Delaware | 3577 | 33-0676350 |
(State or other jurisdiction | (Primary Standard Industrial | (I.R.S. employer |
of incorporation or organization) | Classification Code Number) | Identification No.) |
Title of each Class of Securities to be Registered | Number of Units/Shares to be Registered | Proposed Maximum Offering Price Share 1 | Proposed Maximum Aggregate Offering Price 1 | Amount of Registration Fee |
Common Stock, par value $.001 per share | 14,500,000 | $0.12 | $1,740,000 | $220.46 |
1 | ||
2 | ||
Page | |
SUMMARY INFORMATION | 4 |
RISK FACTORS | 8 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS | 18 |
USE OF PROCEEDS | 19 |
SELLING SECURITY HOLDERS | 19 |
PLAN OF DISTRIBUTION | 23 |
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS | 25 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 27 |
DESCRIPTION OF OUR COMMON STOCK | 29 |
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES | 29 |
OUR BUSINESS | 30 |
WHERE YOU CAN FIND MORE INFORMATION | 32 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 33 |
Results of Operations: Comparison of the Quarter Ended April 30, 2004 and 2003 | 34 |
Liquidity and Capital Resources | 35 |
Critical Accounting Policies and Estimates | 35 |
Results of Operations: Comparison of the Years Ended January 31, 2004 and January 31, 2003 | 38 |
Results of Operations: Comparison of the Years Ended January 31, 2003 and January 31, 2002 | 41 |
Liquidity and Capital Resources | 43 |
Critical Accounting Policies and Estimates | 45 |
EXPERTS | 45 |
DESCRIPTION OF PROPERTY | 45 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 45 |
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS | 45 |
EXECUTIVE COMPENSATION | 46 |
ENTRADA NETWORKS, INC. CONSOLIDATED FINANCIAL STATEMENTS | F-1 |
CONSOLIDATED BALANCE SHEETS FOR THE FISCAL QUARTER ENDED APRIL 30, 2004 AND JANUARY 31, 2004 | F-2 |
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL QUARTER ENDED APRIL 30, 2004 AND 2003 | F-3 |
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL QUARTER ENDED APRIL 30, 2004 AND 2003 | F-4 |
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JANUARY 31, 2004 | F-5 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS | F-12 |
CONSOLIDATED BALANCE SHEETS JANUARY 31, 2004 AND 2003 | F-13 |
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JANUARY 31, 2002, 2003, 2004 | F-14 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY, 2004, 2003 and 2002 | F-15 |
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 31, 2003-2002 | F-16 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY 31, 2004 | F-17 |
MICROTEK FINANCIAL STATEMENTS | |
FOR THE YEAR ENDED DECEMBER 31, 2003 | F-34 |
BALANCE SHEET AS OF DECEMBER 31, 2003 AND 2002 | F-35 |
STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2002, 2003 | F-36 |
STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER, 2004, 2003 | F-37 |
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 | F-38 |
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 | F-39 |
FOR THE QUARTER ENDED MARCH 31, 2004 | F-42 |
BALANCE SHEET AS OF MARCH 31, 2004 | F-43 |
STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2004 | F-44 |
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 2004 | F-45 |
PRO FORMA MICROTEK SYSTEMS, INC. AND ENTRADA NETWORKS, INC FINANCIAL STATEMENTS | |
CONSOLIDATED CONDENSED PRO FORMA BALANCE SHEETS | F-49 |
