ENTND Entorian Technologies Inc. (MM)

Entorian Technologies Inc. (NASDAQ: ENTND), a leader in rugged, mission-critical mobile and server computing solutions for use in harsh, demanding environments, today announced financial results for the third quarter ended September 30, 2009.

Total revenue for the third quarter was $11.8 million, including $11.2 million of product revenue associated with the company’s rugged technology solutions and $0.6 million of memory license revenue. This compares to total revenue of $7.7 million in the second quarter of 2009, which included $6.9 million of rugged technology product revenue and $0.8 million of memory license revenue.

“Our rugged computing solutions business increased during the quarter as our OEM customer’s next-generation, fully rugged notebook gained additional traction in the marketplace,” commented Stephan Godevais, Entorian’s president and chief executive officer. “Launched in the second quarter of 2009, this fully rugged notebook showcases our enhanced protection technologies against drops, rain, dust, dirt, spills and temperature extremes,” stated Mr. Godevais.

Mr. Godevais continued, “More recently, we launched a second ruggedized platform with our OEM customer. This rugged convertible notebook provides critical features and ergonomic mobility in a cost-effective solution that is ideal for first responders and government agencies, as well as enterprise users in field service, field sales and industrial manufacturing.”

In accordance with GAAP, gross profit for the third quarter of 2009 was $1.3 million, or 11 percent of revenue, compared to $1.1 million, or 14 percent, in the previous quarter. On a non-GAAP basis, gross margin was 16 percent in the third quarter of 2009, compared to 22 percent in the previous quarter.

On a GAAP basis, total operating expenses in the third quarter of 2009 were $4.4 million, compared to $4.9 million in the previous quarter. SG&A represented approximately 22 percent of net revenue, including stock-based compensation expense of $251,000, compared to 37 percent in the previous quarter. R&D was approximately 16 percent of revenue, compared to 27 percent in the previous quarter. On a non-GAAP basis, total operating expenses for the quarter were $4.1 million, compared to $4.7 million in the previous quarter.

Third quarter GAAP net loss was $3.3 million, or ($0.84) per diluted share, compared to a net loss in the previous quarter of $3.7 million, or ($0.96) per diluted share.

Excluding non-cash charges for stock-based compensation, amortization and impairment of acquisition intangibles, fixed assets and goodwill, the non-GAAP net loss for the third quarter was $2.3 million, or ($0.59) per diluted share, compared to the non-GAAP net loss of $2.9 million, or ($0.74) per diluted share, in the previous quarter. The per share loss amounts have been adjusted to reflect the impact of the company’s 1-for-12 reverse stock split on October 30, 2009. A reconciliation of GAAP results to non-GAAP results has been provided in the financial statement tables following the text of this press release.

Inventory as of September 30, 2009 was $7.6 million, compared to $4.8 million in the previous quarter. Capital expenditures were $300,000 and depreciation expense was $200,000.

Cash, cash equivalents and investments on September 30, 2009 were $11.2 million, compared to $18.0 million on June 30, 2009. Accounts receivable was $16.6 million, compared to $11.5 million in the previous quarter.

Business Outlook

“As we enter the fourth quarter, we remain cautious regarding our expectations due to our limited visibility of government spending. We continue to work closely with our OEM customer for future development of innovative rugged computing solutions and further penetration of our target markets,” concluded Mr. Godevais.

Recent Events

Following the close of the quarter, two events occurred that may improve the company’s liquidity in the upcoming quarters. First, the company is a claimant in the class action antitrust litigation entitled In Re Dynamic Random Access Memory (DRAM) Antitrust Litigation. The company submitted a claim in this litigation, and on October 28, 2009, the judge approved the final distribution of funds pursuant to a settlement. Based on the approved settlement, the claims administrator informed the company that it is scheduled to receive approximately $7.5 million, with payment to be made in December 2009. However, any distribution is subject to a 30-day appeal period, so this amount and timing could change. Additional information is available in the company’s Form 8-K filed with the SEC on November 3, 2009.

In addition, on November 6, 2009, Congress enacted the Worker, Homeownership, and Business Assistance Act of 2009. This Act will allow the company to carry back its 2008 taxable losses to years not previously available. The company expects to receive an additional refund, which could amount to approximately $5 million of previously paid Federal income taxes.

