | 3 | |||||
Accounts payable | 368 | 330 | |||||
Accrued expenses | 49 | 50 | |||||
Deferred revenue | 654 | 854 | |||||
Total current liabilities | 1,073 | 1,237 | |||||
Long-term note payable (Note 2) | 10 | 10 | |||||
Commitments and contingencies (Notes 3) | - | - | |||||
Stockholders' equity | |||||||
Common stock | 73 | 73 | |||||
Retained earnings | 294 | 167 | |||||
367 | 240 | ||||||
Total stockholders' equity | 367 | 240 | |||||
Total liabilities and stockholders' equity | $ | 1,450 | $ | 1,487 | |||
See accompanying summary of accounting policies and notes to financial statements. |
8 | ||
Microtek Systems, Inc. | ||||
CONSOLIDATED STATEMENT OF OPERATIONS | ||||
FOR THE QUARTER ENDED MARCH 31, 2004 | ||||
(In Thousands, except per share amounts) | ||||
Quarter Ended March 31, 2004 | ||||
NET REVENUES | ||||
PRODUCT | $ | 744 | ||
SERVICES | 353 | |||
TOTAL NET REVENUES | 1,097 | |||
COST OF REVENUE | ||||
PRODUCT | 378 | |||
SERVICES | 190 | |||
TOTAL COST OF REVENUE | 568 | |||
GROSS PROFIT | 529 | |||
OPERATING EXPENSES | ||||
Selling and marketing | 89 | |||
General and administrative | 315 | |||
TOTAL OPERATING EXPENSES | 404 | |||
INCOME FROM OPERATIONS | 125 | |||
OTHER CHARGES | ||||
Interest expense, net | - | |||
Other income | 2 | |||
TOTAL OTHER CHARGES | 2 | |||
NET INCOME | $ | 127 |
9 | ||
Microtek Financial Statements | ||||
STATEMENT OF CASH FLOW | ||||
FOR THE QUARTER ENDED MARCH 31, 2004 | ||||
(In Thousands) | QUARTER ENDED MARCH 31, | |||
2004 | ||||
Cash flows from operating activities | ||||
Net income | $ | 127 | ||
Adjustments to reconcile net income to | ||||
net cash provided by operating activities: | ||||
Depreciation | 9 | |||
Changes in current assets and liabilities: | ||||
Accounts receivable | (5 | ) | ||
Other receivables | - | |||
Inventory | (21 | ) | ||
Prepaid costs and expenses | 58 | |||
Account payable | 38 | |||
Accrued expenses | (1 | ) | ||
Deferred revenue | (200 | ) | ||
Net cash provided by operating activities | 5 | |||
Cash flows from investing activities | ||||
Purchase of property, plant and equipment | (10 | ) | ||
| ||||
Net cash used in investing activities | (10 | ) | ||
Cash flows from financing activities | ||||
Note payable | (1 | ) | ||
| ||||
Net cash used in financing activities | (1 | ) | ||
Net decrease in cash | (6 | ) | ||
Cash and cash equivalents, beginning of quarter | 274 | |||
Cash and cash equivalents, end of quarter | $ | 268 | ||
See accompanying summary of accounting policies and notes to financial statements. |
10 | ||
MICROTEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (In thousands) |
Nature of Business | Microtek Systems, Inc. (MSI) is a solutions provider, which includes reselling computer hardware, software and maintenance contracts. In addition, MSI provides technical services and support for the systems MSI installs. Focus is on paper intensive industries (such as insurance) with MSI Document Imaging and Management products. Security products and services are sold to all industries, with a majority of this currently being financial institutions. As computer infrastructure becomes more pervasive, the market is also demanding solutions for system storage and backup. |
Method of Accounting | The financial statements are prepared on the accrual basis of accounting. |
Cash and Cash Equivalents | Cash equivalents represent funds in certificate of deposit accounts with maturities of less than one year. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts receivable are uncollateralized customer obligations due under normal trade terms. MSI performs continuing credit evaluations of their customers’ financial condition. Management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. MSI includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in their overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based upon information available to MSI, management believes the allowance for doubtful accounts as of March 31, 2004 to be adequate. |
Inventory | Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method. |
Prepaid Costs | Prepaid costs represent MSI’s unexpired portion of maintenance fees. These fees are amortized ratably over the term of the maintenance period, which is typically 12 months. Prepaid costs and expenses on the Balance Sheet include approximately $299 of unexpired maintenance fees at March 31, 2004. |
Property and Equipment | Property and equipment are recorded at cost. Depreciation is charged against results of operations utilizing the straight-line method over the following estimated service lives of the related assets. |
Classifications | Estimated Useful Lives | ||||
Computer equipment and software | 5-10 years | ||||
Furniture and fixtures | 5-10 years | ||||
