U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from _________________ to _________________
Commission file number: 0-28471
ENTRADA SOFTWARE, INC.
(Name of small business issuer in its charter)
Nevada 86-0968364
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7825 E. Gelding Drive
Scottsdale, Arizona 85260
(Address of principal executive offices)
(480) 607-3535
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
The number of shares outstanding of the registrant's common equity as of
September 30, 2000 was 7,381,676 shares of common stock, par value $.001.
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
ENTRADA SOFTWARE, INC.
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial statements 3
Balance sheet at September 30, 2000 3
Statement of operations for the three months and nine months
ended September 30, 2000 4
Statement of cash flows for the nine months ended
September 30, 2000 5
Notes to the financial statements 6
Item 2. Management's discussion and analysis of financial
condition and results of operations 7
PART II. OTHER INFORMATION
Item 2. Changes in securities 10
Item 4. Submission of Matters to Vote of Security Holders 11
Item 6. Exhibits and reports of Form 8-K 11
Signatures 12
Exhibits 13
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRADA SOFTWARE, INC.
BALANCE SHEET
SEPTEMBER 30, 2000
ASSETS
Current assets
Cash and cash equivalents $ 146,066
Prepaid expenses and deposits 28,361
-----------
Total current assets 174,427
-----------
Furniture, fixtures and equipment 134,576
Less accumulated depreciation (15,066)
-----------
Net furniture, fixtures and equipment 119,510
-----------
Deposits 23,239
Intellectual property, net 13,397
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Total assets $ 330,573
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses 79,221
Deferred revenue 2,336
Note payable to officer 49,100
-----------
Total current liabilities 130,657
-----------
Other liabilities 38,227
-----------
Total liabilities 168,884
-----------
Stockholders' equity
Serial preferred stock, $.001 par value;
authorized 5,000,000 shares Series A
convertible preferred stock, $.001 par
value; $1.00 liquidation preference,
250,000 shares authorized, issued and outstanding 250
Common stock; $.001 par value, authorized
70,000,000 shares, 7,381,676 shares
issued and outstanding 7,381
Paid in capital 1,628,838
Accumulated deficit (1,474,780)
-----------
Total stockholders' equity 161,689
-----------
Total liabilities and stockholders' equity $ 330,573
===========
The accompanying notes are an integral part of these financial statements.
3
ENTRADA SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000
THREE NINE
MONTHS MONTHS
----------- -----------
Support revenue $ 7,000 $ 20,998
Selling, general and administrative expenses 419,749 1,200,870
----------- -----------
Loss from operations (412,749) (1,179,872)
----------- -----------
Other income (expense)
Interest expense (1,332) (3,535)
Interest income 5,025 17,884
----------- -----------
Total other income 3,693 14,349
----------- -----------
Net loss $ (409,056) $(1,165,523)
=========== ===========
Loss per common share
Basic $ (.06) $ (.16)
=========== ===========
Diluted $ (.06) $ (.16)
=========== ===========
Weighted average number of common
shares outstanding
Basic 7,378,837 7,204,958
=========== ===========
Diluted 7,378,837 7,204,958
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
ENTRADA SOFTWARE, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Cash flows from operating activities:
Net loss $(1,165,523)
Adjustments to reconcile loss to net
cash used in operating activities:
Depreciation and amortization 13,938
Common stock issued for services 6,000
Changes in assets and liabilities:
Prepaid expenses and deposits (19,404)
Deferred revenue (20,998)
Payables, accruals and other liabilities 63,032
-----------
Net cash used in operating activities (1,122,955)
-----------
Cash flows from financing activities:
Sale of common stock 1,159,101
-----------
Net cash provided by financing activities 1,159,101
-----------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (94,786)
Cash paid for intangible assets (6,382)
-----------
Net cash used in investing activities (101,168)
-----------
Net decrease in cash (65,022)
Cash, beginning of period 211,088
-----------
Cash, end of period $ 146,066
===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,535
===========
The accompanying notes are an integral part of these financial statements.
5
ENTRADA SOFTWARE, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(1) BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles "GAAP" for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation of
the results for the interim period presented have been made. The results for the
three-month or nine-month periods ending September 30, 2000 may not necessarily
be indicative of the results for the entire fiscal year. Results for the
comparable three-month and nine-month periods in 1999 have not been included in
this report because the Company had no operations during these periods. These
financial statements should be read in conjunction with the Company's financial
statements and notes in the Company's annual report on Form 10-KSB for the year
ended December 31, 1999.
