UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
--------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2001
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
-----------------
Commission file number: 000-26952
ENTRADA NETWORKS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0676350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10070 Mesa Rim Road, San Diego, California 92121
(Address of principal executive office) (Zip Code)
(858) 623-3265
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ----
(Indicate the number of shares of each of the registrant's classes of common
stock, as of the latest practicable date.)
Title Date Outstanding
----- ---- -----------
Common Stock, $.001 Par Value May 29, 2001 10,992,634
Entrada Networks, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
April 30, January 31,
2001 2001
-------------- -------------
(unaudited)
ASSETS
Current assets:
Cash $ 5,080 $ 9,953
Restricted cash 300 300
Accounts receivable, net of allowance for doubtful
accounts of $367 and $400, respectively 694 4,373
Inventories, net of reserves of $2,757 and $3,340, respectively 4,664 4,636
Prepaid expenses and other current assets 806 298
-------------- -------------
Total current assets 11,544 19,560
Property and equipment, net 2,502 2,452
-------------- -------------
Total assets $ 14,046 $ 22,012
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ 1,677 $ 3,568
Current maturities of long-term debt 211 394
Accounts payable 1,190 1,725
Net liabilities of discontinued operations 2,190 3,892
Other current and accrued liabilities 1,956 2,166
-------------- -------------
Total current liabilities 7,224 11,745
Long-term debt and capital lease obligations 58 131
-------------- -------------
Total liabilities 7,282 11,876
Stockholders' equity
Common stock, $0.001 par value; 50,000 shares authorized,
10,993 and 4,244 shares issued and outstanding
at April 30, 2001 and January 31, 2001 11 11
Additional paid-in capital 51,765 51,722
Accumulated deficit (45,012) (41,597)
-------------- -------------
Total stockholders' equity 6,764 10,136
-------------- -------------
Total liabilities and stockholders' equity $ 14,046 $ 22,012
============== =============
See accompanying notes to consolidated financial statements.
2
Entrada Networks, Inc.
Consolidated Statements of Operations
(unaudited, in thousands, except per share data)
Three months ended
April 30,
-----------------------------
2001 2000
------------- -------------
Net sales $ 1,321 $ 3,710
Cost of sales 1,254 5,398
------------- -------------
Gross profit 67 (1,688)
Operating expenses:
Selling and marketing 1,191 1,034
Engineering, research and development 2,338 1,650
General and administrative 878 530
Other 267 2,069
------------- -------------
Total operating expenses 4,674 5,283
Income (loss) from operations (4,607) (6,971)
Interest expense, net (73) (96)
------------- -------------
Income (loss) from continuing operations
before income taxes (4,680) (7,067)
Provision for income taxes - -
------------- -------------
Net income (loss) from continuing operations (4,680) (7,067)
Net income from discontinued operations 1,265 -
Loss on disposal of discontinued operations - -
------------- -------------
Net income (loss) $ (3,415) $ (7,067)
============= =============
Net income (loss) per common share:
Income (loss) from continuing operations:
Basic $ (0.43) $ (1.67)
============= =============
Diluted $ (0.43) $ (1.67)
============= =============
Net income from discontinued operations:
Basic $ 0.12 $ -
============= =============
Diluted $ 0.12 $ -
============= =============
Net income (loss):
Basic $ (0.31) $ (1.67)
============= =============
Diluted $ (0.31) $ (1.67)
============= =============
Weighted average shares outstanding:
Basic 10,993 4,244
============= =============
Diluted 10,993 4,244
============= =============
See accompanying notes to consolidated financial statements.
