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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 October 31, 2002
( ) 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.)
12 Morgan, Irvine, California 92618
(Address of principal executive office) (Zip Code)
(949) 588-2070
(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 November 15, 2002 12,936,774
ENTRADA NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
- ----------------------------------------------------------------------------------------------------------
October 31, January 31,
- ------------------------------------------------------------------------------------------- -----------
2002 2002
(unaudited)
ASSETS
CURRENT ASSETS
Cash and equivalents $ 507 $ 698
Short-term Investments 49 -
Accounts receivable, net of allowance for doubtful
accounts of $457 and $757, respectively 2,439 1,977
Inventory, net of reserves of $6,012 and $5,459, respectively 3,917 4,099
Prepaid expenses and other current assets 515 527
- ------------------------------------------------------------------------------------------- --------
TOTAL CURRENT ASSETS 7,427 7,301
- ------------------------------------------------------------------------------------------- --------
PROPERTY AND EQUIPMENT, NET 1,201 1,807
- ------------------------------------------------------------------------------------------- --------
OTHER ASSETS
Deposits 31 31
Restricted cash 300 300
- ----------------------------------------------------------------------------------------------- --------
TOTAL OTHER ASSETS 331 331
- ----------------------------------------------------------------------------------------------- --------
TOTAL ASSETS $ 8,959 $ 9,439
=============================================================================================== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 1,303 $ 686
Current maturities of long term debt 93 115
Accounts payable 1,457 2,713
Other current and accrued liabilities 1,305 2,660
- ----------------------------------------------------------------------------------------------- --------
TOTAL CURRENT LIABILITIES 4,158 6,174
- ----------------------------------------------------------------------------------------------- --------
Long-term debt and capital lease obligations 107 27
- ----------------------------------------------------------------------------------------------- --------
TOTAL LIABILITIES 4,265 6,201
- ----------------------------------------------------------------------------------------------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 2,000 shares authorized, no shares
outstanding
Common stock, $.001 par value; 50,000 shares authorized; 12,937 shares
issued and outstanding at October 31, 2002; 11,580 shares issued and
outstanding at January 31, 2002 13 12
Additional paid-in capital 52,160 52,072
Accumulated deficit (47,479) (48,846)
- ----------------------------------------------------------------------------------------------- --------
TOTAL STOCKHOLDERS' EQUITY 4,694 3,238
- ----------------------------------------------------------------------------------------------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,959 $ 9,439
=============================================================================================== ========
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 Nine months ended
October 31, October 31,
------------------------- --------------------------
2002 2001 2002 2001*
---------- --------- --------- ---------
Net revenues $ 4,059 $ 3,078 $10,648 $ 9,863
Cost of revenue 1,872 1,111 5,603 4,899
------- ------- ------- -------
Gross profit 2,187 1,967 5,045 4,964
Operating expenses:
Selling and marketing 206 361 633 2,742
Engineering, research and development 285 719 853 5,283
General and administrative 569 504 1,587 2,180
Other 120 1,292 360 1,774
------- ------- ------- -------
Total operating expenses 1,180 2,876 3,433 11,979
Income (loss) from operations 1,007 (909) 1,612 (7,015)
Other expense
Interest expense, net (57) (79) (156) (213)
Other expense (85) - (89) -
------- ------- ------- -------
Total Other Income (Expense) (142) (79) (245) (213)
Net income (loss) before income taxes 865 (988) 1,367 (7,228)
Provision for income taxes - - - -
Net Income (loss) $ 865 $ (988) $ 1,367 $(7,228)
======= ======= ======= =======
Net income (loss) per common share:
Income (loss) from continuing operations:
Weighted average shares outstanding:
Basic 12,937 10,993 12,755 10,993
======= ======= ======= =======
Diluted 12,973 10,993 12,823 10,993
======= ======= ======= =======
Net income (loss):
Basic $ 0.07 $ (0.09) $ 0.11 $ (0.66)
======= ======= ======= =======
Diluted $ 0.07 $ (0.09) $ 0.11 $ (0.66)
======= ======= ======= =======
* Note: The $3,401 gain from the retention of Sync Research, Inc. shown on the
historical nine months ended October 31, 2001, has been distributed $(1,351) to
cost of sales, $(431) to selling & marketing, $(810) to engineering, and $(809)
to general and administrative to be comparable to the nine months ended October
31, 2002. There is no change to net loss.
See accompanying notes to consolidated financial statements.
