10-QSB Q1 FY2006

ENTRADA NETWORKS, INC.
*AND SUBSIDIARIES*
*CONSOLIDATED BALANCE SHEETS APRIL 30 AND JANUARY 31, 2005*
*(In Thousands)*		April 30,			January 31,
		2005			2005
ASSETS
CURRENT ASSETS
Cash and equivalents	$	-		$	148
Accounts receivable, net of allowance for doubtful accounts of $58 and $59, respectively		317			596
Inventory, net		2,176			2,154
Deferred costs		-			960
Prepaid expenses and other current assets		482			444
TOTAL CURRENT ASSETS		2,975			4,302
PROPERTY AND EQUIPMENT, NET		420			496
GOODWILL		1,135			1,135
OTHER ASSETS
Deposits		23			23
TOTAL OTHER ASSETS		23			23
TOTAL ASSETS	$	4,553		$	5,956
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank Overdraft		19			-
Accounts payable		981			691
Other current and accrued liabilities		425			498
Short-term debt
Bank		205			295
Other		1,900			1,819
Total Short-Term Debt		2,105			2,114
Deferred Revenue		1,152			1,135
TOTAL CURRENT LIABILITIES		4,682			4,438
TOTAL LIABILITIES		4,682			4,438
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; 2,000 shares authorized; -0- shares issued.
Common stock, $.001 par value; 150,000 shares authorized; 16,805 shares
issued and outstanding at April 30, 2005; 15,430 shares issued
and outstanding at January 31, 2005		16			15
Treasury Stock, 86,026 shares at cost at April 30, 2005 and January 31, 2005		(26	)		(26	)
Additional paid-in capital		53,699			54,523
Accumulated deficit		(53,818	)		(52,994	)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		(129	)		1,518
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	4,553		$	5,956

ENTRADA NETWORKS, INC.
*AND SUBSIDIARIES*
*CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTER ENDED APRIL 30, 2005 and, 2004*
*(In Thousands, except per share amounts)*
	2005			2004

NET REVENUES
PRODUCT	$	515		$	205
SERVICES		460			175
TOTAL NET REVENUES		975			380
COST OF REVENUE
PRODUCT		363			272
SERVICES		214			66
TOTAL COST OF REVENUE		577			338
GROSS PROFIT		398			42
OPERATING EXPENSES
Selling and marketing		126			78
Engineering, research and development		155			240
General and administrative		629			402
TOTAL OPERATING EXPENSES		910			720
INCOME (LOSS) FROM OPERATIONS		(512	)		(678	)
OTHER INCOME (EXPENSE)
Interest expense, net		(312	)		(59	)
TOTAL OTHER INCOME (EXPENSE)		(312	)		(59	)
NET INCOME (LOSS)	$	(824	)	$	(737	)
INCOME (LOSS) PER COMMON SHARE):
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING		16,637			13,901
NET INCOME (LOSS) PER COMMON SHARE:
BASIC	$	(0.05	)	$	(0.05	)
DILUTED	$	(0.05	)	$	(0.05	)

ENTRADA NETWORKS, INC.
*AND SUBSIDIARIES*
*CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 30, 2005 AND 2004*
*(In Thousands)*
		2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(824	)	$	(737	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		84			90
Non cash interest associated with debt discount amortization		171			12
Provision for doubtful accounts receivable		-			27
Provision for inventory reserve		(64	)		-
Changes in assets and liabilities, net of effects of business entity acquisition:
Accounts receivable		279			313
Inventories		42			43
Prepaid and other current assets		(38	)		61
Bank overdraft		19			-
Accounts payable		289			(172	)
Accrued interest		21			-
Accrued expenses		(73	)		(59	)
Deferred revenue		17			-
NET CASH USED IN OPERATING ACTIVITIES		(77	)		(422	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(8	)		(5	)
NET CASH USED IN INVESTING ACTIVITIES		(8	)		(5	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on short-term line of credit		414			242
Payments on short-term line of credit		(503	)		(184	)
Proceeds from issuances of notes payable		-			500
Repayments on notes payable		(112	)		-
Exercise of warrants as a repayment of debt		138			-
Deferred financing costs		-			(25	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(63	)		533
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(148	)		106
CASH AND CASH EQUIVALENTS - BEGINNING OF QUARTER		148			72
CASH AND CASH EQUIVALENTS - END OF QUARTER	$	-		$	178

Entrada Networks, Inc., through its wholly owned subsidiaries, (the "Company", "we", "our" or "us"), is in the business of developing, marketing and selling products for the network connectivity segments. Our Torrey Pines Networks ("Torrey Pines") subsidiary designs, manufactures, markets and sells storage area network ("SAN") transport products. Torrey Pines Networks acquired all of the outstanding stock of Microtek Systems, Inc. on May 14, 2004. Microtek Systems is a provider of security, digital imaging, information infrastructures and storage solutions. Microtek Systems extends our core competencies in network and storage connectivity into solutions and applications specific to verticals, notably insurance, healthcare and financial sectors.

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. Our Sync Research ("Sync") subsidiary designs, manufactures, markets, sells and services frame relay products for some of the major financial institutions in the U.S. and abroad.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a net loss for the quarter ended April 30, 2005 of $824 and has incurred losses since inception totaling $53,818 through April 30, 2005, and is dependent on raising additional financing to fund operations through the fiscal year ending January 31, 2006 and beyond. These factors raise substantial doubt about the Company's ability to continue as a going concern.

In order to continue as a going concern and to increase its revenues to a level necessary to achieve a profitable level of operations, the Company will need, among other things, additional capital resources. Management has been working on plans to obtain such resources for the Company that includes external financing to meet its working capital requirements and executing strategies of internal development and growth through acquisition. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Entrada Networks, Inc., the “Company,”“We,”“Our” or “Us,” has prepared, without audit, the accompanying financial data for the three months ended April 30, 2005 and 2004 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, 2005 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 in these consolidated financial statements 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-KSB filed with the Securities and Exchange Commission on June 14, 2005.

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, and the disclosure of contingent assets and liabilities. Actual results could materially 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 April 30, 2005 and for the three months ended April 30, 2004, have been made. The results of operations for the three months ended April 30, 2005 are not necessarily indicative of the operating results for the full year.