CONSOLIDATED CONDENSED PRO FORMA STATEMENT OF OPERATIONS FOR THE FISCAL QUARTER ENDED APRIL 30, 2004 | F-50 |
CONSOLIDATED CONDENSED PRO FORMA STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED JANUARY 31, 2004 | F-51 |
PART II | 101 |
INFORMATION NOT REQUIRED IN PROSPECTUS | 101 |
INDEMNIFICATION OF DIRECTORS AND OFFICERS | 101 |
OTHER EXPENSES OF ISUANCE AND DISTRIBUTION | 102 |
EXHIBITS | 102 |
UNDERTAKINGS | 103 |
SIGNATURES | 106 |
3 | ||
4 | ||
5 | ||
Tranche | Number of Tranche Shares to be Purchased by SBI Brightline IV | Purchase Price | Number of Tranche Shares to be Purchased by Trilogy 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 |
Summary Selling Shareholders | |
Potential Common Shares from Tranche | Common Shares |
SBI Brightline IV, LLC | 6,000,000 |
Trilogy Investment Fund I, LLC | 3,000,000 |
Potential Common Shares from Warrants | |
SBI Brightline IV, LLC | 3,450,000 |
Brightline Bridge Partners I, LLC | 1,550,000 |
SBI Advisors, LLC | 400,000 |
Shelly Singhal | 50,000 |
Matt McGovern | 25,000 |
Jon Buttles | 25,000 |
Total Shares | 14,500,000 |
6 | ||
7 | ||
For the Three Months Ended | For the Fiscal Year Ended | |||||||||||||||
April 30, | January 31, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | 2002 | ||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Operating Data: | ||||||||||||||||
Revenue | ||||||||||||||||
Product | $ | 205 | $ | 2,386 | $ | 5,224 | $ | 12,243 | $ | 10,125 | ||||||
Services | 175 | 322 | 997 | 1,388 | 3,138 | |||||||||||
Total Revenues | 380 | 2,708 | 6,221 | 13,631 | 13,263 | |||||||||||
Selling and Marketing | 78 | 197 | 456 | 830 | 3,438 | |||||||||||
Engineering, research and development | 240 | 284 | 1,150 | 1,172 | 6,499 | |||||||||||
General & administrative expenses | 403 | 453 | 1,457 | 2,139 | 4,035 | |||||||||||
Other operating expenses | - | 60 | 341 | 480 | 1,741 | |||||||||||
Non-recurring one time charges | - | - | - | - | 248 | |||||||||||
Total operating expenses | 721 | 994 | 3,404 | 4,621 | 15,961 | |||||||||||
Net income (loss) | ($737 | ) | $ | 233 | ($1,984 | ) | $ | 1,742 | ($7,249 | ) | ||||||
Net income (loss) per share | ($0.05 | ) | $ | 0.02 | ($0.15 | ) | $ | 0.14 | ($0.66 | ) | ||||||
Weighted average shares outstanding | 13,901 | 12,975 | 13,528 | 12,801 | 10,994 | |||||||||||
As ofApril 30, | As of January 31, | |||||||||||||||
2004 | 2004 | 2003 | 2002 | |||||||||||||
(Unaudited) | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||
Current assets | $ | 2,988 | $ | 3,277 | $ | 6,267 | $ | 7,301 | ||||||||
Total assets | 3,536 | 3,906 | 7,671 | 9,439 | ||||||||||||
Current liabilities | 1,390 | 1,107 | 2,761 | 6,174 | ||||||||||||
Long-term liabilities | - | - | - | 27 | ||||||||||||
Stockholders' equity | 2,146 | 2,799 | 4,910 | 3,238 | ||||||||||||
Working capital | $ | 1,598 | $ | 2,170 | $ | 3,506 | $ | 1,127 |
7 | ||
8 | ||
9 | ||
10 | ||
11 | ||
12 | ||
13 | ||
14 | ||
15 | ||
16 | ||
Because our stock is not listed on a national securities exchange, you may find it difficult to dispose of or obtain quotations for our common stock.Our common stock trades under the symbol "ESAN" on the OTC Bulletin Board. Because our stock trades on the OTC Bulletin Board rather than on a national securities exchange, you may find it difficult to either dispose of, or to obtain quotations as to the price of, our common stock.