Neither of these receivables is included in the company’s September 30, 2009 assets.

Cautionary Language

This press release contains forward-looking statements. These statements are generally accompanied by words such as “expect,” “believe,” and similar expressions. These statements include our expectations regarding the fourth quarter, as well as improved liquidity in connection with a payment we expect to receive in connection with the DRAM settlement and a tax refund we expect to receive in connection with the Worker, Homeownership and Business Assistance Act of 2009. We do not have sufficient backlog to rely upon when forecasting results, so our future performance is very difficult to predict. Our forward-looking statements are based on our current expectations, estimates and assumptions and are subject to many risks, uncertainties and unknown future events that could cause actual results to differ materially. Risks and uncertainties that may cause future results to differ include, but are not limited to, the risk of a change in our relationship with our OEM customer with which we have an exclusive sales and marketing agreement regarding certain ruggedized computer notebook products; a change in the efforts by our OEM customer to sell our rugged computing products; the timing and volume of sales of our products by our OEM customer; a shortage of critical parts, which could negatively impact our ability to fulfill orders; fluctuating demand for, and life cycles of, our products; inconsistency in forecasts provided to us by our largest customer, resulting in increased inventory exposure as we build to our customer’s current forecast; operational risks from our reliance on suppliers, subcontractors and third-party manufacturers for the production of ruggedized products; a failure by us to develop new products that are successfully qualified and utilized by customers; our ability to manufacture and ship products within a particular reporting period; the risk that foreign or domestic manufacturers develop products that compete successfully with our own on cost or other functionality; our ability to enforce our intellectual property rights or to defend claims that we infringe the intellectual property rights of others, and the significant costs to us of related litigation; the risk that our average selling prices decline during the period more than we expect because of competitive pressures, substituted products or overall reduced demand for our products; risks associated with budget constraints of federal, state and local governments that could negatively impact sales of our ruggedized products; risks associated with the failure of our ruggedized products to meet the military specification MIL-STD-810F; risks related to product liability and warranty claims in the event our products do function according to specification or include defective parts; the risks of seasonality, to which we are subject; and the risks associated with our dependence on a few key personnel to manage our business effectively. In addition, currently we are not in compliance with NASDAQ’s listing requirements and we cannot provide any assurance that we will satisfy these requirements. If we are delisted from NASDAQ, liquidity of our shares would be adversely affected.

For a discussion of these and other factors that could impact our financial results and cause actual results to differ materially from those in the forward-looking statements, please refer to our recent filings with the Securities and Exchange Commission, and in particular, our Form 10-K filed on March 12, 2009. The foregoing information concerning our business outlook represents our outlook as of the date of this news release, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

Non-GAAP Financial Measurements

In addition to the GAAP results provided by this document, the company has provided non-GAAP financial measurements that present operating income, net income and earnings per diluted share on a basis excluding non-cash charges for stock-based compensation and amortization and impairment of acquisition intangibles, fixed assets and goodwill, and the associated income tax effect. Details of these excluded items are presented in one of the tables below, which reconcile the GAAP results to non-GAAP financial measurements described in this press release. Entorian has chosen to provide non-GAAP financial measurements to investors because it believes that excluding certain charges represents a better basis for the comparison of its current results to the results of its peer companies. In addition, the company believes that it provides a means to highlight the results of core ongoing operations to investors. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

About Entorian Technologies

Entorian Technologies Inc. (NASDAQ: ENTN) is a leader in rugged, mission-critical mobile and server computing solutions for use in harsh, demanding environments through its subsidiary, Augmentix Corporation. Its Augmentix-produced servers and mobile products combine best-in-class technologies and standardized components from industry leader Dell, with proven ruggedization methods from Augmentix. These rugged systems are environmentally robust and technologically advanced. For more information, go to www.entorian.com and www.augmentix.com.

Entorian is a trademark of Staktek Group LP and Augmentix is a trademark of Augmentix Corporation.