In December 2004, the FASB issued statement No. 123R, , "Share-Based Payment", a revision to statement No. 123 "Accounting for Stock Based Compensation." This statement replaces statement no. 123 and supersedes APB No. 25. This statement sets accounting requirements for "share-based" compensation to employees, including employee-stock-purchase-plans (ESPPs) and provides guidance on accounting for awards to non-employees. This Statement will require the Company to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees, but expresses no preference for a type of valuation model. For public entities, this Statement is effective for the first interim period beginning after December 15, 2005. The Company will adopt this Statement in our fiscal year beginning February 1, 2006 and is evaluating this pronouncement's effect on the Company's financial position and net income.

In November 2004, the FASB issued statement No. 151, "Inventory Costs." This statement eliminates the "so abnormal" criterion in ARB 43 "Inventory Pricing" and no longer permits a company to capitalize inventory costs on their balances sheets when the production defect rate varies significantly from the expected rate. The Statement reduces the differences between U.S. and international accounting standards. This Statement is effective for inventory cost incurred during annual periods beginning after June 15, 2005. We will adopt this Statement in our fiscal year beginning February 1, 2006. We do not believe that this pronouncement will have a material effect on the Company's financial position and net income.

In December 2004, the FASB issued Staff Position No. 109-1 ("FAS 109-1"), "Application of FASB Statement No. 109, Accounting for Income Taxes, for the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004." FAS 109-1 clarifies that the deduction will be treated as a "special deduction" as described in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." As such, the special deduction has no effect on deferred tax assets and liabilities existing at the date of enactment. The impact of the deduction will be reported in the period in which the deduction is claimed. We are currently assessing the financial impact of FAS 109-1 on our consolidated financial statements.

All stock options issued to employees have an exercise price not less than the fair market value of our common stock on the date of grant, and in accordance with the accounting for such options utilizing the intrinsic value method there is no related compensation expense recorded in our financial statements. Options which were granted prior to our August 31, 2000 merger were valued as part of the consideration for the merger. Had compensation cost for stock-based compensation been determined based on the fair value at the grant dates in accordance with Statement of Financial Accounting Standards No. 123, our net loss and loss per share for the three months ended April 30, 2005 and 2004 would have been as follows:

	Three Months Ended April 30,
	2005			2004
Net income (loss):
As reported	$	(824	)	$	(737	)
Add: Stock based employee compensation expense		-			20
Deduct: Total stock based employee compensation expense determined under fair value method		(18	)		(111	)
Pro forma income (loss) per share:	$	(842	)	$	(828	)
Basic and diluted EPS as reported	$	(0.05	)	$	(0.05	)
Pro forma basic and diluted EPS	$	(0.05	)	$	(0.06	)

		April 30, 2005		January 31, 2005
Bank:
Floating interest rate loan based on 5.0% over lender's	$	-	$	295
prime rate secured by all of our tangible assets
Floating interest rate loan based on 8% over lender's		205		-
prime rate secured by all of our tangible assets
Other:
Term Notes at fixed interest rate of 24%
Principal balance outstanding		1,815		1,875
Less: unamortized discount		-		(171	)
Net balance		1,815		1,704
Promissory Note at a fixed interest rate of 6%		85		115
Total other		1,900		1,819
Total	$	2,105	$	2,114

In November 2004, the Company issued 10,000,000 warrants in connection with a marketing agreement entered into with Trilogy Capital Partners ("Trilogy"). Based on the valuation of warrants issued to Trilogy, as determined using a Black-Scholes valuation model, deferred costs and paid in capital in the amount of $1,159 were recorded related to the warrants during the fourth quarter of the fiscal year ended January 31, 2005. The deferred cost was being amortized to marketing expense over the original six-month term of the agreement.

On May 31, 2005, the parties finalized agreement to terminate the original agreement and Trilogy agreed to return to Entrada 8,500,000 of the 10,000,000 warrants originally issued to them. As the decision to terminate the agreement with Trilogy had been made by the Company prior to April 30, 2005, and since the termination was finalized prior to the issuance of the financial statements for the quarter ended April 30, 2005, the financial statements for the quarter ended April 30, 2005 have been adjusted to reflect the termination of the agreement and return of warrants by Trilogy. As a result, no expense was recorded during the quarter for the amortization of the unamortized deferred cost, and deferred cost and paid in capital have been reduced by $960.

We have suffered recurring losses from operations and as of April 30, 2005 we had a negative working capital of $1,708 thousand. We recognize that in order to meet our capital requirements, and continue to operate, additional funding is necessary. We are exploring additional sources of liquidity, through debt and equity financing alternatives. If we are (i) unable to grow our business or improve our operating cash flows, (ii) unsuccessful in retiring or restructuring the debt repayments due by July 31, 2005 in the aggregate amount of $1,815 thousand in principal and interest, or (iii) unable to raise additional funds through offerings of our common stock, then we may be unable to continue as a going concern. There can be no assurance that additional financing will be available when needed or, if available, that it will be on terms favorable to us and our stockholders.

If we are not successful in generating sufficient cash flows from operations, or in raising additional capital required in sufficient amounts and on terms acceptable to us, these failures would have a material adverse effect on our business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current stockholders would be diluted.

· Explore acquisition opportunities that fit into our existing technologies. This calls for acceleration of organic growth opportunities, especially in the storage area network transport product line where we are developing and marketing our Silverline™-CWDM product line, and to actively pursue acquisition opportunities to complement the current lines of business.

· Commercialize Torrey Pines’ optical Silverline™ SAN and metropolitan area networks transport product line

· Bring our Rixon operation back to profitability through increased sales efforts and reduced overhead.

· And, to maintain superior service and support for our Sync legacy products to sustain our recent profitable track

Our Sync Research net revenues from the frame relay and service business declined 26.5% to $183 thousand for the three months ended April 30, 2005 compared to $250 thoudand net revenues for the three months ended April 30, 2004. The largest portion of the drop for three months ended April 30, 2005 came from a 79.7% drop in product net revenues from $75 thoudand in three months ended April 30, 2004 to $15 thousand for three months ended April 30, 2005. This drop was due to reduced demand for our legacy products.