3
ENTRADA NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudied, in thousands)
Nine months ended
October 31,
-------------------------
2002 2001*
- --------------------------------------------------------------------------------------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,367 $ (7,228)
- --------------------------------------------------------------------------------------- --------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 468 2,399
Accounts receivable and inventory reserves 52 2,695
Warrants issued in conjunction with long term debt - 43
Sale of property and equipment 149 -
Investment (loss) (4)
Issuance of common stock in payment of expenses and non cash
compensation 89 -
Changes in assets and liabilities
Decrease in accounts receivable 39 1,112
Increase in inventories (370) (2,489)
(Increase) in other assets (300) (300)
(Increase) decrease in other current assets 311 (810)
Decrease in accounts payable (1,256) (383)
Increase (decrease) in accrued expenses (1,352) 362
Increase in other current liabilities 80 -
- --------------------------------------------------------------------------------------- --------
NET CASH USED IN CONTINUING
OPERATING ACTIVITIES (727) (4,599)
- --------------------------------------------------------------------------------------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (11) (2,235)
Investment in marketable securities (49) -
- --------------------------------------------------------------------------------------- --------
NET CASH USED IN INVESTING ACTIVITIES (60) (2,235)
- --------------------------------------------------------------------------------------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (repayment) of short-term debt 618 (3,281)
Repayment of capital lease obligations (22) (73)
- --------------------------------------------------------------------------------------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 596 (3,354)
- --------------------------------------------------------------------------------------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (191) (10,188)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 698 10,253
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 507 $ 65
======================================================================================= ========
*Note: The historical $3,892 decrease in cashflow from the discontinued
Sync Research, Inc. subsidiary has been reclassified into $920 for accounts
receivable, $620 for inventories, $399 for other current assets, $1,224 for
accounts payable, $563 for accrued expenses and $166 for purchase of
property and equipment to reflect the retention of Sync Research, Inc
See accompanying notes to consolidated financial statements.
4
ENTRADA NETWORKS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
Entrada Networks, Inc. and its wholly owned subsidiaries, (the
"Company", "we", "our" or "us"), are in the business of developing and marketing
products for the storage networking and network connectivity industries. Our
Torrey Pines Networks ("Torrey Pines") subsidiary is engaged in the design and
development of storage area network ("SAN") transport switching products. Our
Rixon Networks ("Rixon") subsidiary designs, manufactures, markets and sells a
line of fast and gigabit Ethernet products that are incorporated into the remote
access and other server products of Original Equipment Manufacturers ("OEM"). In
addition, some of its products are deployed by telecommunications network
operators, applications service providers, internet service providers, and the
operators of corporate local area and wide area networks for the purpose of
providing access to and transport within their networks. The Sync Research
("Sync") subsidiary designs, manufactures and services frame relay products for
some of the major financial institutions in the U.S. and abroad. We operate in
one business segment, from Irvine, California.
On August 15, 2002, we signed a definitive agreement to acquire Savant
Consulting Group, Inc., a New Jersey-based provider of outsourced information
technology solutions. We filed a Form 8-K with the SEC on August 19, 2002
describing the merger and including as an exhibit the Agreement and Plan of
Merger with Exhibits A & B. On October 10, 2002 we filed Form 8-K/A with the SEC
providing pro forma consolidated financial statements. On November 22, 2002 we
signed an Amended and Restated Agreement and Plan of Merger that amends the
transaction to a merger between our newly formed subsidiary Entrada
Acquisitions, LLC and DBW, Inc., Savant's parent corporation. This Amended and
Restated Agreement and Plan of Merger was provided as Exhibit 2.2 to the 8-K/A
filed with the Securities and Exchange Commission on November 25, 2002. There
are no changes to the exhibits to the merger agreement that were filed with the
8-K on August 19, 2002. The merger is with one of our subsidiaries, it complies
with Delaware General Corporation Law and only board approval is required
therefore the transaction will not be submitted for shareholder approval. This
merger is subject to customary closing conditions.
In consideration for the merger, DBW's shareholder HandsOn Ventures,
LLC ("HOV"), a Santa Monica, California based venture capital firm, will receive
cash and/or common stock and Series B preferred shares of Entrada Networks. This
consideration is the same as in the prior merger agreement. The Series B
Convertible Preferred Stock will have a liquidation value of $5,000,000. The
Preferred Stock from and after the date of issuance until three years from its
date of issuance, the Conversion Price per share for Preferred Shares shall be
the average of the closing bid prices for the Common Stock on the Principal
Market for the Common Stock as reported by Bloomberg for the twenty (20) trading
days preceding August 15, 2002. After three years the conversion price will be
the lower of either (i) be the average of the closing bid prices for the Common
Stock on the Principal Market for the Common Stock as reported by Bloomberg for
the twenty (20) trading days preceding August 15, 2002, or (ii) be the average
of the closing bid prices for the Common Stock on the Principal Market for the
Common Stock as reported by Bloomberg for the twenty (20) trading days preceding
the date upon which the holders of such Preferred Shares shall have submitted to
Entrada Networks, Inc. their written intention to convert all or a portion of
the Preferred Shares held by them. The cash and/or common stock will have a
value of $1,000,000 and will be payable in four installments over one year. The
purchase price can increase by up to an additional $3,400,000, based upon the
performance of Savant after the closing in the years 2003, through 2005. In the
event that all the Series B Convertible Preferred Stock is converted into common
stock and the $1,000,000 is paid all in common stock, HandsOn Ventures, LLC will
own more than 74% of our shares.
Savant, which is a preferred vendor to a number of Fortune 500
companies, was founded in 1997. Savant achieved net revenues of $17.3 million
during the nine months ended September 30, 2002, and $17.3 million for the year
ended December 31, 2001. For the nine months ended October 31, 2002 and the
fiscal year ended January 31, 2002, Entrada Networks achieved net revenues of
$10.6 million and $13.3 million, respectively.
