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Sorrento Networks Corp$100.71($.02)(.02%)

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 Sorrento Networks Corp. Announces Fourth Quarter and Fiscal Year-End 2004 Results
   Thursday, April 22, 2004 5:36:30 PM ET

SAN DIEGO, Apr 22, 2004 (BUSINESS WIRE) -- Sorrento Networks Corp. (Nasdaq NM:FIBR), a supplier of optical networking equipment for carriers and enterprises worldwide, today announced financial results for its fourth quarter and fiscal year ended January 31, 2004.

Fourth Quarter and Fiscal Year Financial Performance

Revenues for the fiscal year ended January 31, 2004 totaled $25.4 million, compared with revenues of $25.1 million in the prior year, a 1% increase. Operating expenses totaled $23.3 million, compared with operating expenses of $34.6 million in the prior fiscal year, a 33% improvement. Net loss for fiscal 2004 declined to $5.4 million, compared with a net loss of $26.2 million for the prior year, a 79% improvement. Net loss per common share for fiscal 2004 was $0.75, compared with a net loss per common share of $33.29 for the prior year.

Revenues for Sorrento Networks Corporation in its fiscal 2004 fourth quarter were $6.4 million, a 4.9% decrease from revenues of $6.7 million in the prior quarter, and a 24% decrease from revenues of $8.4 million in the fourth quarter of fiscal 2003.

Operating expenses for the quarter declined to $5.9 million, a 7.2% improvement over $6.4 million in the prior quarter, and a 28% improvement over $8.3 million in the fourth quarter of fiscal year 2003.

Gross profit for the Company increased to $5.7 million for the fiscal year ended January 31, 2004, compared with $3.3 million in the prior year, a 71% improvement. Gross margin for the Company decreased to 8.5% in the fourth quarter of fiscal 2004, compared with 27% in the prior quarter and 38% in the fourth quarter of fiscal 2003. The lower gross margin for the quarter resulted from certain one-time charges associated with inventory write downs, as well as an increase in facilities related overhead due to the LuxN acquisition. As previously reported, the Company is integrating its facilities to reduce excess overhead in future periods.

The Company made significant progress in strengthening its balance sheet by increasing its cash and securities position to $18.1 million, as compared to $5.3 million in the prior quarter. The Company also reduced its current liabilities by 23% to $11.1 million, as compared to $14.5 million in the prior fiscal quarter. In addition, the Company’s days sales outstanding (DSO) continued to improve to 54 days, compared with 81 days in the prior fiscal year, a 33% reduction.

"We are pleased with our continued financial progress in building a stronger balance sheet and company," commented Phil Arneson, chairman and chief executive officer of Sorrento Networks. "We believe this progress should provide Sorrento significant opportunities as we enter our new fiscal year," added Arneson.

    Highlights for the Fiscal Year

    During its 2004 fiscal year, Sorrento Networks:

Restructured $81 million in debt obligations from the Company’s balance sheet into common shares of the Company and into $13.1 million in secured convertible debentures. This capital restructuring eliminated significant debt from the Company’s balance sheet, provided financial flexibility and opportunity for raising additional capital, and simplified Sorrento’s corporate structure and streamlined our operations for greater efficiencies.

Acquired LuxN, Inc. LuxN’s product line complements Sorrento’s by addressing the optical access market segments. The acquisition of LuxN also broadens Sorrento’s 30-plus blue-chip customer base by adding over 20 new customers, including Time Warner Telecom, Hawaii I-Net, Yipes Enterprise Services and numerous universities, and expands Sorrento’s installed base to over 2,500 nodes.

Raised $16.4 million in total gross proceeds from private placements of its common stock and warrants to institutional and accredited investors.

Shipped products to 45 customers, including 18 carriers, 11 enterprises, 11 channel partners, 4 universities and 1 governmental entity.

Deployed its first major DWDM metro backbone into Japan, as well as deployed its first 10G network in Japan.