17 | ||
| ||
18 | ||
19 | ||
21 | ||
Name of Selling Shareholder | Shares of Common Stock Owned Prior to Offering (1) | Number of Shares to be Offered for Sale | Number of Shares of Common Stock Owned after Offering |
SBI Brightline IV, LLC (2) | 9,450,000 | 9,450,000 | 0 |
Trilogy Investment Fund I, LLC (3) | 3,000,000 | 3,000,000 | 0 |
Brightline Bridge Partners I, LLC(4) | 1,550,000 | 1,550,000 | 0 |
SBI Advisors, LLC (5) | 400,000 | 400,000 | 0 |
Matt McGovern | 25,000 | 25,000 | 0 |
Jon Buttles | 25,000 | 25,000 | 0 |
Shelly Singhal | 50,000 | 50,000 | 0 |
22 | ||
23 | ||
24 | ||
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)(iii) |
Rohit Phansalkar | 58 | Director (ii)(iv) |
Raymond Ngan | 30 | Director (ii) |
25 | ||
26 | ||
Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner | Percent of Class |
Common | Springboard Harper | 741,249 shares | 4.8% |
Common | SBI Advisors, LLC | 400,000 shares (1) | 2.5% |
Common | SBI Brightline IV, LLC | 4,950,000 shares (2) | 24.3% |
Common | Brightline Bridge Partners I, LLC | 1,550,000 shares (3) | 9.1% |
Common | Jim Dziak | 1,302,083 shares | 8.4% |
Common | Trilogy Investment Fund I | 750,000 shares (4) | 4.6% |
Number of | Percentage of | ||
Title of Class | Name of Beneficial Owner (A) | Shares | Outstanding (H) |
Common | Kanwar J.S. Chadha 5755 Oberlin Dr., Suite 204, San Diego, Ca 92121 | 1,599,042 (B) | 9.7% |
Common | Leonard N. Hecht 5755 Oberlin Dr., Suite 204, San Diego, Ca 92121 | 361,621 (C) | 2.3% |
Common | Rohit Phansalkar 5755 Oberlin Dr., Suite 204, San Diego, Ca 92121 | 471,833 (D) | 3.0% |
Common | Davinder Sethi 5755 Oberlin Dr., Suite 204, San Diego, Ca 92121 | 1,287,823 (E) | 8.0% |
Common | Raymond Ngan | 311,534 (F) | 2.0% |
All Directors and Executive Officers as a group | 4,031,853 | 22.6% | |
27 | ||
28 | ||
We have agreed to indemnify selling shareholders, SBI Brightline IV, LLC and Trilogy Investment Fund I, LLC, and they have agreed to indemnify us against certain losses, claims, damages, liabilities or expenses under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and any other federal or state statutory law or regulation, or at common law or otherwise.
| ||
29 | ||
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Securities Act of 1933 and is therefore unenforceable.
| ||
30 | ||
| ||
31 | ||
32 | ||
Fiscal Quarter Ended April 30, | |||||||||||||||||||
2004 | Pct of Revenue | 2003 | Pct of Revenue | Difference | Pct | ||||||||||||||
NET REVENUES | |||||||||||||||||||
PRODUCT | $ | 205 | 53.95 | % | $ | 2,386 | 88.11 | % | ($2,181 | ) | -91.4 | % | |||||||
SERVICES | 175 | 46.05 | % | 322 | 11.89 | % | ($147 | ) | -45.7 | % | |||||||||
TOTAL NET REVENUES | $ | 380 | 100.00 | % | 2,708 | 100.00 | % | ($2,328 | ) | -86.0 | % |
Fiscal Quarter Ended April 30, | |||||||||||||||||||
2004 | Pct of Revenue | 2003 | Pct of Revenue | Difference | Pct | ||||||||||||||
Selling and marketing | $ | 78 | 20.5 | % | $ | 197 | 7.27 | % | ($119 | ) | -60.4 | % | |||||||
Engineering, research and development | 240 | 63.2 | % | 284 | 10.49 | % | ($44 | ) | -15.5 | % | |||||||||
General and administrative | 403 | 106.1 | % | 453 | 16.73 | % | ($50 | ) | -11.0 | % | |||||||||
Other operating expenses | 0 | 0.0 | % | 60 | 2.22 | % | ($60 | ) | -100.0 | % | |||||||||
Total | $ | 721 | 189.7 | % | 994 | 36.71 | % | (273 | ) | -27.5 | % |
33 | ||
34 | ||
35 | ||
- Since we account for and report our physical inventory at the "lower of cost or market", and such inventory comprises 70% of our current assets and 58% of total assets at Jan 31, 2004, we carefully evaluate the market value of that inventory on a continual basis. In a business such as ours, wherein we are stocking replacement parts to satisfy a customer's unknown needs, determining obsolescence is an inherently subjective process. Adjustments to obsolescence reserves are made based on judgments of market value that are supported by our best estimates of the future salability of specific items in that inventory.
- Accounts receivable balances are evaluated on a continual basis and allowances are provided for potentially uncollectable accounts based on management's estimate of the collectability of customer accounts. If the financial condition of a customer were to deteriorate, resulting in an impairment of their ability to make payments, an additional allowance may be required. Allowance adjustments are charged to operations in the period in which the facts that give rise to the adjustments become known.