In deciding to approve the merger, our board of directors considered
the opinion, dated as of September 12, 2002, of FMV Opinions, Inc, as to the
fairness to us of the consideration being paid under the merger agreement from a
financial point of view. This favorable opinion and its accompanying cover
letter were attached as Exhibits
5
ENTRADA NETWORKS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
99.9 and 99.10 to the Form 8-K/A filed with the Security and Exchange Commission
on November 25, 2002 and sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion. This
opinion is directed to the board of directors and is not a recommendation to
shareholders with respect to any matter relating to the merger.
Our director, Rohit Phansalkar, has an equity interest in HOV's
proceeds from a sale or other disposition of Savant, and the value of that
interest will be impacted by the successful completion of the merger.
Our chairman, CEO and president, Kanwar Chadha, is the brother of Par
Chadha, and Par Chadha is a beneficial owner of DBW. Our director and CFO,
Davinder Sethi, is first cousin of Par Chadha, and Dr. Sethi has, from time to
time, provided advice to HandsOn Ventures or other entities beneficially owned
by HOV's beneficial owner, Par Chadha.
Savant plans to derive an increasing amount of its revenue from the
provision of services such as Project Life Cycle management, software
application development and maintenance, and help desk support. Savant has
designated Digital Boardwalk, Inc., which is owned by HOV, a preferred vendor
for the delivery of these and other services.
The executive finance operations of Savant are located within the
offices of HOV and Savant pays to HOV rent as a sub-tenant.
Complete details of the transaction were provided in the form 8-K filed
with the Securities and Exchange Commission August 19, 2002, a form 8-K/A filed
with the Securities and Exchange Commission October 11, 2002 and a form 8-K/A
filed with the Securities and Exchange Commission November 25, 2002.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Entrada Networks, Inc., the "Company," "We," "Our" or "Us," has
prepared, without audit, the accompanying financial data for the three and nine
months ended October 31, 2002 and 2001 in accordance with accounting principles
generally accepted in the United States of America 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 accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. The January 31,
2002 balance sheet was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in
the United States of America. 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 consolidated
financial statements and the notes thereto included in our Annual Report on Form
10-K filed with the Securities and Exchange Commission on May 1, 2002.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates that affect the reported amounts of assets,
liabilities, revenues and expenses, the disclosure of contingent assets and
liabilities. 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 October 31, 2002 and for the three and nine months ended
October 31, 2002, have been made. The results of operations for the three and
nine months ended October 31, 2002 are not necessarily indicative of the
operating results for the full year.
Retained Operations
On September 29, 2000, the Company had entered into a plan to
discontinue its frame relay business. On October 13, 2000, Entrada Networks'
Board of Directors approved a plan for the Company to explore strategic and
6
ENTRADA NETWORKS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
financial alternatives for its frame relay business for the purpose of enhancing
shareholder value. The Company had planned to complete disposition of its frame
relay business by September 30, 2001.
On September 6, 2001, the Company announced that it is restructuring
its business, creating three separate wholly owned subsidiaries. The
discontinued frame relay business will be retained as Sync Research, Inc., as
one of the three subsidiaries. Sync Research, Inc. will serve its current frame
relay customers and provide manufacturing, service and repair facilities for the
other subsidiaries. On September 18, 2001, the Company's Board of Directors
approved a plan to reclassify Sync Research as an operating unit.
The accompanying financial statements reflect the operations and
financial position of Sync Research the frame relay business as a retained
business for all periods reported in conformity with accounting principles
generally accepted in the United States of America. All historical consolidated
financial statements have been reclassified according to EITF 90-16, "Accounting
for Discontinued Operations Subsequently Retained." In that regard, the "Net
Loss" from discontinued operations of $426 shown on the filed consolidated
statements of operations for both the three and nine months ending October 31,
2001 as filed on form 10-Q dated December 21, 2001, has been reclassified into
operating expense accounts for cost of sales, selling and marketing,
engineering, and general and administrative. The net loss for the periods
remains the same as filed.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after July 1, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141. The
adoption of SFAS 141 did not have a material effect on our financial position of
results of operations.
SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test nine months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. Adopting SFAS 142 did not have
a material effect on our financial position or the results of operations.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires the fair value of a liability for
an asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company believes the adoption of this Statement will have no
material impact on its financial statements.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses
7
ENTRADA NETWORKS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
that have not yet occurred. SFAS 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001 and, generally, are to
be applied prospectively. The adoption of this Statement had no material impact
on its financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement eliminates the current requirement that gains and
losses on debt extinguishment must be classified as extraordinary items in the
income statement. Instead, such gains and losses will be classified as
extraordinary items only if they are deemed to be unusual and infrequent, in
accordance with the current GAAP criteria for extraordinary classification. In
addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring
that modifications of capital leases that result in reclassification as
operating leases be accounted for consistent with sale-leaseback accounting
rules. The statement also contains other nonsubstantive corrections to
authoritative accounting literature. The changes related to debt extinguishment
will be effective for fiscal years beginning after May 15, 2002, and the changes
related to lease accounting will be effective for transactions occurring after
May 15, 2002. Adoption of this standard will not have any immediate effect on
the Company's consolidated financial statements. Entrada will apply this
guidance prospectively.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. We will
adopt the provisions of SFAS No. 146 for restructuring activities initiated
after December 31, 2002. SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at
the date of a company's commitment to an exit plan. SFAS No. 146 also
establishes that the liability should initially be measured and recorded at fair
value. Accordingly, SFAS No. 146 may affect the timing of recognizing future
restructuring costs as well as the amount recognized.