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. Overall gross profit increased to $398 thousand for the quarter ended April 30, 2005 from $43 thousand for the quarter ended April 30, 2004. Our gross margin increased to 40.8% for the three months ended April 30, 2005 as compared to 11.1% for the three months ended April 30, 2004. This is primarily due to our Torrey Pines subsidiary's purchase of Microtek Systems in May 2004..

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 increased to $126 thousand, or 12.9% of net revenues for the quarter ended April 30, 2005, compared to $78 thousand or 20.5% of net revenues for the quarter ended April 30, 2004. The increase in selling and marketing expense and lower percentages reflects primarily the acquisition of Microtek Systems, Inc.

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 $155 thousand, or 15.9% of net revenues, for the quarter ended April 30, 2005, compared with $240 thousand, or 63.2% of net revenues, for the quarter ended April 30, 2004. The decrease in research and development percentage was primarily due to the higher revenues.

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 increased to $629 thousand or 64.5% of net revenues for the quarter ended April 30, 2005 compared to $402 thousand or 106.1 % of net revenues, for the quarter ended April 30, 2004. The increase in General and administrative expense and the decrease in percentage was primarily due to the high revenues and the increase in expenses was primarily due to the acquisition of Microtek Systems, Inc.

In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes that insufficient evidence exists to conclude that it is more likely than not that the Company will realize the benefits of these deductible differences.

At January 31, 2005, the Company had available federal and state net operating loss carry forwards of approximately $95 million and $15 million, respectively, for income tax purposes. The federal and state losses will begin expiring in the 2006 and 2005 tax years, respectively. As of January 2005and 2004 our effective income tax rate differs from the federal statutory income tax rate due to state taxes net of federal benefit and state net operating loss limitations.

The utilization of the loss carry forwards as an offset to future taxable income is subject to limitations under U.S. federal income tax laws. One such limitation is imposed when there is a greater than 50% ownership change. An ownership change may have occurred during the tax year ended January 31, 2001. As such, the above loss may be subject to the limitation of Section 382. At April 30, 2005 and 2004, a valuation allowance was recorded to reduce the deferred tax asset to zero since the recognition of the tax benefit could not be assured.

We had a negative working capital of $1,708 thousand at April 30, 2005, a decrease of $3,303 thousand from the positive $1,595 thousand at April 30, 2004. Cash flows used by operations were $77 thousand during the three months ended April 30, 2005 compared with $422 thousand used by operations for the three months ended April 30, 2004. The decrease in cash flows provided by operations reflects a net loss from operations after adjustment for non-cash expenses including depreciation, amortization, reserves and valuation allowances as well as a decrease in accounts receivable. During the three months ended April 30, 2005, operating cash flow reflected decreases in cash used for accounts payables and accrued expenses offset by decreases in current assets. During the same three months last year, our cash flow provided by operations reflected decreases in accounts receivable along with accounts payable and accrued expenses.

We have in place a line of credit that allows us to bridge the gap between our daily cash requirements and the cash we have on hand. We and our subsidiaries, Rixon Networks, Inc., Sync Research, Inc., and Torrey Pines Networks, Inc., including its subsidiary, Microtek Systems, Inc., are parties to that certain Amendment to Loan Documents and that certain Loan and Security Agreement (together, the "Amended and Restated Loan Agreement") with Silicon Valley Bank, a California chartered bank ("Silicon Valley Bank") dated December 14, 2004, which Amended and Restated Loan Agreement amends and restates that certain Loan and Security Agreement between the same parties and dated February 20, 2001, as amended through December 13, 2004 (the "Prior Loan Agreement"). We require access to this line of credit in order to operate. The credit facility is due to expire on July 31, 2005.

Outstanding borrowings against this line of credit were $205 thousand at April 30, 2005. We continue to pursue external equity financing arrangements that could enhance our liquidity position. 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.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our valuation of inventory and our allowance for uncollectable accounts receivable. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions.

Since we account for and report our physical inventory at the "lower of cost or market", and such net inventory comprises 73.1% of our current assets and 47.8% of total assets at April 30, 2005, we carefully evaluate the market value of that inventory on a continual basis. In a business such as ours, wherein we are stocking replacement parts to satisfy a customer's unknown needs, determining obsolescence is an inherently subjective process. Adjustments to obsolescence reserves are made based on judgments of market value that are supported by our best estimates of the future salability of specific items in that inventory.

Accounts receivable balances are evaluated on a continual basis and allowances are provided for potentially uncollectable accounts based on management's estimate of the collectability of customer accounts. If the financial condition of a customer were to deteriorate, resulting in an impairment of their ability to make payments, an additional allowance may be required. Allowance adjustments are charged to operations in the period in which the facts that give rise to the adjustments become known.

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise price of Outstanding Options, Warrants and Rights	Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)	)
Plan category
Equity Compensation Plans Approved by Security Holders	3,477,518	$	0.46	1,268,223

Equity Compensation Plans Not Approved by Security Holders *	20,700,757	$	0.13	-
Total	24,178,275	$	0.18	1,268,223

* Represents: (1) a fully-vested warrant to purchase up to 75,757 shares of our common stock at a per share exercise price of $3.30, issued to Silicon Valley Bank on February 20, 2001, which warrant expires on February 20, 2006; (2) fully-vested warrants to purchase up to an aggregate of 500,000 shares of our common stock at a per share exercise price of $0.35, issued on February 5, 2004 to the following individuals for the share amounts indicated, which warrants expire on February 5, 2007:

(5) a warrant to purchase up to an aggregate of 1,500,000 shares of our common stock at a per share exercise price of $0.12, issued to Trilogy on November 10, 2004. This warrant is exercisable on the earlier of January 1, 2005 or the date on which the registration statement of which this prospectus is a part is effective and expires on November 10, 2006. As long as we have a class of securities registered under Section 12 of the Securities Exchange Act of 1934, Trilogy will not be entitled to exercise this warrant in an amount that, immediately following such purchase, would result in Trilogy beneficially owning 5% or more of our outstanding shares of common stock.

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.

(a) Disclosure Controls and Procedures. We maintain controls and procedures designed to ensure that we are able to collect the information required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Our Chief Executive and Principle Accounting Officers are responsible for establishing and maintaining these procedures and, as required by the rules of the SEC, evaluate their effectiveness. Based on their evaluation of our controls and procedures which took place as of a date within 80 days prior to the filing date of this report, Chief Executive and Principle Accounting Officers believe that these procedures are effective to ensure that Entrada Networks is able to collect, process and disclose the information we are required to disclose in the reports it files with the SEC within the required time periods.