  ENTORIAN TECHNOLOGIES INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share data; unaudited)       Three Months Ended Sept. 30, June 30, Sept. 30,   2009     2009     2008   Revenue: Product $ 11,237 $ 6,928 $ 17,750 License   551     822     713   Total revenue 11,788 7,750 18,463 Cost of revenue: Product (1) 9,908 6,026 16,861 Amortization of acquisition intangibles 626 626 970 Impairment of acquisition intangibles and fixed assets   -     -     3,937   Total cost of revenue   10,534     6,652     21,768   Gross profit (loss) 1,254 1,098 (3,305 ) Operating expenses: Selling, general and administrative (1) 2,616 2,829 5,132 Research and development (1) 1,937 2,107 2,089 Restructuring (133 ) 120 192 Amortization of acquisition intangibles 23 35 165 Impairment of acquisition intangibles - - 4,312 Goodwill impairment   -     (159 )   4,952   Total operating expenses   4,443     4,932     16,842   Loss from operations (3,189 ) (3,834 ) (20,147 ) Other income (expense): Interest income 34 42 218 Interest expense (156 ) (194 ) (195 ) Other, net   53     269     6   Total other income (expense), net   (69 )   117     29   Loss before income taxes (3,258 ) (3,717 ) (20,118 ) Provision (benefit) for income taxes   2     22     (528 ) Net loss $ (3,260 ) $ (3,739 ) $ (19,590 ) Loss per share: Basic $ (0.84 ) $ (0.96 ) $ (5.02 ) Diluted $ (0.84 ) $ (0.96 ) $ (5.02 ) Shares used in computing loss per share: Basic 3,897 3,903 3,904 Diluted 3,897 3,903 3,904     (1) Includes stock-based compensation expense as follows: Cost of revenue $ 5 $ 3 $ 97 Selling, general and administrative expense 251 272 388 Research and development expense   66     57     108   $ 322   $ 332   $ 593     ENTORIAN TECHNOLOGIES INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share data; unaudited)     Nine Months Ended Sept. 30, Sept. 30,   2009     2008   Revenue: Product $ 31,107 $ 32,639 License   1,469     3,349   Total revenue 32,576 35,988 Cost of revenue: Product (1) 25,500 34,156 Amortization of acquisition intangibles 1,877 2,161 Impairment of acquisition intangibles and fixed assets   -     4,097   Total cost of revenue   27,377     40,414   Gross profit (loss) 5,199 (4,426 ) Operating expenses: Selling, general and administrative (1) 8,643 12,088 Research and development (1) 6,229 4,486 Restructuring 2,303 406 Amortization of acquisition intangibles 94 518 Impairment of acquisition intangibles - 4,312 Goodwill impairment   (159 )   4,952   Total operating expenses   17,110     26,762   Loss from operations (11,911 ) (31,188 ) Other income (expense): Interest income 154 1,076 Interest expense (473 ) (201 ) Other, net   249     63   Total other income (expense), net   (70 )   938   Loss before income taxes (11,981 ) (30,250 ) Provision (benefit) for income taxes   38     (795 ) Net loss $ (12,019 ) $ (29,455 ) Loss per share: Basic $ (3.08 ) $ (7.55 ) Diluted $ (3.08 ) $ (7.55 ) Shares used in computing loss per share: Basic 3,903 3,899 Diluted 3,903 3,899     (1) Includes stock-based compensation expense as follows: Cost of revenue $ 16 $ 264 Selling, general and administrative expense 719 1,356 Research and development expense   211     339   $ 946   $ 1,959     ENTORIAN TECHNOLOGIES INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share data; unaudited)       Three Months Ended Sept. 30, June 30, Sept. 30,   2009     2009     2008   GAAP loss from operations $ (3,189 ) $ (3,834 ) $ (20,147 ) Non-GAAP adjustments: Amortization of acquisition intangibles 649 661 1,135 Impairment of acquisition intangibles and fixed assets - - 8,249 Goodwill impairment - (159 ) 4,952 Stock-based compensation expense   322     332     593   Total non-GAAP adjustments   971     834     14,929   Non-GAAP loss from operations $ (2,218 ) $ (3,000 ) $ (5,218 )     GAAP net loss $ (3,260 ) $ (3,739 ) $ (19,590 ) Total non-GAAP adjustments affecting income from operations 971 834 14,929 Tax adjustment*   -     -     27   Non-GAAP net loss $ (2,289 ) $ (2,905 ) $ (4,634 )   Shares used in calculating non-GAAP diluted loss per share 3,897 3,903 3,904   Non-GAAP diluted loss per share $ (0.59 ) $ (0.74 ) $ (1.19 )   * The non-GAAP tax adjustment represents the tax effect of the non-GAAP adjustments.   