The following table presents, at April 30, 2004, our obligations and commitments to make future payments under contracts and contingent commitments. | |||||||||||||||||||
Payment Due by Period as of April 30, 2004 | |||||||||||||||||||
(In thousands) | Less than | 1-3 | 4-5 | After 5 | |||||||||||||||
Total | 1Year | Years | Years | Years | |||||||||||||||
Contractual Obligations | |||||||||||||||||||
Short Term Debt | $ | 580 | $ | 580 | $ | - | $ | - | $ | - | |||||||||
Operating Leases | 105 | 105 | - | - | - | ||||||||||||||
Total Contractual Cash Obligations | $ | 685 | $ | 685 | $ | - | $ | - | $ | - |
36 | ||
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 | ||||||||||
Equity Compensation Plans Approved by Security Holders | 3,353,556 | $ | 1.01 | 1,619,458 | ||||||
Equity Compensation Plans Not Approved by Security Holders* | 575,757 | $ | 0.74 | - | ||||||
Total | 3,929,313 | $ | 0.97 | 1,619,458 |
37 | ||
| ||
38 | ||
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) | % |
| ||
39 | ||
| ||
40 | ||
| ||
41 | ||
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 | $ - | $ - | $ - |
| ||
42 | ||
| ||
43 | ||
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 |
| ||
44 | ||
| ||
45 | ||
- Since we account for and report our physical inventory at the "lower of cost or market", and such inventory comprises 70% of our current assets and 58% of total assets at Jan 31, 2004, we carefully evaluate the market value of that inventory on a continual basis. In a business such as ours, wherein we are stocking replacement parts to satisfy a customer's unknown needs, determining obsolescence is an inherently subjective process. Adjustments to obsolescence reserves are made based on judgments of market value that are supported by our best estimates of the future salability of specific items in that inventory.
- Accounts receivable balances are evaluated on a continual basis and allowances are provided for potentially uncollectable accounts based on management's estimate of the collectability of customer accounts. If the financial condition of a customer were to deteriorate, resulting in an impairment of their ability to make payments, an additional allowance may be required. Allowance adjustments are charged to operations in the period in which the facts that give rise to the adjustments become known.
46 | ||
| ||
47 | ||
Fiscal 2003 | High | Low |
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 |
Fiscal 2005 | ||
Quarter from February 1, 2004 to April 30, 2004 | $0.32 | $0.15 |
Quarter from May 1, 2004 to July 31, 2004 | $0.25 | $0.13 |
Annual Compensation | Long-Term Compensation | ||||||||
| Other | Restricted | Securities | Long-Term | All | ||||
| Annual | Stock | Underlying | Incentive | Other | ||||
| Fiscal | Salary | Bonus | Compensation | Award(s) | Options | Plan | Compensation | |
Name and Principal Position |
| Year | ($) | ($) | ($) | ($) | (#) | Payouts | ($) |
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 | - | - |
| ||
48 | ||
Page | |
Consolidated Balance Sheets as of April 30, 2004 and January 31, 2004 | F-2 |
Consolidated Statements of Operations for the quarter ended April 30, 2004 and 2003 | F-3 |
Consolidated Statements of Cash Flows for the quarter ended April 30, 2004 and 2003 | F-4 |
Notes to Consolidated Financial Statements | F- 5 to F-11 |
F1 | ||
ENTRADA NETWORKS, INC. | |||||||
AND SUBSIDIARIES | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
(In Thousands) | |||||||
April 30, 2004 | January 31, 2004 | ||||||
ASSETS | Unaudited | ||||||
CURRENT ASSETS | |||||||
Cash and equivalents | $ | 178 | $ | 72 | |||
Accounts receivable, net | 287 | 627 | |||||
Inventory, net | 2,251 | 2,294 | |||||
Prepaid expenses and other current assets | 272 | 284 | |||||
TOTAL CURRENT ASSETS | 2,988 | 3,277 | |||||
PROPERTY AND EQUIPMENT, NET | 505 | 590 | |||||
OTHER ASSETS | |||||||
Deposits | 43 | 39 | |||||
TOTAL ASSETS | $ | 3,536 | $ | 3,906 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
CURRENT LIABILITIES | |||||||
Short-term debt | |||||||
Bank | 123 | 65 | |||||
Other | 457 | - | |||||
Total Short Term Debt | 580 | 65 | |||||
Accounts payable | 210 | 383 | |||||
Other current and accrued liabilities | 600 | 659 | |||||
TOTAL CURRENT LIABILITIES | 1,390 | 1,107 | |||||
TOTAL LIABILITIES | 1,390 | 1,107 | |||||
STOCKHOLDERS' EQUITY | |||||||
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 | (102 | ) | (127 | ) | |||