(b) Changes in Internal Controls. We maintain a system of internal controls designed to provide reasonable assurance that: transactions are executed in accordance with our management’s general or specific authorization; transactions are recorded as necessary to (1) to permit preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, and (2) to maintain accountability for assets; access to assets is permitted only in accordance with our management’s general or specific authorization; and the recorded accountability for assets is compared with the exiting assets at reasonable intervals and appropriate action is take with respect to any difference.

In connection with its audit of, and in the issuance of its report on the Company’s financial statements for the year ended January 31, 2005, our independent auditors identified certain items that it considers to be material weaknesses in the effectiveness of the Company’s internal controls pursuant to standards established by the Public Company Accounting Oversight Board. A “material weakness” is a reportable condition in which the design or operation of one or more of the specific control components has a defect or defects that could have a material adverse effect on our ability to record, process, summarize and report financial statements in a timely manner.

These material weaknesses are primarily due to limited resources in the accounting function which: a) limit the level of monitoring and oversight within the accounting function and which restricts the Company’s ability to gather, analyze, reconcile accounts, and report information relative to the financial statement assertions in a timely manner; and b) limit the ability to obtain optimum segregation of duties required to meet the increased public reporting demands. Additionally, the Company’s accounting functions are not centralized or effectively coordinated.

On February 8, 2005, Entrada and Silicon Valley Bank executed that certain Amendment to Loan Documents, effective as of February 8, 2004 (the "Loan Agreement Amendment"), pursuant to which the parties extended the expiration date of the Amended and Restated Loan Agreement (the “Maturity Date”) to March 1, 2005. And, on March 4, 2005 the parties executed another Amendment to Documents, pursuant to which the Maturity Date was extended to March 31, 2005. This was further extended to July 31, 2005. On April 5, 2005, Entrada and Silicon Valley Bank executed that certain Amendment to Loan Documents, effective as of March 31, 2004 (the "Loan Agreement Amendment"), pursuant to which the parties extended the expiration date of the Amended and Restated Loan Agreement to April 30, 2005. As per this Loan Agreement Amendment, the aggregate face amount of all financed receivables outstanding at any time may not exceed $625 thousand, and Silicon Valley Bank has no obligation to make advances to Entrada in excess of $500 thousand in the aggregate at any time outstanding. In addition, interest accrues at an annual rate equal to Silicon Valley Bank’s prime rate plus 8.0% (13.75%).

Pursuant to the Third Amendment, effective January 29, 2005, the Lenders agreed to extend from January 29, 2005 to March 31, 2005 the date on which Entrada must repay all unpaid principal owed by Entrada pursuant to the Original Credit Agreement, In addition, Any cash proceeds Entrada receives upon the issuance and sale of its equity securities shall be first used to pay any accrued interest, ant then Entrada will use 70% of the remaining cash proceeds to prepay the outstanding principal amount owed under the Original Credit agreement, as amended.

Effective March 30, 2005, Entrada entered into the Fourth Amendment between Entrada and the Lenders that amends the Term Credit Agreement dated March 30, 2004, between Entrada, HKL, HIT, Shelly Singhal ("Mr. Singhal") and SBI (the "Original Credit Agreement"), as amended by the First Amendment to Term Credit Agreement (the "First Amendment"), dated May 14, 2004, between Entrada, SBI and the Lenders identified therein, and as further amended by the Second Amendment to Term Credit Agreement (the "Second Amendment"), dated October 1, 2004, between Entrada, SBI and the Lenders identified therein and as further amended by the Third Amendment Term Credit Agreement (the "Third Amendment"), dated January 29, 2005, between Entrada, SBI and the Lenders identified therein.

In addition, Upon repayment of all amounts payable under the terms of the Term Notes, Lenders will retain 5,000,000 of the 20,500,000 original Warrants issued to SBI Advisors, LLC or its designees, and the balance of unexercised Warrants held by such parties at the time of repayment of the Term Notes will be returned to Borrower. These parties and their warrants holdings are as follows: (1) 3,500,000 with McGovern Living Trust; (2) 3,650,000 with Jon Buttles; (3) 3,250,000 with David F. Evans; and (4) 3,500,000 with Crestwood Children’s Trust. The warrants retained by SBI or its designees shall be the then lowest priced warrants owned by SBI Advisors, LLC or its designees.

Certain statements in this document, including statements in the “Risk Factors,”“Our Business,” and Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections, are 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. These statements are not historical facts but rather reflect current expectations concerning future results and events. Words such as “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, including those set forth in the “Risk Factors” section of this document, some of which are beyond our 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 our current and future products, reliance on vendors and product lines, competition, performance of new products, performance of affiliates and their future operating results, our 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 this document.

We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. These risks and uncertainties are described in the following section. We specifically decline any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements.

We may not be able to obtain additional funding on satisfactory terms. We may be unable to obtain additional funding on satisfactory terms, which could interfere with our existing and planned operations, dilute our stockholders or impose burdensome financial restrictions on our business. Historically, we have relied upon cash from financing activities to fund most of the cash requirements of our operating and investing activities. Although we have been able to generate some but not sufficient cash from our operating activities in the recent past, there is no assurance we will be able to do so in the future.

General economic conditions may cause declines in investor confidence in and accessibility to capital markets. Further, because our common stock is not listed on a national exchange, the ability of any potential or future investors to achieve liquidity from our common stock is limited, which could inhibit, if not preclude, our ability to raise additional working capital on a timely basis, in sufficient amounts or on terms acceptable to us.

Any future financing may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to our common stock would likely include financial and other covenants that will restrict our flexibility in the operation and management of our business. At a minimum, we expect these covenants to include restrictions on our ability to pay dividends on our common stock. Any failure to comply with these covenants would have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows. In addition, we have paid, and will continue to be required to pay, interest on all amounts borrowed in debt financings, and the obligation to repay such interest could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flow.

If adequate funds are not available, we may also be required to delay, scale back or eliminate portions of our operations and product development efforts or to obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our technologies or potential products or other assets. Accordingly, the inability to obtain this financing could result in a significant loss of ownership and/or control of our proprietary technology and other important assets and could also adversely affect our ability to fund our continued operations and our product development efforts that historically have contributed significantly to our competitiveness.