Introduced new capabilities for the GigaMux product family, including a 10-port Gigabit Ethernet multiplexer for VOD transport and metro-Ethernet applications, a two port fiber channel multiplexer designed to accommodate the rapid growth in the SAN market, a 12 port ESCON module with industry leading density, and E-1 support for European applications.

Achieved IBM’s "TotalStorage(TM) Proven" status.

Earned "RUS Acceptance" for its entire GigaMux product family from the Rural Utilities Service branch of the United States Department of Agriculture (USDA). Being listed with the RUS expands Sorrento’s addressable market by allowing rural telephone and utility companies to purchase and deploy Sorrento’s products with funds obtained through low-interest RUS loans.

Quarterly Conference Call with Management

The Company will conduct its quarterly conference call today at 1:30 p.m. PT (4:30 p.m. ET). The Company will review operating results from the fourth quarter and fiscal year ended January 31, 2004.

Those interested in participating may listen by web cast at www.sorrentonet.com. Participants should visit the site approximately 15 minutes prior to the start time of the conference call to register, download and install any necessary audio software. A replay of the conference call will be available for approximately 30 days.

Sorrento Networks’ GigaMux is a metro and regional DWDM system designed for high-performance, multi-protocol transport. GigaMux is a compact, flexible, and cost-effective system based on a "pay-as-you-grow" architecture that allows carriers and enterprises to start small and expand their networks in conjunction with customer demand. Sorrento also offers cost-effective coarse wavelength division multiplexing (CWDM) products that are ideal for optical access and transport applications.

About Sorrento Networks

Sorrento Networks, with headquarters in San Diego, makes optical networking equipment for carriers and enterprises worldwide. Sorrento’s products help customers increase profitability by improving transport efficiency and expanding the addressable market of their fiber networks. Sorrento’s customer base and market focus includes cable TV operators, telecom carriers, and service providers. Sorrento’s products are also used for storage area networking (SAN) and enterprise private networking. Additional customer, product, and financial information about Sorrento Networks can be found at www.sorrentonet.com.

Forward-Looking Statements

Except for historical information contained herein, the matters discussed in this release are forward-looking statements that involve risks and uncertainties. Words such as "plans," "expects," "intends," and variations of such words and similar expressions are intended to identify such forward-looking statements. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The occurrence of actual events may differ materially due to a variety of factors, including without limitation the following: (1) Sorrento Networks’ ability to fund its operations until such time that revenue and orders improve, including its ability to raise additional equity or debt financing; (2) unanticipated technical problems relating to Sorrento Networks’ products; (3) Sorrento Networks’ ability, or lack thereof, to make, market and sell optical networking products that meet with market approval and acceptance; (4) the greater financial, technical and other resources of Sorrento Networks’ many, larger competitors in the marketplace for optical networking products; (5) changed market conditions, new business opportunities or other factors that might affect Sorrento Networks’ decisions as to the best interests of its shareholders; and (6) other risks detailed from time to time in Sorrento Networks’ reports filed with the U.S. Securities and Exchange Commission.

SORRENTO NETWORKS CORPORATION
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(In Thousands, except per share amounts)

                                         January    January
                                            31,        31,
                                           2004       2003
------------------------------------------------------------

ASSETS

CURRENT ASSETS
    Cash and equivalents               $  17,617  $   7,747
    Accounts receivable, net               3,754      5,576
    Inventory, net                        13,893     13,934
    Prepaid expenses and other
     current assets                          972        741
    Investment in marketable
     securities                              504      3,959
    Notes receivable                         242          -
------------------------------------------------------------
                  TOTAL CURRENT
                   ASSETS                 36,982     31,957
------------------------------------------------------------

PROPERTY AND EQUIPMENT, NET               12,187     17,103
------------------------------------------------------------

OTHER ASSETS
    Purchased technology, net                110        430
    Investment in non-marketable
     securities                               --      5,025
    Other assets                             654      1,290
    Notes receivable                          83         --
------------------------------------------------------------
                  TOTAL OTHER
                   ASSETS                    847      6,745
------------------------------------------------------------