Automobiles | 5-10 years |
11 | ||
MICROTEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (In thousands) |
Revenue Recognition and Deferred Revenue | Revenue from product sales and related training services is recognized upon customer acceptance and delivery of the product and as the training services are performed provided that no significant contractual obligations remain. Revenues also include separate maintenance fees whereby MSI provides ongoing customer support and product upgrades. Such fees are reflected as deferred revenue and amortized ratably over the term of the maintenance period, which is typically 12 months. Deferred revenue represents training and consulting services not yet performed and the unexpired portion of maintenance fees. |
Shipping and Handling Costs | Shipping and handling costs are included in Cost of Revenues. |
Income Taxes | Before its acquisition, MSI had elected to be taxed as an S-Corporation under the provisions of the Internal Revenue Code and certain state statutes. Under those provisions, MSI does not pay federal and state corporate income taxes on its taxable income. Instead, the stockholders are liable for federal and state income taxes on their respective shares of taxable income on their individual income tax returns. |
Use of Estimates | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Advertising | Advertising costs are expensed as incurred. Advertising costs of $3 were expensed during the first quarter ended March 31, 2004. |
12 | ||
MICROTEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (In thousands) |
1. | Concentration of Credit Risk | At March 31, 2004, MSI’s cash in banks exceeded the federally insured limit by approximately $156. MSI had revenues from 2 major customers of 16.29% and 19.01% for the quarter ended March 31, 2004. For accounts receivable, 2 customers for the quarter ended March 31, 2004 accounted for 13.57% and 16.71% |
2. | Long-Term Debt | MSI has a note payable to a bank, payable in monthly installments of principal and interest of approximately $1, bearing interest at 7% and due in full on January 23, 2005. The note is secured by an automobile of MSI. Maturities of long-term debt are as follows: 2004 - $3; 2005 - $3; 2006 - $3; 2007 - $4. |
13 | ||
MICROTEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (In thousands) |
3. | Employee Profit Sharing Plan | MSI has a 401(k) plan for all eligible employees. MSI may elect annually to make a discretionary match. MSI contributed approximately $3 to the plan in matching contributions in the first quarter ended March 31, 2004. |
4 | Subsequent Event | On May 14, 2004, the shareholders of Microtek, Inc, sold 100% of their shares to Torrey Pines Networks, Inc. a subsidiary of Entrada Networks, Inc for approximately $1.2 million in Entrada Networks stock, notes, cash,and other consideration. |
14 | ||
(2) Annual Financial Statements
Independent Auditors' Report | F2 |
Financial Statements | |
Balance Sheets | F3 |
Statement of Operations | F4 |
Statement of Stockholders Equity | F5 |
Statement of Cash Flows | F6 |
Summary of Accounting Policies | F7 |
Notes to Financial statements | F10 |
F1 | ||
/s/ BDO Seidman, LLP |
BDO Seidman, LLP |
Milwaukee, Wisconsin |
July 12, 2004 |
F2 | ||
Microtek Systems, Inc. | |||||||
BALANCE SHEETS | December 31, | ||||||
(In Thousands) | 2003 | 2002 | |||||
Assets | Audited | Audited | |||||
Current assets | |||||||
Cash and cash equivalents (Note 1) | $ | 274 | $ | 224 | |||
Accounts receivable, less allowance for | |||||||
doubtful accounts of $40 | 599 | 333 | |||||
Other receivables | 3 | 4 | |||||
Inventory | 7 | 52 | |||||
Prepaid costs and expenses | 395 | 207 | |||||
Total current assets | 1,278 | 820 | |||||
Property, plant and equipment | |||||||
Computer equipment and software | 359 | 317 | |||||
Furniture and fixtures | 99 | 88 | |||||
Automobiles | 35 | 23 | |||||
Total Property, plant and equipment | 493 | 428 | |||||
Less accumulated depreciation | 284 | 236 | |||||
Net property and equipment | 209 | 192 | |||||
Total assets | $ | 1,487 | $ | 1,012 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities | |||||||
Note payable, current portion (Note 2) | 3 | - | |||||
Accounts payable | 330 | 212 | |||||
Accrued expenses | 50 | 33 | |||||
Deferred revenue | 854 | 455 | |||||
Total current liabilities | 1,237 | 700 | |||||
Long-term note payable (Note 2) | 10 | - | |||||
Commitments and contingencies (Notes 3 and 4) | - | - | |||||
Stockholders' equity | |||||||
Common stock | 73 | 73 | |||||
Retained earnings | 167 | 239 | |||||
Total stockholders' equity | 240 | 312 | |||||
Total liabilities and stockholders' equity | $ | 1,487 | $ | 1,012 | |||