Additional paid-in capital | 52,060 | 52,001 | |||||
Accumulated deficit | (49,825 | ) | (49,088 | ) | |||
TOTAL STOCKHOLDERS' EQUITY | 2,146 | 2,799 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 3,536 | $ | 3,906 | |||
See accompanying notes to condensed consolidated financial statements |
F 2 | ||
ENTRADA NETWORKS, INC. | |||||||
AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
FOR THE FISCAL QUARTER ENDED APRIL 30, 2003, 2004 | |||||||
(In Thousands, except per share amounts) | Three Months Ended | ||||||
April 30, | |||||||
| | ||||||
2004 | 2003 | ||||||
NET REVENUES | Unaudited | ||||||
PRODUCT | $ | 205 | $ | 2,386 | |||
SERVICES | 175 | 322 | |||||
TOTAL NET REVENUES | 380 | 2,708 | |||||
COST OF REVENUE | |||||||
PRODUCT | 272 | 1,399 | |||||
SERVICES | 66 | 97 | |||||
TOTAL COST OF REVENUE | 338 | 1,496 | |||||
GROSS PROFIT | 42 | 1,212 | |||||
OPERATING EXPENSES | |||||||
Selling and marketing | 78 | 197 | |||||
Engineering, research and development | 240 | 284 | |||||
General and administrative | 403 | 453 | |||||
Other operating expenses | 0 | 60 | |||||
TOTAL OPERATING EXPENSES | 721 | 994 | |||||
INCOME (LOSS) FROM OPERATIONS | (678 | ) | 218 | ||||
OTHER CHARGES | |||||||
Interest expense, net | (59 | ) | (8 | ) | |||
Other income (expense) | - | 23 | |||||
TOTAL OTHER CHARGES | (59 | ) | 15 | ||||
INCOME (LOSS) FROM OPERATIONS | (737 | ) | 233 | ||||
NET INCOME (LOSS) | $ | (737 | ) | $ | 233 | ||
INCOME (LOSS) PER COMMON SHARE: | |||||||
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 13,901 | 12,975 | |||||
NET INCOME (LOSS) PER COMMON SHARE: | |||||||
BASIC AND DILUTED NET LOSS PER COMMON SHARE | $ | (0.05 | ) | $ | 0.02 | ||
See accompanying notes to condensed consolidated financial statements |
F3 | ||
ENTRADA NETWORKS, INC. | |||||||
AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
FOR THE QUARTER ENDED APRIL 30, 2004, 2003 | |||||||
(In Thousands) | 2004 | 2003 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | Unaudited | Unaudited | |||||
Net income (loss) | $ | (737 | ) | $ | 233 | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | |||||||
Depreciation and amortization | 90 | 150 | |||||
Non cash interest | 12 | - | |||||
Provision for accounts receivable and inventory | 27 | 32 | |||||
Changes in assets and liabilities: | |||||||
Decrease in accounts receivable | 313 | 286 | |||||
Decrease in inventories | 43 | (187 | ) | ||||
Decrease in prepaid and other current assets | 61 | 108 | |||||
Decrease in accounts payable | (172 | ) | (127 | ) | |||
Decrease in accrued expenses and other | (59 | ) | (98 | ) | |||
Increase in other current liabilities | - | 1 | |||||
NET CASH PROVIDED BY (USED IN) CONTINUINGOPERATING ACTIVITIES | (422 | ) | 398 | ||||
CASH FLOWS USED IN INVESTING ACTIVITIES: | |||||||
Purchase of property and equipment | (5 | ) | (12 | ) | |||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (5 | ) | (12 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Net proceeds (repayments) on short-term bank debt | 58 | (54 | ) | ||||
Proceeds from short-term debt | 500 | ||||||
Repayment of capital lease obligations | - | (28 | ) | ||||
Deferred financing costs | (25 | ) | |||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 533 | (82 | ) | ||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 106 | 304 | |||||
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 72 | 808 | |||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 178 | $ | 1,112 | |||
See accompanying notes to consolidated financial statements. |
F 4 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share amounts) |
F 5 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share amounts) |
Three Months Ended April 30, | |||||||
2004 | 2003 | ||||||
Net income (loss): | |||||||
As reported | $ | (737 | ) | $ | 233 | ||
Add: Stock based employee compensation expense | 20 | - | |||||
Deduct: Total stock based employee compensation | |||||||
expense determined under fair value method | (111 | ) | (102 | ) | |||
Pro forma income (loss) per share: | (828 | ) | 131 | ||||
Basic and diluted EPS as reported | $ | (0.05 | ) | $ | 0.02 | ||
Pro forma basic and diluted EPS | $ | (0.06 | ) | $ | 0.01 | ||
April 30, 2004 | January 31, 2004 | ||||||
Raw material | $ | 2,557 | $ | 3,002 | |||
Work in process | 88 | 61 | |||||
Finished goods | 2,912 | 2,642 | |||||
5,557 | 5,705 | ||||||
Less: valuation reserve | (3,306 | ) | (3,411 | ) | |||