BALANCE SHEET DETAIL
Consolidated inventories at October 31, 2002 and January 31, 2002
consist of:
October 31, 2002 January 31, 2002
---------------- ----------------
Raw material $ 6,157 $ 6,599
Work in process 374 27
Finished goods 3,398 2,932
------- -------
9,929 9,558
Less: valuation reserve (6,012) (5,459)
------- -------
$ 3,917 $ 4,099
======= =======
STOCKHOLDERS' EQUITY
We are authorized to issue the following shares of stock:
50,000,000 shares of Common Stock
2,000,000 shares of Preferred Stock
EARNINGS PER SHARE CALCULATION
The following data show the amounts used in computing basic earnings
per share for the three and nine months ended October 31, 2002 and 2001.
Three Months Ended October 31, Nine Months Ended October,
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) available to common
8
ENTRADA NETWORKS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
stockholders used in basic EPS $865 $(988) $1,367 $(7,228)
==== ===== ====== =======
Weighted average number of common shares
used in basic EPS 12,936,774 10,992,289 12,754,649 10,992,289
========== ========== ========== ==========
We had net income for the three and nine month period ended October 31,
2002 and incurred a net loss for the same periods in 2001. Accordingly, the
effect of dilutive securities including vested and non-vested stock options to
acquire common stock are included in the calculation of EPS because their effect
would be dilutive. The following data shows the effect of including the effect
of dilutive securities on determining the weighted average number of common
shares used to compute diluted EPS.
Three Months Ended July 31, Nine Months Ended July 31,
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) available to common
stockholders used in basic EPS $865 $(988) $1,367 $(7,228)
==== ===== ====== =======
Weighted average number of common shares
used in basic EPS 12,936,774 10,992,289 12,754,649 10,992,289
========== ========== ========== ==========
Effect of dilutive securities:
Stock benefit plans 36,005 - 67,930 -
---------- ---------- ---------- ----------
Weighted average number of common shares
and dilutive potential common
stock used in diluted EPS 12,972,779 10,992,289 12,822,579 10,992,289
========== ========== ========== ==========
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. 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 1,256,628 and 1,725,258 for the
three and nine months ended October 31, 2002 and 2,990,223 and 3,337,334 for the
three and nine months ended October 31, 2001. Certain balances as of January 31,
2001 have been reclassified in the accompanying consolidated financial
statements to conform with the current period presentation. These
reclassifications had no effect on previously reported net loss or stockholder's
equity.
COMMITMENTS
Our credit facility with Silicon Valley Bank has a maximum limit of
$2.0 million, subject to a limitation equal to 65% 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 2.5% which was 7.25% at October 31, 2002. The credit arrangement is
subject to covenants regarding our tangible net worth, and is collateralized by
accounts receivable, inventory and equipment. The credit facility was renewed
October 29, 2002 for one year. We are in compliance with our bank credit line
covenants.
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.
9
ENTRADA NETWORKS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
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 October 31, 2002. We perform
ongoing evaluations of our customers and require letters of credit or other
collateral arrangements as appropriate.
Three customers, customer W, V and one other accounted for 46.1%, 16.0%
and 10.7% of net receivables at October 31, 2002. At January 31, 2002, three
customers each accounted for 47.0%, 14.2%, and 11.7% of net receivables.
Customers accounting for more than 10% of net sales during the quarters
ended October 31, 2002 and 2001:
October 31, 2002 October 31, 2001
---------------- ----------------
Customer V 33.8% 57.1%
Customer W 29.4% -
Customer X - 16.8
Customer Y - 11.9
OPERATING SUBSIDARY INFORMATION
Three Month Subsidiary Financial Information ended October 31, 2002:
We have three operating subsidiaries, Rixon Networks, Inc., Sync Research, Inc.
and Torrey Pines Networks, Inc.
Torrey
Rixon Sync Pines
Networks Research Networks Total
-------- -------- -------- -----
Quarter ended October 31, 2002
Revenue from External Customers $3,574 $ 485 - $4,059
Inter-Company Revenues - - - -
------ ------ ---- ------
Total Revenues 3,574 485 - 4,059
------ ------ ---- ------
Net income (loss) 740 168 (43) 865
Depreciation and amortization expense 100 16 40 156
Valuation allowance additions (133) (4) - (137)
Capital asset additions - - 11 11
------ ------ ---- ------
Total Assets $7,159 $1,302 $498 $8,959
====== ====== ==== ======
10
ENTRADA NETWORKS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
Three Month Subsidiary Financial Information ended October 31, 2001:
We have three operating subsidiaries, Rixon Networks, Inc., Sync Research, Inc.
and Torrey Pines Networks, Inc.