We have limited working capital. Our working capital is limited and we are constantly challenged in executing our business plan. Additionally, our working capital does not allow us to fund significant organic growth opportunities or to cope with unforeseen contingencies. Unless we are able to secure additional external financing, for which there can be no assurance, we could be constrained in pursuing our business strategy and new opportunities aggressively.

Our ability to continue as a going concern. We have reevaluated and refocused our strategy in light of our current difficult financial condition. We believe that our strategy is viable and can be achieved. Nevertheless, unless we are able to improve revenue levels, cut further costs and raise additional capital to fund future operations, there can be no assurance that we will have sufficient liquidity and resources to successfully execute our plan and our plan may have to be severely curtailed.

We anticipate that our available cash resources may not be sufficient to meet our presently anticipated capital requirements for the next twelve months. We have suffered recurring losses from operations. As of April 30, 2005 we had a negative working capital of $1,708 thousand. We recognize that in order to meet our capital requirements, and continue to operate, additional funding is necessary. We are exploring additional sources of liquidity, through debt and equity financing alternatives. If we are (i) unable to grow our business or improve our operating cash flows as expected, (ii) unsuccessful in restructuring all or the necessary and required portion of the debt repayments due in July 2005 in the aggregate amounts of $1,815 thousand in principal and interest, or (iii) unable to raise additional funds through offerings of our common stock or exercise of outstanding warrants, then we may be unable to continue as a going concern. There can be no assurance that additional financing will be available when needed or, if available, that it will be on terms favorable to us and our stockholders.

If we are not successful in generating sufficient cash flows from operations, or in raising additional capital when required in sufficient amounts and on terms acceptable to us, these failures would have a material adverse effect on our business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current stockholders would be diluted.

Our strategy to increasingly focus on the operations of Torrey Pines and restore the operations of Rixon to profitability involves risk and may not be successful. We have increasingly focused on the operations of Torrey Pines and its efforts to develop transport products for the storage area network and metropolitan network marketplace. We have also focused on restoring the operations of Rixon to profitability. We may be unsuccessful with this strategy. We may be unsuccessful in commercializing our optical Silverline™ storage area network and metropolitan area network transport product line and we may not be able to bring the operations of Rixon back to profitability through increased sales efforts and reduced overhead.

We rely on a relatively limited number of customers, and the loss of any significant customer could materially and adversely affect our business and financial condition. Historically, we have derived a significant portion of our revenues and accounts receivable from a relatively limited number of customers. The loss of one or more of these customers, or their inability to pay for our products and services, could have a material and adverse effect on our operating and financial results. In fact, Cisco Systems, our single largest customer during the fiscal year ended January 31, 2004, discontinued purchasing an adapter card from us starting from the third quarter of our fiscal year ended January 31, 2004. During the twelve months ended January 31, 2004, Cisco Systems accounted for approximately 56.7% of our consolidated net revenues, whereas during the twelve months ended January 31, 2005 and the three months ended April 30, 2005, it accounted for 0% of our net revenues.

Our industry is highly competitive, and we may not have the resources required to compete successfully. The market for network connectivity products and services and storage area network transport equipment is extremely competitive and we expect competition to continue to intensify in the future. Our primary competitors include Adaptec, Intel Corporation, Interphase, CNT, ADVA, Ciena, TransMode, Pandatel, Finisar, and MRV Communications. We may also face competition from a number of other companies that have announced plans for new products to address the same problems that our products address. Many of our current and potential competitors have significantly greater resources, name recognition and customer relationships than us. In particular, established companies in the telecommunications equipment or computing industries may seek to expand their product offerings by designing and selling products using competitive technology that could render our products obsolete or have a material adverse effect on our revenues.

We operate in a market where emerging companies enter the markets in which we are competing and new products and technologies are introduced. Increased competition may result in further price reductions, reduced gross margins and loss of market share, any of which could materially and adversely affect our business operations or financial results. There are many competitors and potential competitors that are well funded and which may be able to "leap frog" beyond the technologies upon which we currently rely.

Our business will be seriously harmed if we are not able to develop and commercialize new or enhanced products. Our growth depends on our ability to successfully develop new or enhanced products. Our next generation of network management products and coarse wavelength division multiplexing products are under development. We cannot be sure whether these or other new products will be successfully developed and introduced to the market on a timely basis or at all. We will need to complete each of the following steps to successfully commercialize new products: complete product development, qualify and establish component suppliers, validate manufacturing methods, conduct extensive quality assurance and reliability testing, complete any software validation, and demonstrate systems interoperability.

We maintain high levels of inventory with low turnover. We have historically maintained high levels of inventory to meet the output requirements of our customers over which we have little influence and to support our older, or legacy, products already in service. Many of our products require custom parts with long lead times, and our inventory levels allow us to provide fast response to our customer needs. While we continually review our reserves for conservative valuations, significant changes in customer demand for our products could adversely and materially affect our business operations or financial results.

Except for the fiscal year ending January 31, 2003, we incurred net operating losses over the recent past and may experience future losses. We have incurred losses from operations during the three months ended April 30, 2005 of $512 thousand, during the twelve months ended January 31, 2005 of $2,480 thousand and during the twelve months ended January 31, 2004 of approximately $2,041 thousand. We have financed these losses through a combination of debt issuances, bank lines of credit and security placements. However, there can be no assurance that our working capital requirements will not exceed our ability to generate sufficient cash to support our requirements and the needed capital will have to be obtained from additional external sources.

Our future growth depends on our ability to attract new customers, and on our customers' ability to sell additional services to their own customers. Most of our potential customers evaluate our network connectivity and storage area products for integrated deployment in larger systems. There are a limited number of potential customers for our products. If we are not selected by a potential customer for a particular system project, our business may be seriously harmed. Similarly, our growth depends on our customers' success in selling integrated solutions based on our products and complementary products from others. We believe that our success will depend on our ability to effectively anticipate and adapt to customer requirements and offer products and services that meet customer demands. Any failure of our current or prospective customers to purchase products from us for any reason, including a downturn in their business, would seriously harm our ability to grow our business.

