Entorian Technologies Reports Third Quarter 2009 Financial Results

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.