TOTAL ASSETS                           $  50,016  $  55,805
============================================================

LIABILITIES AND STOCKHOLDERS’
 EQUITY

CURRENT LIABILITIES
    Current maturities of long
     term debt                         $     101  $     222
    Accounts payable                       2,887      5,135
    Deferred Revenue                         878      3,700
    Accrued professional fees                832      4,324
    Accrued liabilities and
     other current liabilities             6,424      6,236
    Due on redeemption of
     preferred security of
     subsidiary                               --     48,800
-------------------------------------------------------------
                  TOTAL CURRENT
                   LIABILITIES            11,122     68,417
-------------------------------------------------------------

Long-term debt and capital lease
 obligations                               3,538      3,644
Debentures payable, net of
 unamortized costs and discounts          12,388     18,121
Dividends payable                             --         99
-------------------------------------------------------------
                  TOTAL
                   LIABILITIES            27,048     90,281
-----------------------------------------------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
    Preferred stock, $.01 par value;
     liquidation preference $1,353             1          1
    Common stock, $.001 par value;
     150,000,000 shares authorized            16      5,318
    Additional paid-in capital           215,556    144,887
    Deferred stock compensation               --         (5)
    Accumulated deficit                 (192,917)  (187,536)
    Accumulated unrealized gain
     on marketable securities                 381      2,928
    Treasury stock, at cost                  (69)       (69)
------------------------------------------------------------
                  TOTAL
                   STOCKHOLDERS’
                   EQUITY                 22,968    (34,476)
------------------------------------------------------------

TOTAL LIABILITIES AND
 STOCKHOLDERS’ EQUITY                  $  50,016  $  55,805
============================================================



SORRENTO NETWORKS CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
 OPERATIONS (UNAUDITED)
(In Thousands, except per share
 amounts)

                                    Three Months   Twelve Months Ended
                                  Ended January 31,     January 31,
                                -----------------  -------------------
                                   2004     2003       2004      2003
----------------------------------------------------------------------

NET SALES                       $ 6,399  $ 8,410   $ 25,462  $ 25,137
COST OF SALES                     5,858    5,240     19,769    21,817

----------------------------------------------------------------------
     GROSS PROFIT                   541    3,170      5,693     3,320
----------------------------------------------------------------------

OPERATING EXPENSES
  Selling and marketing           1,842    2,525      8,406    12,021
  Engineering, research and
   development                    2,300    2,137      8,025     8,990
  General and administrative      1,766    3,392      6,525    12,779
  Deferred stock compensation        --      109         51       433
  Other operating expenses           12      103        320       426
----------------------------------------------------------------------
     TOTAL OPERATING EXPENSES     5,920    8,266     23,327    34,649
----------------------------------------------------------------------

(LOSS) FROM OPERATIONS           (5,379)  (5,096)   (17,634)  (31,329)
----------------------------------------------------------------------

OTHER INCOME (EXPENSES)
  Investment income              (5,874)      43     (5,860)      275
  Interest expense                 (301)  (5,030)    (4,396)   (9,619)
  Other income (Expenses)         4,697       32     18,483       214
  Gain on sale of marketable
   securities                        --    2,593      4,026    14,249
----------------------------------------------------------------------
     TOTAL OTHER INCOME
      (EXPENSES)                 (1,478)  (2,362)    12,253     5,119
----------------------------------------------------------------------

INCOME (LOSS) FROM CONTINUING
 OPERATIONS
  BEFORE INCOME TAX              (6,857)  (7,458)    (5,381)  (26,210)

PROVISION FOR INCOME TAXES           --       --         --        --
----------------------------------------------------------------------

NET INCOME (LOSS)               $(6,857) $(7,458)  $ (5,381) $(26,210)
======================================================================


EARNINGS (LOSS) PER SHARE:

  PREFERRED STOCK DIVIDENDS          --       --         --        --
  NET GAIN (LOSS) APPLICABLE TO
   COMMON SHARES                $(6,857) $(7,458)  $ (5,381) $(26,210)

     BASIC WEIGHTED AVERAGE
      COMMON SHARES
        OUTSTANDING              11,607      886      7,205       787
----------------------------------------------------------------------
BASIC NET INCOME (LOSS) PER
 COMMON SHARE                   $ (0.59) $ (8.42)  $  (0.75) $ (33.29)
======================================================================