ENTORIAN TECHNOLOGIES INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share data; unaudited)     Nine Months Ended Sept. 30, Sept. 30,   2009     2008   GAAP loss from operations $ (11,911 ) $ (31,188 ) Non-GAAP adjustments: Amortization of acquisition intangibles 1,971 2,679 Impairment of acquisition intangibles and fixed assets - 8,409 Goodwill impairment (159 ) 4,952 Stock-based compensation expense   946     1,959   Total non-GAAP adjustments   2,758     17,999   Non-GAAP loss from operations $ (9,153 ) $ (13,189 )     GAAP net loss $ (12,019 ) $ (29,455 ) Total non-GAAP adjustments affecting income from operations 2,758 17,999 Tax adjustment*   -     35   Non-GAAP net loss $ (9,261 ) $ (11,421 )   Shares used in calculating non-GAAP diluted loss per share 3,903 3,899   Non-GAAP diluted loss per share $ (2.37 ) $ (2.93 )   * The non-GAAP tax adjustment represents the tax effect of the non-GAAP adjustments.   ENTORIAN TECHNOLOGIES INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)     Sept. 30, Dec. 31,   2009     2008   (unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,536 $ 15,651 Investments 8,647 1,639 Accounts receivable, net of allowances of $186 in 2009 and $597 in 2008 16,585 5,256 Inventories 7,552 5,018 Prepaid expenses 500 510 Income tax recoverable 1,646 1,571 Deferred tax asset 272 271 Other current assets   443     1,592   Total current assets   38,181     31,508   Property, plant and equipment, net 3,624 4,439 Long-term investments - 7,337 Other intangible assets, net 8,750 10,611 Other assets   111     81   Total assets $ 50,666   $ 53,976     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,438 $ 4,995 Accrued compensation 199 1,951 Accrued liabilities 1,558 1,490 Deferred revenue   876     45   Total current liabilities   17,071     8,481   Other accrued liabilities 69 180 Deferred tax liabilities 170 170 Convertible notes payable 3,633 3,847 Related party convertible notes payable 6,428 6,805   Stockholders' equity: Capital stock 150,371 149,428 Treasury stock (25,947 ) (25,850 ) Accumulated other comprehensive income 1 26 Accumulated deficit   (101,130 )   (89,111 ) Total stockholders' equity   23,295     34,493   Total liabilities and stockholders' equity $ 50,666   $ 53,976     ENTORIAN TECHNOLOGIES INC. RECONCILIATION OF ADDITIONAL GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands; unaudited)       Quarter Ended Sept. 30, June 30, Sept. 30,   2009     2009     2008   Gross profit (loss) $ 1,254 $ 1,098 $ (3,305 ) Non-GAAP adjustments: Amortization of acquisition intangibles 626 626 970 Impairment of acquisition intangibles and fixed assets - - 3,937 Stock-based compensation   5     3     97   Non-GAAP gross profit $ 1,885   $ 1,727   $ 1,699     Total revenue $ 11,788 $ 7,750 $ 18,463   Non-GAAP gross margin percentage 16 % 22 % 9 %   Operating expenses $ 4,443 $ 4,932 $ 16,842 Non-GAAP adjustments: Amortization of acquisition intangibles 23 35 165 Impairment of acquisition intangibles - - 4,312 Goodwill impairment - (159 ) 4,952 Stock-based compensation   317     329     496   Non-GAAP operating expenses $ 4,103   $ 4,727   $ 6,917       Selling, general and administrative expense $ 2,616 $ 2,829 $ 5,132 Non-GAAP adjustments: Stock-based compensation   251     272     388   Non-GAAP selling, general and administrative expense $ 2,365   $ 2,557   $ 4,744     Non-GAAP SG&A as a percentage of total revenue 20 % 33 % 26 %   Research and development expense $ 1,937 $ 2,107 $ 2,089 Non-GAAP adjustments: Stock-based compensation   66     57     108   Non-GAAP research and development expense $ 1,871   $ 2,050   $ 1,981     Non-GAAP R&D as a percentage of total revenue 16 % 26 % 11 %