See accompanying summary of accounting policies and notes to financial statements. |
F3 | ||
Microtek Systems, Inc. | |||||||
STATEMENTS OF OPERATIONS | |||||||
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 and 2002 | |||||||
(In Thousands) | Year ended December 31, | ||||||
2003 | 2002 | ||||||
Audited | Audited | ||||||
Net revenues | |||||||
Product | $ | 2,927 | $ | 2,688 | |||
Service | 587 | 827 | |||||
Total Net Revenues | 3,514 | 3,515 | |||||
Cost of revenues | |||||||
Product | 1,743 | 1,587 | |||||
Service | 237 | 355 | |||||
Total Cost of Revenues | 1,980 | 1,942 | |||||
Gross profit | 1,534 | 1,573 | |||||
Operating expenses | |||||||
Marketing | 296 | 290 | |||||
General and administrative | 1,276 | 1,167 | |||||
Total operating expenses | 1,572 | 1,457 | |||||
Operating income (loss) | (38 | ) | 116 | ||||
Other income (expense) | |||||||
Interest income | - | 1 | |||||
Loss on disposal of fixed assets | - | (50 | ) | ||||
Other income | 2 | 7 | |||||
Net other income (expense) | 1 | (42 | ) | ||||
Net income (loss) | $ | (36 | ) | $ | 74 | ||
See accompanying summary of accounting policies and notes to financial statements. |
F4 | ||
Microtek Systems, Inc. | |||||||||||||
STATEMENT OF RETAINED EARNINGS | Total | ||||||||||||
(In Thousands except share amounts) | Stock- | ||||||||||||
Common Stock(1) | Retained | holders' | |||||||||||
Shares | Amount | Earnings | Equity | ||||||||||
Balance, December 31, 2001 | 100 | $ | 73 | $ | 515 | $ | 588 | ||||||
Distribution to shareholder | - | - | (350 | ) | (350 | ) | |||||||
Net income | - | - | 74 | 74 | |||||||||
Balance, December 31, 2002 | 100 | 73 | 239 | 312 | |||||||||
Distribution to shareholder | - | - | (36 | ) | (36 | ) | |||||||
Net loss | - | - | (36 | ) | (36 | ) | |||||||
Balance, December 31, 2003 | 100 | $ | 73 | $ | 167 | $ | 240 | ||||||
(1) Common stock shares authorized 2,000, no par value. | |||||||||||||
F5 | ||
Microtek Systems, Inc. | |||||||
STATEMENTS OF CASH FLOW | |||||||
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 and 2002 | |||||||
(In Thousands) | Year ended December 31, | ||||||
2003 | 2002 | ||||||
Cash flows from operating activities | |||||||
Net income (loss) | $ | (36 | ) | $ | 74 | ||
Adjustments to reconcile net income (loss) to | |||||||
net cash provided by operating activities: | |||||||
Depreciation | 48 | 48 | |||||
Loss on disposal of assets | - | 50 | |||||
Changes in current assets and liabilities: | |||||||
Accounts receivable | (266 | ) | (69 | ) | |||
Other receivables | 1 | (4 | ) | ||||
Inventory | 46 | 58 | |||||
Prepaid costs and expenses | (188 | ) | (40 | ) | |||
Account payable | 90 | 9 | |||||
Accrued expenses | 44 | 32 | |||||
Deferred revenue | 399 | 51 | |||||
Net cash provided by operating activities | 138 | 209 | |||||
Cash flows from investing activities | |||||||
Purchase of property, plant and equipment | (52 | ) | (35 | ) | |||
Net cash used in investing activities | (52 | ) | (35 | ) | |||
Cash flows from financing activities | |||||||
Distribution to shareholder | (36 | ) | (350 | ) | |||
Net cash used in financing activities | (36 | ) | (350 | ) | |||
Net increase (decrease) in cash and cash equivalents | 50 | (176 | ) | ||||
Cash and cash equivalents, beginning of year | 224 | 400 | |||||
Cash and cash equivalents, end of year | $ | 274 | $ | 224 | |||
Non-cash investing and financing activities | |||||||
Equipment purchase financed with notes payable | $ | 13 | $ | - | |||
See accompanying summary of accounting policies and notes to financial statements. |
F6 | ||
MICROTEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (In thousands, except per share amounts) |
Nature of Business | Microtek Systems, Inc. (MSI) is a solutions provider, which includes reselling computer hardware, software and maintenance contracts. In addition, MSI provides technical services and support for the systems MSI installs. Focus is on paper intensive industries (such as insurance) with MSI Document Imaging and Management products. Security products and services are sold to all industries, with a majority of this currently being financial institutions. As computer infrastructure becomes more pervasive, the market is also demanding solutions for system storage and backup. |
Method of Accounting | The financial statements are prepared on the accrual basis of accounting. |
Cash and Cash Equivalents | Cash equivalents represent funds in certificate of deposit accounts with maturities of less than one year. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts receivable are uncollateralized customer obligations due under normal trade terms. MSI performs continuing credit evaluations of their customers’ financial condition. Management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. MSI includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in their overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based upon information available to MSI, management believes the allowance for doubtful accounts as of December 31, 2003 to be adequate. |