Net Inventories | $ | 2,251 | $ | 2,294 | |||
F 6 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share amounts) |
Three Months Ended April 30, | |||||||
| 2004 | 2003 | |||||
| |||||||
Net income (loss) available to common | |||||||
stockholders used in basic and diluted EPS | $ | (737 | ) | $ | 233 | ||
Weighted average number of common shares | |||||||
used in basic EPS | 13,900,720 | 12,974,785 | |||||
Three Months Ended April 30, | |||||||
2004 | 2003 | ||||||
Net income (loss) available to common | |||||||
stockholders used in basic EPS | $ | (737 | ) | $ | 233 | ||
Weighted average number of common shares | |||||||
used in basic EPS | 13,900,720 | 12,974,785 | |||||
Effect of dilutive securities: | |||||||
Stock benefit plans | - | 400,878 | |||||
Weighted average number of common shares | |||||||
and dilutive potential common stock | |||||||
used in diluted EPS | 13,900,720 | 13,375,663 | |||||
F 7 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share amounts) |
April 30, 2004 | April 30, 2003 | ||||||
Cisco | - | 71.5 | % | ||||
IntregraSys | 22.7 | % | - | ||||
Geico Insurance | 14.8 | % | - | ||||
Ingram Micro | 13.8 | % | |||||
MCI Worldcom | - | 15.0 | % |
F 8 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share amounts) |
Three months ended April 30 | |||||||
2004 | 2003 | ||||||
Net Revenues: | |||||||
United States | $ | 323 | $ | 2,629 | |||
Europe | 57 | 79 | |||||
Other | -- | -- | |||||
Total net revenues | $ | 380 | $ | 2,708 |
Three months ended April 30, | |||||||
2004 | 2003 | ||||||
Net Revenues: | |||||||
Network adapter cards | $ | 130 | $ | 2,262 | |||
Frame relay network products | 75 | 124 | |||||
Service and support | 175 | 322 | |||||
Total net revenue | $ | 380 | $ | 2,708 | |||
Rixon Networks | Sync Research | Torrey Pines Networks | Total | ||||||||||
Quarter ended April 30, 2004 | |||||||||||||
Total Revenues | $ | 130 | $ | 250 | $ | - | $ | 380 | |||||
Net Income (loss) | (693 | ) | 75 | (119 | ) | (737 | ) | ||||||
Depreciation and amortization expense | 35 | 14 | 41 | 90 | |||||||||
Inventory reserve additions | - | - | - | - | |||||||||
Capital asset additions | 5 | - | - | 5 | |||||||||
Total Assets | $ | 2,162 | $ | 693 | $ | 678 | $ | 3,533 |
F 9 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share amounts) |
Rixon Networks | Sync Research | Torrey Pines Networks | Total | ||||||||||
Quarter ended April 30, 2003 | |||||||||||||
Total Revenues | $ | 2,262 | $ | 446 | $ | - | $ | 2,708 | |||||
Net Income (loss) | 201 | 113 | (81 | ) | 233 | ||||||||
Depreciation and amortization expense | 95 | 14 | 41 | 150 | |||||||||
Inventory reserve additions | 26 | - | - | 26 | |||||||||
Capital asset additions | - | - | - | - | |||||||||
Total Assets | $ | 4,997 | $ | 1,897 | $ | 701 | $ | 7,595 |
F 10 | ||
Page | |
Report of Independent Certified Public Accountant | F-13 |
Consolidated Balance Sheets as of January 31, 2004 and 2003 | F-14 |
Consolidated Statements of Operations for the years ended January 31, 2004, 2003, and 2002 | F-15 |
Consolidated Statements of Stockholders' Equity for the years ended January 31, 2004, 2003, and 2002 | F-16 |
Consolidated Statements of Cash Flows for the years ended January 31, 2004, 2003, and 2002 | F-17 |
Notes to Consolidated Financial Statements | F- 18 to F-32 |
F 11 | ||
/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 12 | ||
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 13 | ||
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 14 | ||
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 15 | ||
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 16 | ||
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 17 | ||
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 18 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
F 19 | ||
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 20 | ||
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 21 | ||
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 22 | ||
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 23 | ||
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 24 | ||
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 25 | ||
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 26 | ||
ENTRADA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In Thousands, except share and per share amounts) |
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 27 | ||