Torrey
Rixon Sync Pines
Networks Research Networks Total
-------- -------- -------- -----
Quarter ended October 31, 2001
Revenue from External Customers $1,880 $1,198 - $3,078
Inter-Company Revenues - - - -
------ ------ ---- ------
Total Revenues 1,880 1,198 - 3,078
------ ------ ---- ------
Net income (loss) (2,701) 1,749 (36) (988)
Depreciation and amortization expense 303 36 33 372
Valuation allowance additions - - - -
Capital asset additions - - - -
------ ------ ---- ------
Total Assets $6,830 $1,868 $648 $9,346
====== ====== ==== ======
Nine Month Subsidiary Financial Information ended October 31, 2002
Torrey
Rixon Sync Pines
Networks Research Networks Total
-------- -------- -------- -----
Nine Months ended October 31, 2002
Revenue from External Customers $9,121 $1,527 - $10,648
Inter-Company Revenues - - - -
------ ------ ---- -------
Total Revenues 9,121 1,527 - 10,648
------ ------ ---- -------
Net income (loss) 1,194 302 (129) 1,367
Depreciation and amortization expense 120 51 120 291
Valuation allowance additions (133) (4) - (137)
Capital asset additions - - 11 11
------ ------ ---- -------
Total Assets $7,159 $1,302 $498 $ 8,959
====== ====== ==== =======
Nine Month Subsidiary Financial Information ended October 31, 2001
11
ENTRADA NETWORKS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
Torrey
Rixon Sync Pines
Networks Research Networks Total
-------- -------- -------- -----
Nine Months ended October 31, 2001
Revenue from External Customers $ 5,356 $4,507 - $9,863
Inter-Company Revenues - - - -
-------- ------ ---- ------
Total Revenues 5,365 4,507 - 9,863
-------- ------ ---- ------
Net income (loss) (11,115) 3,923 (36) (7,228)
Depreciation and amortization expense 354 105 33 492
Valuation allowance additions - - - -
Capital asset additions - - - -
-------- ------ ---- ------
Total Assets $ 6,830 $1,868 $648 $9,346
======== ====== ==== ======
12
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 for all periods presented. The periods presented include the
operating results of Sync Research, Inc., the Company's frame relay business,
beginning on September 1, 2000. On September 29, 2000, the Company had entered
into a plan to discontinue its frame relay business. On October 13, 2000,
Entrada Networks' Board of Directors approved a plan for the Company to explore
strategic and financial alternatives for its frame relay business for the
purpose of enhancing shareholder value. The Company had planned to complete
disposition of its frame relay business by September 30, 2001.
On September 6, 2001, the Company announced that it is restructuring
its business, creating three separate wholly owned subsidiaries. On September
18, 2001 the Company's Board of Directors approved a plan to reclassify Sync
Research as an operating unit. The discontinued frame relay business was
retained as Sync Research, Inc., as one of the three subsidiaries. Sync
Research, Inc. serves its current frame relay customers and provides
manufacturing, service and repair facilities for the other subsidiaries. In this
capacity, Sync Research, Inc. became an integral part of the Entrada Networks
business community.
Consolidated results are shown including Sync Research, Inc. as
retained. Further reference should be made to our Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on May 1, 2002, containing our
audited financial statements for the years ended January 31, 2001 and 2002.
On August 15, 2002, we signed a definitive agreement to acquire Savant
Consulting Group, Inc., a New Jersey-based provider of outsourced information
technology solutions. We filed a Form 8-K with the SEC on August 19, 2002
describing the merger and including as an exhibit the Agreement and Plan of
Merger with Exhibits A & B. On October 10, 2002 we filed Form 8-K/A with the SEC
providing pro forma consolidated financial statements. On November 22, 2002 we
signed an Amended and Restated Agreement and Plan of Merger that amends the
transaction to a merger between our newly formed subsidiary Entrada
Acquisitions, LLC and DBW, Inc., Savant's parent corporation. This Amended and
Restated Agreement and Plan of Merger was provided as Exhibit 2.2 to the 8-K/A
filed with the Securities and Exchange Commission on November 25, 2002. There
are no changes to the exhibits to the merger agreement that were filed with the
8-K on August 19, 2002. The merger is with one of our subsidiaries, it complies
with Delaware General Corporation Law and only board approval is required
therefore the transaction will not be submitted for shareholder approval. This
merger is subject to customary closing conditions.
In consideration for the merger, DBW's shareholder HandsOn Ventures,
LLC, a Santa Monica, California based venture capital firm, will receive cash
and/or common stock and Series B preferred shares of Entrada Networks. This
consideration is the same as in the prior merger agreement. The Series B
Convertible Preferred Stock will have a liquidation value of $5,000,000. The
Preferred Stock from and after the date of issuance until three years from its
date of issuance, the Conversion Price per share for Preferred Shares shall be
the average of the closing bid prices for the Common Stock on the Principal
Market for the Common Stock as reported by Bloomberg for the twenty (20) trading
days preceding August 15, 2002. After three years the conversion price will be
the lower of either (i) be the average of the closing bid prices for the Common
Stock on the Principal Market for the Common Stock as reported by Bloomberg for
the twenty (20) trading days preceding August 15, 2002, or (ii) be the average
of the closing bid prices for the Common Stock on the Principal Market for the
Common Stock as reported by Bloomberg for the twenty (20) trading days preceding
the date upon which the holders of such Preferred Shares shall have submitted to
Entrada Networks, Inc. their written intention to convert all or a portion of
the Preferred Shares held by them. The cash and/or common stock will have a
value of $1,000,000 and will be payable in four installments over one year. The
purchase price can increase by up to an additional $3,400,000, based upon the
performance of Savant after the closing in the years 2003, through 2005. In the
event that all the Series B Convertible Preferred Stock is converted into common
stock and the $1,000,000 is paid all in common stock, HandsOn Ventures, LLC will
own more than 74% of our shares.