The time that our customers and potential customers require for testing and qualification before purchasing our networking products and solutions can be long and variable, which may cause our results of operations to be unpredictable. Before purchasing our products and solutions, potential customers must undertake a lengthy evaluation, testing and product qualification process. In addition, potential customers require time-consuming field trials of our products and solutions. Our sales effort requires the effective demonstration of the benefits of our products to, and significant training of, potential customers. In addition, the timing of deployment depends on many factors, including the sophistication of a customer and the complexity and size of a customer's networks. Our sales cycle, which is the period from the time a sales lead is generated until the recognition of revenue, often exceeds one year. The length and variability of our sales cycle is beyond our control and is affected by, among other things, our customers' build out and deployment schedules, our customers' access to product purchase financing, our customers' needs for functional demonstration and field trials, and the manufacturing lead time for our products. Because our sales cycles are long and variable, our results of operations may be unpredictable.

Our products may have errors or defects that we find only after deployment, which could seriously harm our business. Our products can only be fully tested after deployment. Our customers may discover errors or defects in our products, and our products may not operate as expected. If we are unable to fix errors or other problems that may be identified, we could experience loss of or delay in revenues and loss of market share, loss of customers, failure to attract new customers or achieve market acceptance, diversion of engineering resources, increased service and warranty costs, and legal actions by our customers. Any failure of our current or planned products to operate as expected could delay or prevent their adoption and seriously harm our business.

If our products do not fully work with, or interoperate with, our customers' systems, installations will be delayed or canceled or our products could be returned. Many of our customers require that our products be designed to work or interoperate with their existing networks, each of which may have different specifications and utilize a variety of protocols. Our customers' networks contain multiple generations of products that have been added over time as these networks have grown and evolved. Our products must work or interoperate with all of the products within these networks as well as future products in order to meet our customers' requirements. If we are required to modify our product design to be compatible with our customers' systems to achieve a sale, it may result in a longer sales cycle, increased research and development expense and reduced margins on our products. If our products do not fully work or interoperate with those of our customers' networks, installations could be delayed, orders for our products could be canceled or our products could be returned, any of which could seriously harm our business.

If we fail to establish and successfully maintain strategic alliances, our business may be harmed. Strategic alliances are an important part of our effort to expand our revenue opportunities and technological capabilities given our limited resources to commercialize our products and reach the market. We cannot be certain that we will be able to enter strategic alliances on terms that are favorable to us. Our business may be harmed if we fail to establish and maintain strategic alliances that extend our reach.

Our business may be seriously harmed if we are unable to establish successful relationships with distributors and systems integrators. We believe that our future success is dependent upon our ability to establish successful relationships with a variety of distributors and systems integrators. As we expand domestically and internationally, we will increasingly depend on distributors and systems integrators. If we are unable to establish and expand these relationships, we may not be able to increase market awareness or sales of our products, which may prevent us from achieving and maintaining profitability.

Our business for storage area networking products may be seriously harmed if the market for storage area networking products does not develop as we expect. Our planned product offerings are focused on the needs of customers that service storage area networks. The market for storage area networking products is new, and we cannot be certain that a viable market for our products will develop or be sustainable. If this market does not develop, or develops more slowly than we expect, our business may be seriously harmed. Furthermore, the storage area networking industry is subject to rapid technological change and newer technology or products developed by others could render our products uncompetitive or obsolete. If the standards adopted are different from those that we have chosen to support, market acceptance of our products would be significantly reduced and our business would be seriously harmed.

We depend upon contract manufacturers, and any disruption in these relationships may cause us to fail to meet the demands of our customers and damage our customer relationships. We use contract manufacturers to manufacture and assemble our products in accordance with our specifications. We do not have long-term contracts with any of them, and none of them are obligated to perform services for us for any specific period or at any specified price, except as may be provided in a particular purchase order. We may not be able to effectively manage our relationships with these manufacturers and they may not meet our future requirements for timely delivery or provide us with the quality of products that we and our customers require.

Each of our contract manufacturers also builds products for other companies. We cannot be certain that they will always have sufficient quantities of inventory available to fill our orders on a timely basis. Qualifying a new contract manufacturer and commencing volume production is expensive and time consuming and could result in a significant interruption in the supply of our products. If we are required to change contract manufacturers, we may suffer delays that could lead to the loss of revenue and damage our customer relationships.

We rely on a limited number of suppliers for some of our components, and our business may be seriously harmed if our supply of any of these components is disrupted. The major components of our products include circuit boards, microprocessors, chipsets, and memory components among other components. Most of these components are available from multiple sources. However, some components used in our products are obtained from single or limited sources and may from time to time be in short supply. We have from time to time experienced, and are experiencing, difficulty in obtaining some components. We do not have guaranteed supply arrangements with any of our suppliers, and we cannot assure you that our suppliers will continue to meet our requirements. Shortages of components could not only limit our production capacity but also could result in higher costs due to the higher costs of components in short supply or the need to use higher-cost substitute components. Significant increases in the prices of components could have a material adverse effect on our results of operations because we may not be able to adjust product pricing to reflect the increases in component costs. Also, an extended interruption in the supply of components or a reduction in their quality or reliability would have a material adverse effect on our financial condition and results of operations by impairing our ability to timely deliver quality products to our customers. Delays in deliveries due to shortages of components or other factors may result in cancellation by our customers of all or part of their orders. Although customers who purchase from us products that are not readily available from other sources would be less likely than other customers of ours to cancel their orders due to production delays, we cannot assure you that cancellations will not occur.

The availability of many of these components to us is dependent in part by our ability to provide suppliers with accurate forecasts of our future requirements. In the event of a disruption in supply or if we receive an unexpectedly high level of purchase orders, we may not be able to develop an alternate source in a timely manner or at favorable prices. Any of these events could hurt our ability to deliver our products to our customers and negatively affect our operating margins. In addition, our reliance on our suppliers exposes us to potential supplier production difficulties or quality variations. Any such disruption in supply would seriously impact our present and future sales.