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 28 | ||
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 29 | ||
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 30 | ||
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 31 | ||
Independent Auditors' Report | F 34 |
Financial Statements | |
Balance Sheets | F 35 |
Statement of Operations | F 36 |
Statement of Stockholders Equity | F 37 |
Statement of Cash Flows | F 38 |
Summary of Accounting Policies | F 39 |
Notes to Financial statements | F 40 |
F 32 | ||
/s/ BDO Seidman, LLP |
BDO Seidman, LLP |
Milwaukee, Wisconsin |
July 12, 2004 |
F 33 | ||
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. |
F 34 | ||
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. |
F 35 | ||
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. | |||||||||||||
F 36 | ||
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. |
F 37 | ||
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 |
F 38 | ||
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. |
F 39 | ||
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. |
F 40 | ||
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. |
F 41 | ||
Financial Statements | |
Balance Sheets | F 44 |
Statement of Operations | F 45 |
Statement of Cash Flows | F 46 |
Summary of Accounting Policies | F 47 |
Notes to Financial statements | F 48 |
F 42 | ||
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. |
F 43 | ||
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 |
F 44 | ||
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. |
F 45 | ||
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 |
F 46 | ||
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. |
F 47 | ||
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. |
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. |
F 48 | ||
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 | $ | 7365 | $ | 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 | $ | 735 | $ | 5,718 | |||||
F 49 | ||
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 | ) | |||
F 50 | ||
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 | ) | |||
F 51 | ||
____________________________________ ____________________________________ We have not authorized any dealer, sales person or other person to give any information or represent anything contained in this prospectus. You must not rely on any unauthorized information. This prospectus is not an offer to sell, or a solicitation of an offer to buy, securities in any jurisdiction where it is unlawful. The information contained in this prospectus is current as of August 5, 2004 _______________________________________ _______________________________________ | _______________________________ _______________________________ 14,500,000 Shares ENTRADA NETWORKS, INC. Common Stock _______________ PROSPECTUS _______________ _____, 2004 ______________________________ ______________________________ |
101 | ||
| ||
102 | ||
Item | Amount |
Securities and Exchange Commission Registration Fee | $ 220.46 |
Printing and Engraving Expenses | $ 5,000.00 |
Accountants' Fees and Expenses | $ 15,000.00 |
Legal Fees and Expenses | $ 15,000.00 |
Miscellaneous | $ 1,000.00 |
Total | $ 36,220.46 |
103 | ||
104 | ||
By: /s/ Kanwar J.S. Chadha |
Kanwar J.S. Chadha, Ph.D., |
Chief Executive Officer |
| ||
105 | ||
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kanwar J.S. Chadha, his true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him and in his her name, place and stead, in any and all capacities, to sign (i) any and all amendments (including post-effective amendments) to this Registration Statement and to file the same with all exhibits thereto, and other documents in connection therewith and (ii) any registration statement and any and all amendments thereto, relating to the offer covered hereby filed pursuant to Rule 462(b) under the Securities Act of 1933, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature | Title | Date |
By:/s/ Kanwar J.S. Chadha | Chairman, President, Director, | August 12, 2004 |
Kanwar J.S. Chadha, Ph.D. | Chief Executive Officer | |
By:/s/ Leonard Hecht | Director | August 12, 2004 |
Leonard Hecht | ||
By:/s/ Rohit Phansalkar | Director | August 12, 2004 |
Rohit Phansalkar | ||
By:/s/ Davinder Sethi | Vice Chairman, CFO, | August 12, 2004 |
Davinder Sethi, Ph.D. | Principal Accounting Officer, | |
Director | ||
By: | Director | August 12, 2004 |
Raymond Ngan |
106 |