3
Entrada Networks, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
Three months ended
April 30,
---------------------------
2001 2000
------------- ------------
Cash flows from operating activities:
Net loss from continuing operations $ (4,680) $ (7,067)
Adjustments to reconcile net loss from continuing operations to net cash
used in operating activities:
Intangible asset valuation allowance - 435
Depreciation and amortization 273 482
Accounts receivable and inventory reserves (616) 4,296
Changes in assets and liabilities:
Accounts receivable 3,712 (151)
Due from affiliates - 326
Inventories 555 (280)
Other current assets (508) 193
Accounts payable (535) (1,595)
Accrued expenses (210) 760
Other current liabilities - 76
------------- ------------
Net cash used in continuing operating activities (2,009) (2,525)
Net cash used in discontinued operations (437) -
------------- ------------
Net cash provided by (used in) operating activities (2,446) (2,525)
Cash flows from investing activities:
Purchase of property and equipment (323) (51)
------------- ------------
Net cash used in investing activities (323) (51)
Cash flows from financing activities:
Bank overdraft - 176
Proceeds from issuance of short-term debt, net of repayments (1,891) (77)
Repayment of capital lease obligations (256) (49)
Advances from former parent company, net of repayments - 2,414
Warrants issued in conjunction with credit facility 43 -
------------- ------------
Net cash provided by (used in) financing activities (2,104) 2,464
------------- ------------
Net increase in cash and cash equivalents (4,873) (112)
Cash and cash equivalents at beginning of year 9,953 112
------------- ------------
Cash and cash equivalents at end of period $ 5,080 $ -
============= ============
See accompanying notes to consolidated financial statements.
4
ENTRADA NETWORKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------
We design, manufacture and market products that provide access to and enhance
the performance of data and telecommunication networks, and are currently
developing storage area networks ("SANs") transport technology which will enable
inter-networking of isolated islands of SANs over wide area networks, metro area
networks and local area networks via internet protocol and light. Our products
are deployed by telecommunications network operators, application service
providers, internet service providers, and the operators of corporate local area
and wide area networks for the purpose of providing access transport within
their networks. Our corporate headquarters and engineering facilities are
located in San Diego, California. We perform assembly, system integration,
quality control, final testing and configuration at our facility in Annapolis
Junction, Maryland. In addition, we have various sales offices located in the
United States. We pursue a strategy of outsourcing some of our products and
components to third party contract manufacturers to enable us to react quickly
to market demand and avoid significant capital investment required to establish
and maintain full manufacturing facilities. Operations of our frame relay
segment based in Irvine, California, are being discontinued. We market and sell
our products and services directly to end users as well as through a broad array
of channels including system integrators, worldwide distributors, value added
resellers, original equipment manufacturers OEMs, telecommunication service
providers and governmental agencies.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Entrada Networks, Inc., (formerly Sync Research, Inc.) the Company, we,
our or us, has prepared, without audit, the accompanying financial data as of
April 30, 2001, and for the three months ended April 30, 2001 and 2000 in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The January 31, 2001 balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. However, we believe that the disclosures are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the financial statements
and the notes thereto included in our Annual Report on Form 10-K filed on May 4,
2001.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets, liabilities, revenues and expenses, the
disclosure of contingent assets and liabilities and the loss on disposal of
discontinued operations. Actual results could differ from these estimates. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows as of April 30, 2001 and for the three months ended
April 30, 2001, have been made. The results of operations for the three months
ended April 30, 2001 are not necessarily indicative of the operating results for
the full year.
Discontinued Operations
The accompanying financial statements reflect the operations and
financial position of the frame relay business segment as a discontinued
business segment for all periods reported in conformity with generally accepted
accounting principles.
5
ENTRADA NETWORKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------
Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133 as amended
by SFAS 137 and 138, "Accounting for Derivative Instruments and Hedging
Activities," is effective for financial statements with fiscal quarters of all
fiscal years beginning after June 15, 2000. The Accounting Standards Executive
Committee issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," and SOP 98-5,
"Reporting on the Costs of Start-up Activities," effective in the current or
future periods. The adoption or future adoption of these standards has had or
will have no material effects on our financial position or results of
operations.
The Financial Accounting Standards Board issued Interpretation ("FIN")
No. 44, "Accounting for Certain Transactions involving Stock Compensation," an
Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of
Opinion No. 25 for (a) the definition of an employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 2, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998, or January 12, 2000. The adoption of this
standard had no material effect, if any, on our financial position or results of
operations.
