Entorian Technologies Reports Fourth Quarter and Full Year 2010 Financial Results

Entorian Technologies Inc. (OTC MARKETS: ENTN.PK), a leader in rugged, mission-critical mobile computing solutions for use in harsh, demanding environments, today announced financial results for the fourth quarter and full year ended December 31, 2010.

2010 Highlights:

• Achieved record annual revenue of $79.0 million, compared to $45.1 million in 2009
• Non-GAAP operating income of $2.8 million, compared to a non-GAAP operating loss in 2009 of $11.0 million
• GAAP operating loss of $1.4 million, compared to an operating loss of $14.7 million in 2009
• GAAP net loss of $1.5 million, or ($0.38) per share, compared to net income of $0.5 million, or $0.13 per diluted share in 2009
• Reduced operating expenses by 39% to $13.0 million from $21.4 million in 2009

Management Commentary

"We achieved significant milestones during 2010," stated Stephan Godevais, Entorian’s president and CEO. "We increased our revenue 75% and improved our operating income by $13.3 million compared to 2009. Our cash balance at December 31, 2010 was $10 million higher than it was at the end of 2009. We continued reducing our operating expenses, with a 39% reduction since the end of 2009. We extended our exclusivity contract with our primary customer for an additional two years. We also expanded our rugged computing solutions, which resulted in increased market share for our primary customer in the rugged market. In addition, we made extensive improvements to our systems and processes. Overall, we had a very positive year,” concluded Mr. Godevais.

Full Year 2010 Financial Results

For the full year 2010, total revenue was a record $79.0 million, including $76.2 million of product revenue associated with the company’s rugged technology solutions and $2.8 million of license revenue from its memory solutions business. This compares to total revenue of $45.1 million in 2009, including $39.7 million of product revenue associated with the company’s rugged technology solutions, and $3.4 million of product revenue and $2.0 million of license revenue from the memory solutions business.

Gross profit was $11.6 million, or 14.7 percent of revenue, compared to $6.8 million, or gross margin of 15.1 percent, in the prior year. Non-GAAP gross profit was $15.0 million, or 18.9 percent of revenue, compared to $9.3 million, or 20.7 percent of revenue, in 2009. The 2010 non-GAAP gross profit excludes charges related to the amortization of acquisition intangibles and stock-based compensation totaling approximately $3.4 million, compared to $2.5 million in 2009.

Operating loss improved to $1.4 million in 2010, compared to a loss of $14.7 million in 2009. On a non-GAAP basis, operating income was $2.8 million, compared to a non-GAAP operating loss of $11.0 million in 2009. The non-GAAP operating losses exclude charges related to the amortization and impairment of acquisition intangibles and stock-based compensation totaling approximately $4.2 million in 2010 and $3.7 million in 2009.

GAAP net loss was $1.5 million, or ($0.38) per share, compared to net income of $0.5 million, or $0.13 per diluted share, in 2009. Excluding non-cash charges for stock-based compensation of $0.8 million and amortization of acquisition intangibles of $3.4 million, the non-GAAP net income for 2010 was $2.8 million, or $0.68 per diluted share. This compares to a non-GAAP net income of $4.2 million, or $1.07 per diluted share, in 2009. As a reminder, in 2009, we experienced three positive one-time events, which included receiving $7.7 million for a class action antitrust litigation settlement, $5.4 million for a federal tax refund, and a gain of $2.0 million associated with the early retirement of our convertible notes. The historical per share loss amounts have been adjusted to reflect 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.

Fourth Quarter 2010 Financial Results

Total revenue for the fourth quarter of 2010 was $18.0 million, including $17.3 million of product revenue associated with the company’s rugged technology solutions and $0.7 million in memory license revenue. This compares to total revenue of $16.9 million in the third quarter of 2010, which included $16.2 million of rugged technology product revenue and $0.7 million in memory license revenue.

In accordance with GAAP, gross profit for the fourth quarter of 2010 was $2.3 million, or 13.0 percent of revenue, compared to $2.7 million, or 15.7 percent, in the previous quarter. On a non-GAAP basis, gross margin was 17.7 percent in the fourth quarter of 2010, compared to 20.7 percent in the previous quarter.

On a GAAP basis, total operating expenses in the fourth quarter of 2010 were $3.3 million, compared to $3.6 million in the previous quarter. On a non-GAAP basis, total operating expenses for the fourth quarter of 2010 were $3.1 million, compared to $3.4 million in the previous quarter.

Fourth quarter GAAP net loss was $1.0 million, or ($0.26) per share, compared to a net loss in the previous quarter of $1.2 million, or ($0.30) per share.

Excluding non-cash charges for stock-based compensation of $0.2 million and amortization of acquisition intangibles totaling $0.8 million, non-GAAP net income for the fourth quarter was $49 thousand, or $0.01 per diluted share, compared to the non-GAAP net loss of $0.1 million, or ($0.02) per share, in the previous quarter. As noted above, the historical per share loss amounts have been adjusted to reflect 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.

Cash, cash equivalents and investments on December 31, 2010 were $19.0 million, compared to $17.7 million on September 30, 2010. Inventory as of December 31, 2010 was $9.0 million, compared to $10.2 million in the previous quarter.

Business Outlook

"For 2011, we are focused on continuing to grow our rugged computing solutions business and delivering a great experience with our products and services to our end customers,” stated Mr. Godevais. "We see exciting opportunities for growth in the future but remain cautious about 2011 due to budget uncertainties across federal, state and local government agencies,” 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. These statements include opportunities for growth in the future. 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; risks related to product liability and warranty claims in the event our products do function according to specification or include defective parts; the risk that we will not realize anticipated benefits and/or cost savings from the deregistration of our common stock; the risk that deregistration of our common stock will not beneficially affect our operations, financial condition or stockholder value; the risk that our deregistration process will not be completed in the timeframe mentioned above; the risk that broker-dealers may not make a market in our securities; the risk that third parties may bring legal actions against us or our officers and directors for these actions; 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; 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.

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., and our Form 10-K filed on March 12, 2009 with the Securities and Exchange Commission. 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 loss, 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.PK) 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.

(Financial Tables Follow)