(2) STOCKHOLDERS' EQUITY:
EMPLOYEE STOCK OPTION PLAN
The 1999 Equity Incentive Plan reserves 2,100,000 shares of common stock
for option and stock grants, and expires September 30, 2009. As of September 30,
2000, the Company had granted options for 831,000 shares with a four year
vesting period and exercise prices of $.50 to $2.50 per share. Options to
purchase 5,000 shares had vested and were exercisable at September 30, 2000, and
none had been exercised.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion contains forward-looking statements that involve
risks and uncertainties. These forward-looking statements include, but are not
limited to, statements regarding future events and our plans and expectations.
If any of our assumptions on which the statements are based prove incorrect or
should unanticipated circumstances arise, our actual results could differ
materially from those anticipated by such forward-looking statements. In
addition, our actual results and the timing of events could differ materially
from those anticipated in these forward looking statements as a result of a
number of factors, including those set forth under Factors Affecting Future
Performance below and under "Description of Business," "Competition," "Factors
Affecting Future Performance" and elsewhere in our SEC filings, including our
annual report on Form 10-KSB. We undertake no obligation to publicly update,
review or revise any forward-looking statement to reflect any change in our
expectations or any change in events, conditions or circumstances on which these
statements are based. Our filings with the SEC, including the Form 10-KSB, may
be accessed at the SEC's Web site, www.sec.gov.
OVERVIEW
Entrada was incorporated in Nevada in August 1999 as a wholly owned
subsidiary of The Rotherwood Group, Inc. ("TRG"), a non-trading and inactive
public company that acquired CIMsoft, Inc. on September 1, 1999. Concurrently,
TRG was merged into Entrada solely to adopt the new Entrada name and to change
the state of incorporation from Arizona to Nevada. CIMsoft had been in existence
only since May 1999, and had no operations. Because neither CIMsoft nor TRG had
any material operations prior to September 30, 1999, no comparative financial
information has been presented in this Form 10-QSB.
Our product suite gathers and delivers information used by businesses to
optimize enterprise commerce across the extended enterprise in ways that
existing functional systems cannot. This is accomplished through our unique and
trademarked PRODUCT-CENTRIC approach. We assemble complete product information
into a PRODUCT BIOGRAPHY(TM) that spans the product and business process life
cycle. We have just entered a new market place with KINNOSA, a Warranty Analysis
and Resolution application that provides a solution that empowers suppliers and
manufacturers to become proactive in dealing with product defects, warranty and
recall issues. Kinnosa enables the accumulation, analysis and exchange of
PRODUCT BIOGRAPHY(TM) data within and among businesses, regardless of existing
technologies and systems used by the enterprises, and without concern for global
location, since the information is exchanged through Internet portal technology.
The Kinnosa enterprise portal is a single access point that deploys
instantly and delivers information to any authorized user worldwide via the
Internet. The content is tailored, based on each user's role. Whether supplier
or customer, executive, engineer or assembler, the Kinnosa enterprise portal
delivers specific pertinent data. Kinnosa enables manufacturers and their entire
supply chains to access complete product information instantly. The result is
facilitated product defect and warranty resolution, including targeted, not
blanket, product recalls. In addition, analytical functions effectively track
and record product incident data, allowing earlier detection of defects and
potential claims.
OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Our operations first commenced on a very limited basis in September 1999.
Once we established our corporate offices and hired our core staff, our efforts
first focused on the product and solutions market research we needed to develop
competitive and differentiating extensions and additions to our existing core
Kinnosa product suite. We prepared marketing materials and commenced initial
exploratory market and sales activities in the first quarter of this year. Based
on the information we gathered from these efforts, we refined our market
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messages, completed our software extensions, and began to develop our first
narrowly targeted sales activities in the second quarter of 2000. Since the
sales cycle for our initial product offering was lengthy - up to six months - we
have not expected the generation of any significant revenues from customer
sales. As a result, we had an operating loss of $412,749 for the three months
ended September 30, 2000. Of the $419,749 of operating expenses for the period,
approximately $301,729 was related to salaries and other personnel expenses,
$19,992 was spent on our marketing program and the remainder of $98,028 was for
occupancy, administrative and other costs.