If we are unable to participate in a last buy or are unable to purchase an adequate quantity of last buy components to cover our needs until the time, if any, that we are able to find an appropriate substitute component that works with the current design of our product or to redesign our product to allow for use of a substitute component, we may have to eliminate the product from our product line. We believe that with respect to many of our single source components, we could obtain similar components from other sources. However, in response to past last buy notices, we have been working to alter product designs on some of our products to allow us to use alternative components. We cannot assure you that we will be successful in our redesign of these products or that we will not experience difficulties associated with future last buys. Further, we cannot assure you that future severe shortages of components that could increase the cost or delay the shipment of our products will not occur.

We may be unable to protect our intellectual property, which could limit our ability to compete. We hold nine patents and have one patent pending for our Silverline™ product design. Although we attempt to protect our intellectual property rights through patents, trademarks, and copyrights, by maintaining certain technology as trade secrets and by other measures, we cannot assure you that any patent, trademark, copyright or other intellectual property rights owned by us will not be invalidated, circumvented or challenged; that such intellectual property rights will provide competitive advantages to us; or that any of our future patent applications, if any, will be issued with the scope of the claims sought by us, if at all. We cannot assure you that others will not develop technologies that are similar or superior to our technology, or that our competitors will not duplicate our technology or "design around" the patents that we own. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries in which we do business or intend to do business in the future.

We believe that the future success of our business will depend on our ability to translate the technological expertise and innovation of our personnel into new and enhanced products. We cannot assure you that the steps taken by us will prevent misappropriation of our technology. In the future, we may take legal action to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could harm our business and operating results.

We could become subject to litigation regarding intellectual property rights, which could seriously harm our business and require us to incur significant costs. In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. We may be a party to litigation in the future to protect our intellectual property or as a result of an allegation that we infringe others' intellectual property. Any parties asserting that our products infringe upon their proprietary rights would force us to defend ourselves, and possibly our customers or manufacturers against the alleged infringement. These claims and any resulting lawsuits, if successful, could subject us to significant liability for damages and invalidation of our proprietary rights. Additionally, any claims and lawsuits, regardless of their merits, would likely be time-consuming and expensive to resolve and would divert management time and attention.

Any claims of infringement of the intellectual property of others could also force us to do one or more of the following: stop selling, incorporating or using our products that use the challenged intellectual property; obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which may not be available to us on reasonable terms, or at all; or redesign the infringing products that use such technology. If we are forced to take any of the foregoing actions, our business may be seriously harmed.

The markets that our products address are governed by regulations and evolving industry standards. The market for our products is highly regulated and industry standards are intensive, with many standards evolving as new technologies are deployed. In the United States, our products must comply with various regulations defined by the Federal Communications Commission and standards established by Underwriters Laboratories. In addition, there are industry standards established by various organizations such as Fibre Channel Industry Association, American National Standards Institute, and Internet Engineering Task Force. We design our products in an effort to comply with those industry standards so that each particular product can be accepted by its intended customer. To the extent non-compliance with such standards has a detrimental effect on customer acceptance, we must address such non-compliance in the design of our products. Standards for new services and network management are still evolving. However, as the standards evolve, we will be required to modify our products or develop and support new versions of our products. The failure of our products to comply or delays in compliance could materially and adversely affect our business, operating results and financial condition.

Our future revenues are unpredictable and our financial results may fluctuate. Our revenue and operating results could fluctuate substantially from quarter to quarter and from year to year. This could result from any one or a combination of factors such as our development and the sale of new technologies and the cancellation or postponement of orders, the timing and amount of significant orders from our largest customers, our success in developing, introducing and shipping product enhancements and new products, the mix of products we sell, new product introductions by competitors, pricing actions taken by us or our competitors, the timing of delivery and availability of components from suppliers, changes in material costs and general economic conditions.

Our business may be adversely affected by competitive pressures, which we must react to. The industry we compete in is characterized by declining prices of existing products. Therefore continual improvements of manufacturing efficiencies and introduction of new products and enhancements to existing products are required to maintain gross margins. In response to customer demands or competitive pressures, or to pursue new product or market opportunities, we may take certain pricing or marketing actions, such as price reductions, volume discounts, or provisions of services at below market rates. These actions could materially and adversely affect our business, operating results and financial condition.

If we are unsuccessful in our efforts to take advantage of distribution channels for our products, sales of our products may decline or fail to increase. We channel many of our products through a network of distribution outlets. We are continuing to develop and solidify our relationships with certified resellers, distributors and system integrators, many of which are part of a worldwide distribution network. To the extent we are unsuccessful in our efforts to create or maintain an adequate quality and quantity of these relationships, sales of our products may decline or fail to increase as we work to establish effective channels to market.

We rely heavily on our management and board of directors, and the loss of any of their services could materially and adversely affect our business. Our success is highly dependent upon the continued services of key members of our management and board of directors, including our Chairman of the Board, Chief Executive Officer and President, Dr. Kanwar J.S. Chadha, Mr. James Dziak, President of Microtek Systems, Inc., a wholly-owned subsidiary of our Torrey Pines subsidiary, Mr. Raj Ganti, Chief Technology Officer, and Mr. Jim Loofbourrow, Vice President of Finance. The loss of Dr. Chadha, Mr. Dziak, Mr. Ganti, or Mr. Loofbourrow or one or more other key members of our management or board of directors could have a material adverse effect on us because each of these individuals has experience and skills upon which we draw heavily in our day-to-day operations and/or strategic planning activities. We do not maintain key-man life insurance policies on any member of management. Our ability to pay cash compensation to retain key members of our management and board of directors is limited by our cash flows.

Our common stock price is subject to significant volatility, which could result in substantial losses for investors. The stock market as a whole, and individual stocks in particular historically have experienced extreme price and volume fluctuations, which often have been unrelated to the performance of the related corporations. During the three months ended April 30, 2005 the high and low closing sale prices of our common stock were $0.18 and $0.09, respectively and for the fiscal year ended January 31, 2005, the high and low closing sale prices of our common stock were $0.38 and $0.08, respectively. The market price of our common stock may exhibit significant fluctuations in the future in response to various factors, many of which are beyond our control, and which include:

· Variations in our quarterly operating results, which variations could result from, among other things, changes in the needs of one or more of our customers;

· Changes in market valuations of similar companies and stock market price and volume fluctuations generally;

· Economic conditions specific to the industries in which we operate;

· Announcements by us or our competitors of new or enhanced products, technologies or services or significant contracts, acquisitions, strategic relationships, joint ventures or capital commitments;

· Regulatory developments;

· Additions or departures of key personnel; and

· Future sales of our common stock or other debt or equity securities.