In December, 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition ("SAB 101"), which broadly
addresses how companies report revenues in their financial statements. Staff
Accounting Bulletin No. 101B delayed the date of required adoption to October 1,
2000. Management believes that adoption of this policy had no material effect on
our financial position or results of operations.
BALANCE SHEET DETAIL
Inventories at April 30, 2001 and January 31, 2001 consist of:
April 30, 2001 January 31, 2001
-------------- ----------------
Raw material $ 4,515 $ 5,659
Work in process 1,355 672
Finished goods 1,551 1,645
------- -------
7,421 7,976
Less: Valuation reserve (2,757) (3,340)
------- -------
$ 4,664 $ 4,636
======= =======
STOCKHOLDERS' EQUITY
We are authorized to issue the following shares of stock:
50,000,000 shares of Common Stock ($0.001 par value) 2,000,000
shares of Preferred Stock ($0.001 par value
None of our preferred stock was outstanding during the three month
periods ended April 30, 2001 and 2000.
6
ENTRADA NETWORKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------
EARNINGS PER SHARE CALCULATION
The following data show the amounts used in computing basic earnings
per share for the quarters ended April 30, 2001 and 2000.
Three Months Ended April 30,
2001 2000
-------- -------
Net income (loss) available to common
stockholders used in basic EPS $ (3,415) $ (7,067)
========= =========
Average number of common shares
used in basic EPS 10,992,634 4,244,155
========== =========
We incurred a net loss from continuing operations for the quarters
ended April 30, 2001 and 2000. Accordingly, the effect of dilutive securities
including vested and non-vested stock options to acquire common stock are not
included in the calculation of EPS because their effect would be antidilutive.
The following data shows the effect on income and the weighted average number of
shares of dilutive potential common stock.
Three Months Ended April 30,
2001 2000
-------- --------
Net loss available to common
stockholders used in basic EPS $ (3,415) $ (7,067)
=========== =========
Average number of common shares
used in basic EPS 10,992,634 4,244,155
Effect of dilutive securities:
Stock benefit plans 2,127 -
---------- ---------
Average number of common shares
and dilutive potential common
stock used in diluted EPS 10,994,761 4,244,155
========== =========
The shares issuable upon exercise of options represent the quarterly
average of the shares issuable at exercise net of the shares assumed to have
been purchased, at the average market price for the period, with the assumed
exercise proceeds. Accordingly, options with exercise prices in excess of the
average market price for the period are excluded because their effect would be
antidilutive. There were no options to purchase common shares or convertible
preferred stock outstanding during the three months ended April 30, 2000.
Options to purchase common shares that were outstanding but were not included in
the computation of diluted earnings per shares because their exercise price was
greater than the average market price of the common shares for the period each
option was outstanding were 3,410,779 for the three months ended April 30, 2001.
7
ENTRADA NETWORKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------
COMMITMENTS
On February 20, 2001, our credit arrangement with Coast Business Credit
was fully replaced with a credit facility with Silicon Valley Bank. The Silicon
Valley Bank credit facility has a maximum limit of $5.0 million, subject to a
limitation equal to 75% of our eligible receivables plus the lesser of $1.0
million or 40% of the liquidation value of our eligible inventory. Borrowings
under the credit line bear interest at the bank's prime rate plus 1.75%. In
connection with the line of credit, we issued Silicon Valley Bank five-year
warrants to purchase 75,757 shares of our common stock at $3.30 per share. We
have accrued $43 of deferred interest in connection with these warrants. The
deferred interest is being amortized as interest expense over the twelve month
term of the credit arrangement. The credit arrangement is subject to covenants
regarding our tangible net worth, and is collateralized by accounts receivable,
inventory and equipment.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject us to concentration of
credit risk consist primarily of temporary cash investments and trade
receivables. As regards the former, we place our temporary cash investments with
high credit financial institutions. At times such amounts may exceed F.D.I.C.
limits. One of our short-term investment accounts at a single institution
accounted for approximately 43% of current assets at April 30, 2001.