     DILUTED WEIGHTED AVERAGE
      COMMON SHARES
        OUTSTANDING              11,607      990      7,205       787
----------------------------------------------------------------------
DILUTED NET INCOME (LOSS) PER
 COMMON SHARE                   $ (0.59) $(32.64)  $  (0.75) $ (33.29)
======================================================================

COMPREHENSIVE INCOME AND ITS
 COMPONENTS CONSIST OF
  THE FOLLOWING:
     Net income (loss)          $(6,857) $(7,458)  $ (5,381) $(26,210)
     Unrealized (losses) from
      marketable securities:
        Unrealized holding
         (losses) arising during
         the period                 229    2,817      1,381    (6,983)
        Reclassification
         adjustment for gains
         included in net income           (2,593)    (4,026)  (14,249)
----------------------------------------------------------------------
NET COMPREHENSIVE INCOME (LOSS) $(6,628) $(7,234)  $ (8,026) $(47,443)
======================================================================

See accompanying notes to consolidated financial statements.


SORRENTO NETWORKS CORPORATION
AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
(In Thousands)

                                   Sorrento    Meret
                                   Networks   Optical   LuxN   Total
                                   ---------  -------  ------  ------
Three Months Ended Jan 31, 2004

   Net sales                      $ 4,207    $   861  $1,331  $ 6,399
   Intersegment sales                  --         --      --       --
                                   -------    -------  ------  -------
   Total net sales                  4,207        861   1,331    6,399

   Cost of sales                    3,565      1,117   1,176    5,858

                                   -------    -------  ------  -------
   Gross Profit                   $   642    $  (256)    155  $   541
                                   =======    =======  ======  =======

   Gross Profit %                    15.3%     -29.7%   11.6%     8.5%
                                   =======    =======  ======  =======


Three Months Ended Jan 31, 2003

   Net sales                      $ 7,882    $   528      --  $ 8,410
   Intersegment sales                  --                 --       --
                                   -------    -------  ------  -------
   Total net sales                  7,882        528      --    8,410

   Cost of sales                    4,860        380      --    5,240

                                   -------    -------  ------  -------
   Gross Profit                   $ 3,022    $   148      --  $ 3,170
                                   =======    =======  ======  =======

   Gross Profit %                    38.3%      28.0%     --     37.7%
                                   =======    =======  ======  =======


Twelve Months Ended Jan 31, 2004

   Net sales                      $18,740    $ 2,870   3,852  $25,462
   Intersegment sales                  --         --      --       --
                                   -------    -------  ------  -------
   Total net sales                 18,740      2,870   3,852   25,462

   Cost of sales                   14,545      2,399   2,825   19,769

                                   -------    -------  ------  -------
   Gross Profit                   $ 4,195    $   471   1,027  $ 5,693
                                   =======    =======  ======  =======

   Gross Profit %                    22.4%      16.4%   26.7%    22.4%
                                   =======    =======  ======  =======


Twelve Months Ended Jan 31, 2003

   Net sales                      $22,373    $ 2,764      --  $25,137
   Intersegment sales                  --                 --       --
                                   -------    -------  ------  -------
   Total net sales                 22,373      2,764      --   25,137

   Cost of sales                   19,257      2,560      --   21,817

                                   -------    -------  ------  -------
   Gross Profit                   $ 3,116    $   204      --  $ 3,320
                                   =======    =======  ======  =======

   Gross Profit %                    13.9%       7.4%     --     13.2%
                                   =======    =======  ======  =======

SOURCE: Sorrento Networks Corp.

CONTACT: Sorrento Networks Corp., San Diego Investors: Joe Armstrong, 858-646-7183 jarmstrong@sorrentonet.com or Media: Paul Zalloua, 408-328-4592 pzalloua@sorrentonet.com Customize your Business Wire news & multimedia to match your needs. Get breaking news from companies and organizations worldwide. Logon for FREE today at www.BusinessWire.com.

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