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Because of the factors mentioned above, we had an operating loss of $
1,179,872 for the nine months ended September 30, 2000. Of the $ 1,200,870 of
operating expenses for the period, approximately $ 817,993 was related to
salaries and other personnel expenses, $90,876 was spent on our marketing
program and the remainder of $ 292,001 was for occupancy, administrative and
other costs.
LIQUIDITY AND CAPITAL RESERVES
We had minimal revenues and generated no significant working capital from
operations for the nine months ended September 30, 2000. As anticipated, our
sales cycle for our initial product was up to six months. While we believe that
the sales cycle for our new warranty solution that we just released is much
shorter, until significant sales revenues begin, we intend to fund operations by
raising additional equity capital. We had cash reserves of $146,066 at September
30, 2000, sufficient to fund our operations only until November 15, 2000 (See
Plan of Operations below).
PLAN OF OPERATIONS FOR FISCAL YEAR 2000
We currently anticipate that we will begin to generate operating revenues
during the fourth quarter of 2000. However, we expect to continue to incur net
losses for the foreseeable future.
Our cash reserve at September 30, 2000 is sufficient to fund our operations
only until November 15, 2000. Consequently, we have arranged with Aztore
Holdings, a stockholder, for short-term working capital loans. Aztore and other
current investors in the Company have expressed a willingness to continue to
provide short-term funding to meet the Company's needs until permanent equity
capital is raised. We are commencing the private placement of up to $2.5 million
of common stock. While there are no assurances that we will be successful in
raising any significant amount in this effort, potential investors have
expressed interest in the Company and its business. We believe that if we can
raise this additional capital, it will be sufficient to fund our operations
until May 31, 2001, at which time we anticipate our next round of financing. We
are continuing to develop investment and business relationships with our
industry partners, who could provide us with capital, material, labor support,
customer relationships, and the further development of brand identity and
equity.
FACTORS AFFECTING FUTURE PERFORMANCE
WE HAVE NO RELEVANT OPERATING HISTORY MAKING IT DIFFICULT TO EVALUATE OUR
BUSINESS. We commenced our current operations through the acquisition CIMsoft in
September 1999. CIMsoft had been in existence only since May 1999. To date, we
have not had any significant operating revenues and we incurred a loss from
operations of $286,769 for the year ended December 31, 1999 and a loss from
operations of $1,179,872 for the nine-month period ended September 30, 2000.
Future losses are likely to occur. We can give no assurances that our business
plan will be successful or that we will achieve or be able to maintain
profitability.
OUR LENGTHY SALES CYCLE COULD CAUSE DELAYS IN REVENUE. The period between
our initial contact with a potential customer and the purchase of our products
and services is often long and may have delays associated with the lengthy
budgeting and approval process of our customers. While we believe that the sales
8
cycle of our warranty solution offering will be significantly less than the
sales cycle for our initial product which was approximately three to six months,
there is no degree of certainty that customers will buy our product through a
shorter sales cycle. A lengthy sales cycle could have a negative impact on the
timing of our revenues, especially our realization of any transaction based
revenues.
We believe that a customer's decision to purchase our products and services
is discretionary, involves a significant commitment of resources, and is
influenced by customer budgetary cycles. To successfully sell our products and
services, we generally must educate potential customers regarding the use and
benefit of our products and services, which can require significant time and
resources. Many of our potential customers are large enterprises that generally
take longer to make significant business decisions.
WE ARE DEPENDENT UPON OUR ABILITY TO RAISE CAPITAL. We have received
limited financing to date and current revenues will be insufficient to fund our
operations until we become profitable. While we are actively seeking additional
investment capital, we may not be successful in attracting additional capital at
favorable rates, or at all. We may not be able to generate sufficient revenues
from our operations to continue our business. If we are unable to raise
additional capital and increase revenues, our business, financial condition and
operating results will be materially and adversely affected.
WE EXPECT RAPID GROWTH, RESULTING IN SIGNIFICANT MANAGEMENT CHALLENGES. We
are an early stage company and we expect to experience very rapid growth in our
operations. This growth will place significant pressure on our limited resources
and infrastructure. Our officers will need to implement and improve our
operational, administrative and financial systems and controls and effectively
expand, train and manage our employee base. For our business plan to be
successful, we will be required to manage an increasing number of relationships
with various customers and other third parties. If we are unable to manage our
growth effectively, our business reputation, results of operations and financial
condition could be harmed.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT. We essentially
restarted our operations through the acquisition of CIMsoft in September 1999.