Although we are directly affected by the economic well being of
significant customers listed in the following tables, management does not
believe that significant credit risk exists at April 30, 2001. We perform
ongoing evaluations of our customers and require letters of credit or other
collateral arrangements as appropriate.
Three customers each account for 57.6%, 21.1% and 16.5% of net
receivables at April 30, 2001, which is within terms. At January 31, 2001, three
customers each accounted for 37.0%, 12.6%, and 12.1% of net receivables.
Customers accounting for more than 10% of net sales during the quarters
ended April 30, 2001 and 2000:
April 30, 2001 April 30, 2000
-------------- --------------
Customer W 19.2% -
Customer X 13.8 -
Customer Y - 21.0%
Customer Z - 12.2
SEGMENT INFORMATION
We operate one business segment for the design and manufacture of
computer networking products. The operations of the business segment formerly
known as Sync Research, Inc., are being discontinued and the segment's results
of operations are shown as "Loss from discontinued operations" in the
accompanying Consolidated Statements of Operations. Export sales are not a
material component of total sales.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated unaudited
financial statements and related notes thereto. The results of operations in the
consolidated unaudited financial statements reflect the operating results of
Entrada Networks, the former subsidiary of Sorrento Networks Corporation, a New
Jersey corporation, for all periods presented. The periods presented include the
operating results of the former Sync Research, Inc., beginning on September 1,
2000, as discontinued operations. Further reference should be made to our Form
10-K, filed May 4, 2001, containing our audited financial statements for the
years ended January 31, 2000 and 2001.
Results of Operations/Comparison of the Three Months Ended April 30, 2001 and
2000
Net sales. Net sales were $1.3 million for the three months ended April 30,
2001, compared with $3.7 million for the three months ended April 30, 2000. The
decrease in net sales in the three months ended April 30, 2001 resulted
primarily from decreased sales of our legacy products to distributors of remote
access and print server products. The decreased sales of our legacy products
were not offset by increased sales to OEMs of fast Ethernet local area
networking LAN adapter products due to the general economic slowdown being
experienced by our major OEM customers.
Gross profit. Cost of sales consists principally of the cost of components and
subcontract assembly from outside manufacturers, in addition to in-house system
integration, quality control, final testing and configuration. Gross profit
increased to $0.1 million for the quarter ended April 30, 2001, compared with a
gross profit loss of $1.7 million for the comparable quarter last year. Our
gross margin was 5.1% for the three months ended April 30, 2001. The gross
profit loss for the three months ended April 30, 2000 was primarily due to a
$2.7 million inventory valuation adjustment. Our gross margin, excluding the
valuation adjustment, declined to 5.1% for the three months ended April 20,
2001, from 27.3% for the three months ended April 30, 2000. The decline in gross
margins resulted primarily from the reduced revenues for the first quarter
fiscal 2002.
Selling and marketing. Selling and marketing expenses consist primarily of
employee compensation and related costs, commissions to sales representatives,
tradeshow expenses, facilities costs, and travel expenses. Selling and marketing
expenses increased to $1.2 million, or 90.2% of net sales for the quarter ended
April 30, 2001, from $1.0 million and 27.9% of net sales for the quarter ended
April 30, 2000. The increase in selling and marketing costs reflects the
recruitment of additional sales and marketing personnel, the expansion of our
domestic and international distribution channels and the establishment of
strategic relationships.
Engineering, research and development. Engineering, research and development
expenses consist primarily of compensation related costs for engineering
personnel, facilities costs, and materials used in the design, development and
support of our technologies. Engineering, research and development expenses were
$2.3 million, or 177.0% of net sales, for the quarter ended April 30, 2001,
compared with $1.7 million, or 44.5% of net sales, for the quarter ended April
30, 2000. The increase in research and development expenses was primarily due to
increased new product development costs, partially offset by cost savings
achieved through the consolidation of facilities. The Company expects research
and development expenses to continue to increase as it attempts to enter the SAN
market space.