Savant, which is a preferred vendor to a number of Fortune 500
companies, was founded in 1997. Savant achieved net revenues of $17.3 million
during the nine months ended September 30, 2002, and $17.3 million for the year
ended December 31, 2001. For the nine months ended October 31, 2002 and the
fiscal year ended January 31, 2002, Entrada Networks achieved net revenues of
$10.6 million and $13.3 million, respectively.
13
In deciding to approve the merger, our board of directors considered
the opinion, dated as of September 12, 2002, of FMV Opinions, Inc, as to the
fairness to us of the consideration being paid under the merger agreement from a
financial point of view. This favorable opinion and its accompanying cover
letter were attached as Exhibits 99.9 and 99.10 to this Form 8-K/A filed with
the Security and Exchange Commission on November 25, 2002 and sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion. This opinion is directed to the board of directors
and is not a recommendation to shareholders with respect to any matter relating
to the merger.
Our director, Rohit Phansalkar, has an equity interest in HOV's
proceeds from a sale or other disposition of Savant, and the value of that
interest will be impacted by the successful completion of the merger.
Our chairman, CEO and president, Kanwar Chadha, is the brother of Par
Chadha, and Par Chadha is a beneficial owner of DBW. Our director and CFO,
Davinder Sethi, is first cousin of Par Chadha, and Dr. Sethi has, from time to
time, provided advice to HandsOn Ventures or other entities beneficially owned
by HOV's beneficial owner, Par Chadha.
Savant plans to derive an increasing amount of its revenue from the
provision of services such as Project Life Cycle management, software
application development and maintenance, and help desk support. Savant has
designated Digital Boardwalk, Inc., which is owned by HOV, a preferred vendor
for the delivery of these and other services.
The executive finance operations of Savant are located within the
offices of HOV and Savant pays to HOV rent as a sub-tenant.
Complete details of the transaction were provided in the form 8-K filed
with the Securities and Exchange Commission August 19, 2002, a form 8-K/A filed
with the Securities and Exchange Commission October 11, 2002 and a form 8-K/A
filed with the Securities and Exchange Commission November 25, 2002.
Results of Operations/Comparison of the Three Months Ended October 31, 2002 and
2001
Net revenues. Net revenues were $4.1 million for the three months ended October
31, 2002, compared with $3.1 million for the three months ended October 31,
2001. The increase in net revenues in the three months ended October 31, 2002
resulted primarily from a major customer contract shipment in the third quarter
of FY2003.
Gross profit. Cost of revenue 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 $2.2 million for the quarter ended October 31, 2002, compared with
$2.0 million for the comparable quarter last year due to the higher revenue. Our
gross margin was 53.9% for the three months ended October 31, 2002 as compared
to 63.9% for the three months ended October 31, 2001.
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 decreased to $0.2 million, or 5.1% of net revenues for the quarter
ended October 31, 2002, from $0.4 million and 11.7% of net revenues for the
quarter ended October 31, 2001. The decrease in selling and marketing costs
reflects primarily the expense reduction measures undertaken in the three months
ended October 31, 2002.
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
$0.3 million, or 7.0% of net revenues, for the quarter ended October 31, 2002,
compared with $0.7 million, or 23.4% of net revenues, for the quarter ended
October 31, 2001. The decrease in research and development expenses was
primarily due to reductions in our Torrey Pines Networks, Inc.'s storage area
networks (SAN) new product development costs.
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 were $0.6 million,
or 14.0% of net revenues, for the quarter ended October 31, 2002 compared to
$0.5 million, or 16.4 % of net revenues, for the quarter ended October 31, 2001.
14
Other operating expenses. Other operating expenses for the three months ended
October 31, 2002, were $0.1 million or 3.0% compared with $1.3 million or 42.0%
for the three months ended October 31, 2001. The prior year amount included
severance costs associated with a reduction in staff associated with our
products in Rixon Networks, Inc. and in Torrey Pines Networks.
Income taxes. There was no provision for income taxes for the three-month
periods ended October 31, 2002 and 2001. 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 from the merger
August 31, 2000 that limits 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 taxable 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. On September 29, 2000, after completion of the merger
on August 31, 2000, the Company had entered into a plan to discontinue the
operations of the frame relay subsidiary and this business was subsequently
reclassified as an operating unit in September 2001. The results of Sync
Research, Inc. are consolidated with the other subsidiaries.
Results of Operations/Comparison of the Nine Months Ended October 31, 2002 and
2001
Net revenues. Net revenues were $10.6 million for the nine months ended October
31, 2002, compared with $9.9 million for the nine months ended October 31, 2001.
The increase in net revenues in the nine months ended October 31, 2002 resulted
primarily from a major customer contract of legacy networking adapter cards.
