Entorian Technologies Inc. (OTC MARKETS: ENTN), a leader in rugged, mission-critical mobile computing solutions for use in harsh, demanding environments, today announced financial results for the second quarter ended June 30, 2011.

Second Quarter Highlights:

  • Second quarter revenue of $17.0 million
  • GAAP net loss of $0.8 million, or ($0.21) per share
  • Non-GAAP net income of $21,000, or $0.01 per share (excludes non-cash charges for stock-based compensation and amortization of acquisition intangibles)
  • Cash and cash equivalents of $17.6 million

Management Commentary

"During the second quarter, our leading OEM customer launched its next-generation, fully rugged notebook. It is based on our new, differentiated rugged computing technologies, which enhance protection from drops, rain, dust, dirt, spills and temperature extremes. The initial end customer feedback on the product has been strong," stated Stephan Godevais, Entorian's president and CEO.

Second Quarter 2011 Financial Results

Total revenue for the second quarter of 2011 was $17.0 million, including $16.4 million of product revenue associated with the company's rugged technology solutions and $0.6 million in memory license revenue. This compares to total revenue of $19.4 million in the first quarter of 2011, which included $18.8 million of rugged technology product revenue and $0.6 million in memory license revenue.

In accordance with GAAP, gross profit for the second quarter of 2011 was $1.7 million, or 9.8 percent of revenue, compared to $2.8 million, or 14.3 percent, in the previous quarter. On a non-GAAP basis, gross margin was 13.7 percent in the second quarter of 2011, compared to 17.9 percent in the previous quarter.

On a GAAP basis, total operating expenses in the second quarter of 2011 were $2.6 million, compared to $3.0 million in the previous quarter. On a non-GAAP basis, excluding approximately $0.2 million in stock-based compensation expense, total operating expenses for the second quarter of 2011 were $2.4 million, compared to $2.9 million in the previous quarter.

Second quarter GAAP net loss was $0.8 million, or ($0.21) per share, compared to a net loss in the previous quarter of $0.3 million, or ($0.07) per share.

Excluding non-cash charges for stock-based compensation of $0.2 million and amortization of acquisition intangibles totaling $0.6 million, non-GAAP net income for the second quarter was $21,000, or $0.01 per share, compared to the non-GAAP net income of $0.6 million, or $0.15 per share, in the previous quarter. A reconciliation of GAAP results to non-GAAP results has been provided in the financial statement tables following the text of this press release.

Cash and cash equivalents on June 30, 2011 were $17.6 million, compared to $19.7 million on March 31, 2011. Inventory as of June 30, 2011 was $15.2 million, compared to $9.6 million in the previous quarter. The inventory increase was due to the launch of the next-generation rugged notebook in the second quarter, and to purchases of components for our line of rugged servers.

Business Outlook

"The current federal and state government budget concerns will continue to impact our short-term performance. However, we are excited about the new product released in the second quarter, and will continue our efforts to diversify our products and services," concluded Mr. Godevais.

Cautionary Language

This press release contains forward-looking statements. These statements are generally accompanied by words such as "expect," "believe," and similar expressions. 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; risks related to product liability and warranty claims in the event our products do not function according to specification or include defective parts; 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 assembly and production of ruggedized products; the risk that broker-dealers may not make a market in our securities; 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 military specifications MIL-STD-810; and the risks associated with our dependence on a few key personnel to manage our business effectively.