General and administrative. General and administrative expenses consist
primarily of employee compensation and related costs, legal and accounting fees
and public company costs. General and administrative expenses increased to $0.9
million, or 66.5% of net sales, for the quarter ended April 30, 2001 from $0.5
million, or 14.3% of net sales, for the quarter ended April 30, 2000. As a
result of the merger and establishment of the Company as a publicly traded
entity headquartered in San Diego, the Company has added a layer of senior
management and will incur additional costs associated with operating as a public
company, including the costs of proxies, mailing, annual reports and
stockholders' meetings. These costs are incremental to the Company's general and
administrative costs and will continue indefinitely.
Other operating expenses. Other operating expenses for the three months ended
April 30, 2001, were $0.3 million, consisting of severance costs associated with
a reduction in staff associated with our legacy products. Other operating
expenses for the three months ended April 30, 2000, were $2.1 million,
consisting primarily of a $1.4 million valuation reserve recorded against
distributor receivables and $0.5 million of costs associated with the closure of
our Massachusetts facility.
9
Income taxes. There was no provision for income taxes for the three-month
periods ended April 30, 2001 and 2000. We have carry forwards of domestic
federal net operating losses, which may be available, in part, to reduce future
taxable income in the United States. However, the Internal Revenue Code limits
the application of net operating loss carry forwards in the event of ownership
changes of greater than 50%. We have had a change of ownership that will limit
the amount of any net operating loss carry forward we may use in a particular
year. In addition, we provided a valuation allowance in full for our deferred
tax assets as it is our opinion that it is more likely than not that some
portion or all of the assets will not be realized.
Discontinued operations. Net income from discontinued operations was $1.3
million for the first quarter ended April 30, 2001. This represents the
operating results of the former Sync Research, Inc. frame relay business based
in Irvine, California. On September 29, 2000, after completion of the merger on
August 31, 2000, the Company entered into a plan to discontinue the operations
of the frame relay business segment.
Liquidity and Capital Resources
The amounts included in our statement of cash flows for the first quarter fiscal
2002 are not comparable to our first quarter fiscal 2001 amounts due to the
inclusion of the former Sync Research, Inc., for first quarter fiscal 2002.
Readers should refer to Sync's quarterly report on Form 10-Q for information
concerning Sync.
We financed our operations before the merger through a combination of debt and
non-interest bearing advances from our former parent. At April 30, 2001, our
working capital was $4.3 million and cash and cash equivalents was $5.1 million.
Cash flow used in operations was $2.4 million during the three months ended
April 30, 2001 compared to $2.5 million for the three months ended April 30,
2000. The decrease in cash flows used in operations reflects a substantial
increase in our net loss from operations after adjustment for non-cash expenses
including depreciation, amortization, reserves and valuation allowances,
partially offset by $0.4 million of cash used in discontinued operations. During
the three months ended April 30, 2001, operating cash flow reflected decreases
in net accounts receivable, partially offset by decreases in accounts payable
and accrued expenses and increases in other current assets. During the same
three months last year, our cash flow used in operations reflected increases in
accounts receivable and inventory along with a decrease in accounts payable
partially offset by an increase in accrued expenses.
Our investing activities consist primarily of purchases of property, plant and
equipment. We purchased $0.3 million and $0.1 million in equipment during the
three months ended April 30, 2001 and 2000, respectively.
Our financing activities during the three months ended April 30, 2001 used cash
flows of $2.1 million, primarily in connection with a $1.9 million decrease in
short-term debt. During the three months ended April 30, 2000 financing
activities provided cash flows of $2.5 million which included $2.4 million of
non-interest bearing advances from our former parent, net of repayments.
We have a line of credit totaling $5.0 million. Outstanding borrowings against
this line of credit were $1.7 million at April 30, 2001. Our credit line is
collateralized by accounts receivable, inventory and equipment.
We anticipate that our available cash resources will be sufficient to meet our
presently anticipated capital requirements for the next nine months. The Company
is currently pursuing external equity financing arrangements that would enhance
our liquidity position in the coming years and enable us to accelerate the
development of SAN products. Nonetheless, our future capital requirements may
vary materially from those now planned including the need for additional working
capital to accommodate planned growth, hiring and infrastructure needs. There
can be no assurances that our working capital requirements will not exceed our
ability to generate sufficient cash internally to support our requirements and
that external financing will be available or that, if available, such financing
can be obtained on terms favorable to us and our shareholders.