Gross profit. Cost of revenues 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 was $5.0 million for both the nine months ended October 31, 2002 and
2001. Our gross margin was 47.4% for the nine months ended October 31, 2002,
compared with 50.3% for the nine months ended October 31, 2001. The higher gross
margin for the nine months ended October 31, 2001 was primarily due to the
retention of Sync Research, Inc.
Selling and marketing. Selling and marketing expenses consist primarily of
employee compensation and related costs, commissions to sales representatives,
tradeshow expenses, advertising, facilities costs, and travel expenses. Selling
and marketing expenses decreased to $0.6 million, or 5.9% of net revenues for
the nine months ended October 31, 2002, from $2.7 million and 27.8% of net
revenues for the nine months ended October 31, 2001. The decrease in selling and
marketing costs reflects the expense reduction measures undertaken in the nine
months ended October 31, 2002.
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
$0.9 million, or 8.0% of net revenues, for the nine months ended October 31,
2002, compared with $5.3 million, or 53.6% of net revenues, for the nine months
ended October 31, 2001. The decrease in research and development expenses was
primarily due to the reduction of new product development costs at Torrey Pines
Networks.
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 decreased to $1.6
million, or 14.9% of net revenues, for the nine months ended October 31, 2002
from $2.2 million, or 22.1% of net revenues, for the nine months ended October
31, 2001 reflecting the continued cost reduction program.
Other operating expenses. Other operating expenses for the nine months ended
October 31, 2002, were $0.4 million, consisting of building reserves associated
with the elimination of our facility in Annapolis Junction, Maryland. Other
operating expenses for the nine months ended October 31, 2001, were $1.8 million
for severance associated with our Torrey Pines, Inc. subsidiary.
Income taxes. There was no provision for income taxes for the nine-month periods
ended October 31, 2002 and 2001. 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 from the merger
August 31, 2000 that limits the amount of any net operating loss carry forward
we may use in a particular year. In addition, we provided a valuation allowance
15
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. As of October 31, 2001, the former Sync Research, Inc.
frame relay business based in Irvine, California was retained and included in
the presentation of the financial statements.
Liquidity and Capital Resources
Cash flow used in operations was $727,000 during the nine months ended
October 31, 2002 compared with $4.5 million for the nine months ended October
31, 2001. The decrease in cash flows used in operations reflects both a
reduction in operating costs and a substantial increase in our net income from
operations after adjustment for non-cash expenses including depreciation,
amortization, reserves and valuation allowances. During the nine months ended
October 31, 2002, operating cash flow reflected increases in cash used for
accounts payable, accrued expenses and inventories offset by decrease in current
assets and in other current liabilities. During the same nine months last year,
our cash flow used in operations reflected decreases in accounts receivable
along with accounts payable and accrued expenses.
Our investing activities consist primarily of purchases of property,
plant and equipment. Minor assets were sold in the nine months ended October 31,
2002. We purchased $2.1 million in equipment during the nine months ended
October 31, 2001.
Our financing activities during the nine months ended October 31, 2002
used cash flows of $0.6 million, primarily in connection with repayment of
capital lease obligations and short term debt. During the nine months ended
October 31, 2001, $3.4 million was used primarily in conjunction with repayment
of short term debt.
Our credit facility with Silicon Valley Bank has a maximum limit of
$2.0 million, subject to a limitation equal to 65% 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 2.5% which was 7.25% at October 31, 2002. The credit arrangement is
subject to covenants regarding our tangible net worth, and is collateralized by
accounts receivable, inventory and equipment. The credit facility was renewed
October 29, 2002 for one year. We are in compliance with our bank credit line
covenants.
Outstanding borrowings against this line of credit were $1.3 million at
October 31, 2002. We anticipate that our available cash resources will be
sufficient to meet our presently anticipated capital requirements through fiscal
2003. We continue to pursue external equity financing arrangements that could
enhance our liquidity position in the coming years. Nonetheless, our future
capital requirements may vary materially from those now planned including the
need for additional working capital to accommodate 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We periodically need additional financing for 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 revenues 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 revenues in that country. In addition, inflation in such countries could
increase our expenses. In the future, we may engage in foreign currency
denominated revenues 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.
16
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.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and its Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date
within 90 days of the filing date of this quarterly report on Form 10-Q (the
"Evaluation Date"), have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and effective to ensure that
material information relating to the Company and its consolidated subsidiaries
would be made known to them by others within those entities, particularly during
the period in which this quarterly report on Form 10-Q was being prepared.
(b) Changes in Internal Controls. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect the Company's disclosure controls and procedures subsequent to the
Evaluation Date, nor any significant deficiencies or material weaknesses in such
disclosure controls and procedures requiring corrective actions. As a result, no
corrective actions were taken.
Part II. Other Information
Item 5. Other Information
17
Listing on OTCBB exchange
On February 14, 2002 we received a letter from The NASDAQ advising us
to bring our stock price to $1.00 per share by August 13, 2002 in order to
maintain our listing on the Nasdaq Small Cap Market. On August 14, 2002, Entrada
received an additional NASDAQ Staff Determination that Entrada Networks has not
regained compliance and is not eligible for an additional 180 day grace period.