If our operating results in future quarters fall below the expectations of market makers and investors, the price of our common stock likely will decline, perhaps substantially. In the past, securities class action lawsuits have often been brought against companies following periods of volatility in the market price of their securities. We may in the future be the target of similar lawsuits. Securities lawsuits could result in substantial costs and liabilities and could divert management's attention and resources. Consequently, the price at which you purchase shares of our common stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your shares of common stock at or above your purchase price, which may result in substantial losses to you.

Shares of our common stock eligible or to become eligible for public sale could adversely affect our stock price and make it difficult for us to raise additional capital through sales of equity securities. As of April 30, 2005, we had outstanding 16,805,076 shares of common stock, a substantial portion of which were unrestricted, were eligible for resale under Rule 144 of the Securities Act of 1933, or were registered for resale or issued with registration rights. Disregarding beneficial ownership limitations that apply to some holders of our derivative securities, as of April 30, 2005, we also had outstanding options and warrants that were exercisable for or convertible into approximately 24,178,275 shares of common stock, nearly all of which were issued with registration rights. Sales of a substantial number of shares of our common stock in the public market, or the perception that sales could occur, could adversely affect the market price for our common stock. Any adverse effect on the market price for our common stock could make it difficult for us to sell equity securities at a time and at a price that we deem appropriate.

We may authorize a significant number of additional shares of common stock. On January 27, 2005, our stockholders voted at our annual meeting of stockholders in favor of a proposal to amend our Amended and Restated Certificate of Incorporation, as amended to date, to increase the number of our authorized shares of common stock from 50,000,000 to 150,000,000. As of April 30, 2005, we had issued and outstanding 16,805,076 shares of common stock, as well as stock options and warrants to acquire an aggregate of 24,178,275 additional shares of common stock. Increasing the number of authorized shares of our common stock enables our Board of Directors to issue additional shares of our common stock up to the number of authorized shares, the effect of which will be to dilute the share holdings of our stockholders, which may adversely affect the market price of our stock.

Because our stock is not listed on a national securities exchange, you may find it difficult to dispose of, or obtain quotations for our common stock. Our common stock trades under the symbol "ESAN" on the OTC Bulletin Board. Because our stock trades on the OTC Bulletin Board rather than on a national securities exchange or on NASDAQ, you may find it difficult to either dispose of, or to obtain quotations as to the price of, our common stock.

Because we are subject to the "Penny Stock" rules, the level of trading activity in our stock may be reduced. Broker-dealer practices in connection with transactions in "penny stocks" are regulated by penny stock rules adopted by the Securities and Exchange Commission. Penny stocks, like shares of our common stock, generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges or quoted on NASDAQ). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, broker-dealers who sell these securities to persons other than established customers and "accredited investors" must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security subject to the penny stock rules, and investors in our common stock may find it difficult to sell their shares.

31.1 Statement Under Oath for Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2 Statement Under Oath for Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1 Statement Under Oath for Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

32.2 Statement Under Oath for Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

Delaware	33-0676350
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

		April 30, 2005			January 31, 2005
Raw material	$	2,031		$	1,994
Work in process		60			45
Finished goods		2,388			2,483
Total inventories		4,479			4,522
Less: valuation reserve		(2,303	)		(2,368	)
Net inventories	$	2,176		$	2,154

	Three months ended April 30,
	2005	2004
IntregraSys	-	22.7%
Geico Insurance	-	14.8%
Ingram Micro	-	13.8%

	Three months ended April 30,
		2005		2004
Net Revenues:
Network adapter cards	$	121	$	130
Frame relay network products		15		75
Solutions Sales		379		-
Service and support		460		175
Total net revenue	$	975	$	380

		Rixon Networks			Sync Research		Torrey Pines Networks			Total
	Quarter ended April 30, 2005
Total Revenues	$	121		$	183	$	671		$	975

Net Income (loss)		(739	)		54		(139	)		(824	)

Depreciation and amortization expense		33			-		51			84
Inventory reserve additions		(64	)				-			(64	)
Capital asset additions		-			-		8			8
Total Assets	$	1,823		$	290	$	2,440		$	4,553

Title	Date	Outstanding

Common Stock, $.001 Par Value	July 7, 2005	16,805,076

		April 30, 2005		January 31, 2005
Payroll and employee benefits	$	139	$	186
Accrued expenses		150		164
Sales tax payable		9		8
Accrued audit fees		63		65
Office lease		14		15
Other		50		60
Total	$	425	$	498

	Three months ended April 30,
		2005		2004
Net Revenues:
United States	$	955	$	323
Europe		20		57
Other		--		--
Total net revenues	$	975	$	380

		Rixon Networks			Sync Research		Torrey Pines Networks			Total
	Quarter ended April 30, 2004
Total Revenues	$	130		$	250	$	-		$	380

Net Income (loss)		(693	)		75		(119	)		(737	)

Depreciation and amortization expense		35			14		41			90
Inventory reserve additions		-			-		-			-
Capital asset additions		5			-		-			5
Total Assets	$	2,162		$	693	$	678		$	3,533


(In thousands)				Less than		1-3		4-5		After 5
Contractual Obligations		Total		1Year		Years		Years		Years
Short Term Debt	$	2,105	$	2,098	$	7	$	-	$	-
Operating Leases		327		186		141		-		-
Total Contractual Cash Obligations	$	2,432	$	2,284	$	148	$	-	$	-

Warrant Holder	Shares
SBI Advisors, LLC	400,000
Shelly Singhal	50,000
Jon Buttles	25,000
Matt McGovern	25,000

Warrant Holder	Shares
SBI Brightline IV, LLC	3,450,000
John Wang	125,000
J. Michael Higginbotham	125,000
Suraj Gohill	125,000
Robert Gilman	250,000
Charles Dominick	250,000
Franklin C. Fisher, Jr.	175,000
Joseph A. Schick	25,000
Phoenix Capital Opportunity Fund	225,000
Jon Buttles	250,000

Warrant Holder	Shares
David F. Evans	3,250,000
Crestwood Children's Trust	3,500,000
McGovern Living Trust (Dated September 28, 2004)	3,500,000
Jon Buttles	3,375,000