Inventory | Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method. |
Prepaid Costs | Prepaid costs represent MSI’s unexpired portion of maintenance fees. These fees are amortized ratably over the term of the maintenance period, which is typically 12 months. Prepaid costs and expenses on the Balance Sheet include approximately $374 and $190 of prepaid costs at December 31, 2003 and 2002, respectively. |
Property and Equipment | Property and equipment are recorded at cost. Depreciation is charged against results of operations utilizing the straight-line method over the following estimated service lives of the related assets. |
Classifications | Estimated Useful Lives | ||||
Computer equipment and software | 5-10 years | ||||
Furniture and fixtures | 5-10 years | ||||
Automobiles | 5-10 years |
F7 | ||
MICROTEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (In thousands, except per share amounts) |
Revenue Recognition and Deferred Revenue | Revenue from product sales and related training services is recognized upon customer acceptance and delivery of the product and as the training services are performed provided that no significant contractual obligations remain. Revenues also include separate maintenance fees whereby MSI provides ongoing customer support and product upgrades. Such fees are reflected as deferred revenue and amortized ratably over the term of the maintenance period, which is typically 12 months. Deferred revenue represents training and consulting services not yet performed and the unexpired portion of maintenance fees. |
Shipping and Handling Costs | Shipping and handling costs are included in Cost of Revenues. |
Income Taxes | MSI has elected to be taxed as an S-Corporation under the provisions of the Internal Revenue Code and certain state statutes. Under those provisions, MSI does not pay federal and state corporate income taxes on its taxable income. Instead, the stockholders are liable for federal and state income taxes on their respective shares of taxable income on their individual income tax returns. |
Use of Estimates | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Advertising | Advertising costs are expensed as incurred. Advertising costs of $9.9 and $14 were expensed during 2003 and 2002, respectively. |
F8 | ||
MICROTEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (In thousands, except per share amounts) |
1. | Concentration of Credit Risk | At December 31, 2003, MSI’s cash in banks exceeded the federally insured limit by approximately $260. MSI had sales to one major customer which approximated 10.4% in 2003 and 11.4% in 2002. The customer accounted for 28.0% of accounts receivable in 2003 and 4.0% in 2002. |
2. | Long-Term Debt | MSI has a note payable to a bank, payable in monthly installments of principal and interest of approximately $1, bearing interest at 7% and due in full on January 23, 2005. The note is secured by an automobile of MSI. Maturities of long-term debt are as follows: 2004 - $3; 2005 - $3; 2006 - $3; 2007 - $4. |
F9 | ||
MICROTEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (In thousands, except per share amounts) |
3. | Leases | MSI leases its office space under a non-cancelable operating lease, which expires in April 2006. MSI is responsible for its apportioned share of real estate taxes, utilities, common area and administrative expenses which is included in their annual base rent. Rent expense for the years ended December 31, 2003 and 2002 was approximately $67 and $69, respectively. Future minimum lease payments are approximately as follows: |
Year ending December 31, | ||||
2004 | $ | 67 | ||
2005 | 68 | |||
2006 | 23 | |||
2007 | - | |||
$ | 158 | |||
4. | Employee Profit Sharing Plan | MSI has a 401(k) plan for all eligible employees. MSI may elect annually to make a discretionary match. MSI contributed approximately $15 and $18 to the plan in matching contributions in 2003 and 2002, respectively. |
5. | Subsequent Event | On May 14, 2004, the shareholders of Microtek, Inc, sold 100% of their shares to Torrey Pines Networks, Inc. a subsidiary of Entrada Networks, Inc for approximately $1.2 million in Entrada Networks stock, notes, cash,and other consideration. |
MICROTEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (In thousands, except per share amounts) |
ENTRADA NETWORKS, INC. |
Date: August 12, 2004 |
/s/ Davinder Sethi |
Davinder Sethi, Ph.D. |
Chief Financial Officer |
Principal Accounting Officer |