10
New Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 133 as amended by SFAS
137 and 138, "Accounting for Derivative Instruments and Hedging Activities," is
effective for financial statements with fiscal quarters of all fiscal years
beginning after June 15, 2000. The Accounting Standards Executive Committee
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," and SOP 98-5, "Reporting on
the Costs of Start-up Activities," effective in the current or future periods.
The adoption or future adoption of these standards has had or will have no
material effects on our financial position or results of operations.
The Financial Accounting Standards Board issued Interpretation ("FIN") No. 44,
"Accounting for Certain Transactions involving Stock Compensation," an
Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of
Opinion No. 25 for (a) the definition of an employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 2, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998, or January 12, 2000. The adoption of this
standard had no material effect, if any, on our financial position or results of
operations.
In December, 1999 the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition ("SAB 101"), which broadly addresses how
companies report revenues in their financial statements. Staff Accounting
Bulletin No. 101B delayed the date of required adoption to October 1, 2000.
Management believes that adoption of this policy had no material effect on our
financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We periodically need additional financing for our large operating losses and
capital expenditures associated with establishing and expanding our operations.
The interest rate that we will be able to obtain on debt financing will depend
on market conditions at that time, and may differ from the rates we have secured
on our current debt. Additionally, the interest rates charged by our present
lenders adjust on the basis of the lenders' prime rate.
We believe that the relatively moderate rate of inflation in the United States
over the past few years has not had a significant impact on our sales or
operating results or on the prices of raw materials. There can be no assurance,
however, that inflation will not have a material adverse effect on our operating
results in the future.
All of our sales and expenses are currently denominated in U.S. dollars and to
date our business has not been affected by currency fluctuations. In the future,
however, we could conduct business in several different countries and thus
fluctuations in currency exchange rates could cause our products to become
relatively more expensive in particular countries, leading to a reduction in
sales in that country. In addition, inflation in such countries could increase
our expenses. In the future, we may engage in foreign currency denominated sales
or pay material amounts of expenses in foreign currencies and, in such event,
may experience gains and losses due to currency fluctuations. Our operating
results could be adversely affected by such fluctuations.
We do not hold or issue derivative, derivative commodity instruments or other
financial instruments for trading purposes. Investments held for other than
trading purposes do not impose a material market risk.
11
Part II. Other Information
Item 5. Other Information
Certain Cautionary Statements
Certain statements in this Quarterly Report on Form 10-Q, including, but not
limited to, Part I, Item 2 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, Section
21E of the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995, that are not historical facts but
rather reflect current expectations concerning future results and events. The
words "believes," "expects," "intends," "plans," "anticipates," "likely," "will"
and similar expressions identify such forward-looking statements. These
forward-looking statements are subject to risks, uncertainties and other
factors, some of which are beyond the Company's control that could cause actual
results to differ materially from those forecast or anticipated in such
forward-looking statements. These factors include, but are not limited to, the
technical and commercial success of the Company's current and future products,
the performance and ultimate disposition of our discontinued business segment
based in Irvine, California, the integration of operations as a result of the
merger, reliance on vendors and product lines, competition, performance of new
products, performance of affiliates and their future operating results, the
Company's ability to establish successful strategic alliances, quarterly and
seasonal fluctuations, dependence on senior management and possible volatility
of stock price. These factors are discussed generally in greater detail under
the caption "Risk Factors" in our Annual Report on Form 10-K, filed May 4, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On April 26, 2001, the Company filed a report on Form 8-K
describing the anticipated effect of a general economic
slowdown on it financial results and operations, and the
cost-cutting measures introduced by the Company in response.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENTRADA NETWORKS, INC.
By: /s/ Gilbert G. Goldbeck
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Gilbert G. Goldbeck
Vice President, Finance and Operations
Principal Accounting Officer
Date: May 31, 2001
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