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 OTC Markets Group Inc. 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 net income, operating income, operating expense, gross profit, gross margin and earnings per diluted share on a basis excluding non-cash charges for stock-based compensation and amortization and impairment of acquisition intangibles. 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. (OTC MARKETS: 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 Entorian Technologies Inc. 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
June 30, March 31, June 30,
2011 2011 2010
Revenue:
Product $ 16,376 $ 18,758 $ 22,347
License 633 653 616
Total revenue 17,009 19,411 22,963
Cost of revenue:
Product (1) 14,683 15,953 18,509
Amortization of acquisition intangibles 651 689 838
Total cost of revenue 15,334 16,642 19,347
Gross profit 1,675 2,769 3,616
Operating expenses:
Selling, general and administrative (1) 1,127 1,202 1,345
Research and development (1) 1,487 1,840 1,542
Restructuring - - (40 )
Total operating expenses 2,614 3,042 2,847
Income (loss) from operations (939 ) (273 ) 769
Other income (expense):
Interest income 52 6 13
Interest expense (8 ) (1 ) (3 )
Other, net - 7 58
Total other income, net 44 12 68
Income (loss) before income taxes (895 ) (261 ) 837
Provision (benefit) for income taxes (87 ) (2 ) 36
Net income (loss) $ (808 ) $ (259 ) $ 801
Income (loss) per share:
Basic $ (0.21 ) $ (0.07 ) $ 0.21
Diluted $ (0.21 ) $ (0.07 ) $ 0.21
Shares used in computing income (loss) per share:
Basic 3,877 3,876 3,875
Diluted 3,877 3,876 3,876
(1) Includes stock-based compensation expense as follows:
Cost of revenue 9 $ 11 3
Selling, general and administrative expense 131 137 132
Research and development expense 38 35 32
$ 178 $ 183 $ 167
ENTORIAN TECHNOLOGIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
Six Months Ended
June 30, June 30,
2011 2010
Revenue:
Product $ 35,134 $ 42,757
License 1,286 1,359
Total revenue 36,420 44,116
Cost of revenue:
Product (1) 30,636 35,845
Amortization of acquisition intangibles 1,340 1,676
Total cost of revenue 31,976 37,521
Gross profit 4,444 6,595
Operating expenses:
Selling, general and administrative (1) 2,329 3,116
Research and development (1) 3,327 2,881
Restructuring - 54
Total operating expenses 5,656 6,051
Income (loss) from operations (1,212 ) 544
Other income (expense):
Interest income 58 121
Interest expense (9 ) (3 )
Other, net 7 109
Total other income, net 56 227
Income (loss) before income taxes (1,156 ) 771
Provision (benefit) for income taxes (89 ) 64
Net income (loss) $ (1,067 ) $ 707
Income (loss) per share:
Basic $ (0.28 ) $ 0.18
Diluted $ (0.28 ) $ 0.18
Shares used in computing income (loss) per share:
Basic 3,876 3,876
Diluted 3,876 3,941
(1) Includes stock-based compensation expense as follows:
Cost of revenue $ 20 $ 6
Selling, general and administrative expense 268 302
Research and development expense 73 80
$ 361 $ 388
ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data; unaudited)
Three Months Ended
June 30, March 31, June 30,
2011 2011 2010
GAAP income (loss) from operations $ (939 ) $ (273 ) $ 769
Non-GAAP adjustments:
Amortization of acquisition intangibles 651 689 838
Stock-based compensation expense 178 183 167
Total non-GAAP adjustments 829 872 1,005
Non-GAAP income (loss) from operations $ (110 ) $ 599 $ 1,774
GAAP net income (loss) $ (808 ) $ (259 ) $ 801
Total non-GAAP adjustments affecting income from operations 829 872 1,005
Non-GAAP net income $ 21 $ 613 $ 1,806
Shares used in calculating non-GAAP diluted income per share 4,155 4,171 3,876
Non-GAAP diluted income per share $ 0.01 $ 0.15 $ 0.47
ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data; unaudited)
Six Months Ended
June 30, June 30,
2011 2010
GAAP income (loss) from operations $ (1,212 ) $ 544
Non-GAAP adjustments:
Amortization of acquisition intangibles 1,340 1,676
Stock-based compensation expense 361 388
Total non-GAAP adjustments 1,701 2,064
Non-GAAP income from operations $ 489 $ 2,608
GAAP net income (loss) $ (1,067 ) $ 707
Total non-GAAP adjustments affecting income from operations 1,701 2,064
Non-GAAP net income $ 634 $ 2,771
Shares used in calculating non-GAAP diluted income per share 4,152 3,941
Non-GAAP diluted income per share $ 0.15 $ 0.70
ENTORIAN TECHNOLOGIES INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 30, Dec. 31,
2011 2010
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 17,640 $ 19,028
Accounts receivable, net of allowance of $10 in 2011 and 2010 8,930 11,987
Inventories 15,227 8,960
Income tax receivable 822 927
Deferred tax asset 77 77
Prepaid expenses and other current assets 662 1,392
Total current assets 43,358 42,371
Property and equipment, net 1,670 1,987
Other intangibles, net 3,169 4,530
Other assets 199 193
Total assets $ 48,396 $ 49,081
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,984 $ 10,399
Accrued compensation - 1,461
Accrued liabilities 964 1,193
Total current liabilities 12,948 13,053
Other accrued liabilities 686 564
Deferred tax liabilities 77 77
Stockholders' equity:
Capital stock 151,864 151,499
Treasury stock (26,049 ) (26,049 )
Accumulated deficit (91,130 ) (90,063 )
Total stockholders' equity 34,685 35,387
Total liabilities and stockholders' equity $ 48,396 $ 49,081
ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF ADDITIONAL GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands; unaudited)
Quarter Ended
June 30, March 31, June 30,
2011 2011 2010
Gross profit $ 1,675 $ 2,769 $ 3,616
Non-GAAP adjustments:
Amortization of acquisition intangibles 651 689 838
Stock-based compensation 9 11 3
Non-GAAP gross profit $ 2,335 $ 3,469 $ 4,457
Total revenue $ 17,009 $ 19,411 $ 22,963
Non-GAAP gross margin percentage 13.7 % 17.9 % 19.4 %
Operating expenses $ 2,614 $ 3,042 $ 2,847
Non-GAAP adjustments:
Stock-based compensation 169 172 164
Non-GAAP operating expenses $ 2,445 $ 2,870 $ 2,683
Selling, general and administrative expense $ 1,127 $ 1,202 $ 1,345
Non-GAAP adjustments:
Stock-based compensation 131 137 132
Non-GAAP selling, general and administrative expense $ 996 $ 1,065 $ 1,213
Non-GAAP SG&A as a percentage of total revenue 5.9 % 5.5 % 5.3 %
Research and development expense $ 1,487 $ 1,840 $ 1,542
Non-GAAP adjustments:
Stock-based compensation 38 35 32
Non-GAAP research and development expense $ 1,449 $ 1,805 $ 1,510
Non-GAAP R&D as a percentage of total revenue 8.5 % 9.3 % 6.6 %

Company Contact:

Entorian Technologies Inc.

Kirk Patterson, 512-334-0111

Senior Vice President and CFO

investors@augmentix.com

or

Investor Contact:

Shelton Investor Relations

For Entorian Technologies Inc.

Beverly Twing, 972-239-5119 x 126

btwing@sheltongroup.com