Accordingly, the Company's securities will be delisted from the Nasdaq SmallCap
Market at the opening of business on August 22, 2002. On August 20, 2002 Entrada
Networks requested an appeal of the Staff's determination to the Hearing Panel
pursuant to the procedures set forth in the Nasdaq Marketplace Rule 4800 series.
On September 20, 2002 we received an additional Nasdaq Staff
Determination that our proposed merger with DBW may constitute a reverse merger,
as set forth in Nasdaq Marketplace Rule: 4330(f) and that in addition to
demonstrating our ability to regain compliance with the current bid price
deficiency we would be required to demonstrate our ability to sustain long term
compliance with all applicable maintenance criteria. This determination also
stated that should it be determined that the transaction with DBW constitutes a
reverse merger, the post-transaction entity would be required to meet all the
initial inclusion criteria for the Nasdaq SmallCap Market, including a $4.00 per
share bid price and a $5 million market value of publicly held shares. A hearing
was held on September 26, 2002 attended by our CEO and CFO and at that hearing
we were requested to submit a plan to achieve a $4.00 per share bid price
post-merger.
On October 22, 2002, a temporary exemption was granted from the minimum
bid price per share of $1.00. Our common stock continued to be listed,
temporarily, on the Nasdaq SmallCap Market via an exception from the minimum bid
price requirement of $1.00 under Nasdaq Marketplace Rule 4310(c), pursuant to
the following: (i) while we failed to meet this requirement as of August 13,
2002, we were granted a temporary exception from this standard subject to our
meeting certain conditions, including making, on or before November 4, 2002, a
public filing with the SEC and with Nasdaq seeking shareholder approval to
effect a reverse stock split at a ratio sufficient to satisfy the minimum bid
price requirement of $1.00 under Nasdaq Marketplace Rule 4310(c), and (ii) on or
before December 31, 2002, demonstrating a closing bid price of at least $1.00
per share and, immediately thereafter, maintain a closing bid price of at least
$1.00 per share for a minimum of 10 consecutive trading days. The temporary
exemption became effective October 25, 2002.
In order to fully comply with the terms of this exception, we had to
also be able to demonstrate compliance with all requirements for continued
listing on The Nasdaq SmallCap Market. The temporary exception was to expire on
December 31, 2002.
On October 29, 2002, we announced that our Board of Directors had
reviewed the feasibility of a reverse stock split to comply with the minimum bid
price requirement of $1.00 per share for continued listing on the Nasdaq
SmallCap Market under Marketplace Rule 4310(c) or a minimum bid price
requirement of $4.00 per share if the pending transaction to acquire Savant
Consulting Group, Inc. is consummated. The Board considered the effort and costs
that would be incurred to effectuate such a reverse stock split, including
obtaining the shareholder approval necessary to effect the change. The Board
considered the historical negative effect of reverse stock splits on valuations,
the lack of any market makers for our stock, and the low probability that we
would be able to uphold the bid price criterion while maintaining compliance
with other criteria such as the number of round-lot shareholders and the number
of publicly held shares.
In light of the above considerations, the Board determined that it was
not in the best interest of its shareholders to effect a reverse stock split at
this time. On October 31,2002 we were delisted from the Nasdaq Small Cap Market
and began trading on the Over the Counter Bulletin Board (OTCBB) exchange.
18
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 1, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.10 Silicon Valley Bank Amendment to Loan Documents dated October
29, 2002
(b) Reports on Form 8-K
Our Form 8-K filed August 16, 2001 giving notice of NASDAQ
Delisting.
Our Form 8-K filed August 19, 2002 announcing our acquisition of
Savant Consulting Group.
Our Form 8-K filed August 20, 2002 covering our appeal of Nasdaq's
delisting decision.
Our Form 8-K/A filed October 11, 2002 providing consolidated
financial statements for our merger.
Our Form 8-K filed October 25, 2002 describing the exception
granted by Nasdaq.
Our Form 8-K filed October 30,2002 describing our decision not to
effectuate a reverse stock split.
(c)
99.1 Statement Under Oath for Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act.
99.2 Statement Under Oath for Principal Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act.
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/ Davinder Sethi
-------------------------------------
Davinder Sethi, Ph.D.
Chief Financial Officer
Principal Accounting Officer
Date: November 26, 2002
19
CERTIFICATION PURSUANT TO
RULE 13-A-14 OF THE SECURITIES ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
- -------------
I, Kanwar J.S. Chadha, Ph.D., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Entrada Networks,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based upon
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 26, 2002
/s/ Kanwar J.S. Chadha,
- -----------------------
Kanwar J.S. Chadha, Ph.D.
Chief Executive Officer
20
ENTRADA NETWORKS, INC.
----------------------
CERTIFICATION PURSUANT TO
RULE 13-A-14 OF THE SECURITIES ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
- -------------
I, Davinder Sethi, Ph.D., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Entrada Networks,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based upon
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 26, 2002
/s/ Davinder Sethi
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Davinder Sethi, Ph.D.
Chief Financial Officer
SUBSIDIARIES OF THE REGISTRANT
Rixon Networks, Inc., a Delaware corporation
Sync Research, Inc., a Delaware corporation
Torrey Pines Networks, Inc., a Delaware corporation
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