We will encounter numerous risks and difficulties faced by early stage companies
in the rapidly developing enterprise software markets, and we may not be
successful in addressing these risks. Our business strategy may not be
successful. As a result of our limited operating history, it is difficult to
accurately forecast future operations and plan operating expenses. As a result,
we may be unable to timely adjust spending to compensate for any unexpected
revenue shortfall. This inability could adversely affect our ability to achieve
or maintain profitability.
WE ARE IN A HIGHLY COMPETITIVE BUSINESS. Within our identified market space
are large, well-established and well-known companies that have substantially
greater financial, technological, promotional and other resources than we have.
We may not be able to compete effectively in this marketplace. We expect that
competition will increase as other established and emerging companies enter our
market, as new products and technologies are introduced and as new competitors
enter the market. Increased competition may result in price reductions, lower
gross margins and loss of our market share, any of which could materially
adversely affect our business, financial condition and operating results.
INTELLECTUAL PROPERTY CLAIMS COULD BE EXPENSIVE AND RESULT IN LOSS OF
RIGHTS. Our property rights to our software products are our primary assets. We
plan to protect and enforce our ownership and proprietary rights to our products
through copyright, trademark, and trade secret laws, as well as confidentiality
and non-disclosure agreements and licensing/usage contracts with our customers
and employees. However, these protections may not prevent competitors from
developing similar software that may have more customer acceptance than our
software. While we do not believe that our software products infringe on the
9
intellectual property rights of third parties, infringement claims may be made.
We may not have sufficient resources to sustain or defend lengthy legal actions
regarding our intellectual property.
WE EXPECT TO RELY UPON A LIMITED NUMBER OF CUSTOMERS AND THE LOSS OF A
MAJOR CUSTOMER COULD ADVERSELY AFFECT REVENUE. Our business model for the next
several years is based on a relatively small number of sales to a few large
customers. If any one sale does not occur, or if sales to any one customer are
less than expected, our expected operations will be materially affected, if
alternative sources of revenue are not found.
WE ARE DEPENDENT UPON CUSTOMER ACCEPTANCE OF OUR PRODUCTS. We have limited
sales of our products to date, and are entering a market that has numerous
competitive products. Our ability to meet our projections is dependent on our
ability to convince prospective customers that our products are superior to
competing products and that we can successfully deliver and service our
products. Our ability to successfully implement our business plan is also
dependent on meeting our expected sales cycle. If our sales cycle is longer than
expected, this will have an adverse effect upon our projected cash flow and
operations.
OUR MARKET IS SUBJECT TO RAPID CHANGES AND NEW PRODUCTS. The computer
software industry is characterized by rapid change, frequent new product
introductions, changing customer demands, evolving standards, and many other
uncontrollable and unforeseeable trends and changes. Our future success will
greatly depend upon our ability to timely and effectively address changes
affecting our industry. Failure to effectively respond to these changes could
materially and adversely affect our operations and profitability.
THE LOSS OF SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL COULD HARM OUR
OPERATIONS. We believe our current management team is sufficient to implement
our current business strategy. However, the loss of one or more of our current
officers or key employees could severely and negatively impact our operations.
Future success depends on the ability to attract, retain and motivate highly
skilled employees. Competition for employees in our industry is intense. We may
be unable to retain key employees, or to attract and keep additional highly
qualified employees in the future.
EXISTING MANAGEMENT EXERCISES SIGNIFICANT CONTROL OVER ENTRADA. A small
number of stockholders, who comprise our executive management, controls Entrada.
These stockholders, when acting together, can elect or otherwise designate all
members of our Board of Directors. This control by management is expected to
continue into the future.
OUR STOCK IS QUOTED ON THE OTC BULLETIN BOARD AND COULD BE SUBJECT TO
EXTREME VOLATILITY. Our common stock is currently quoted under the symbol ETSW
on the OTC Bulletin Board, which is characterized by low volume trading, high
volatility and large spreads between bid and ask prices. A significant amount of
common stock coming on the market at any one time could cause the stock to
decline in price. In addition, if we fail to comply with ongoing eligibility
rules our common stock can be removed from the OTC Bulletin Board, which would
materially adversely affect the liquidity and volatility of our common stock.
10
PART II: OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
In September 2000, the Company issued 3,147 shares of common stock in
exchange for services rendered to the Company. The issuance was made in reliance
on the exemption from registration afforded under Rule 506 of Regulation D, and
the shares issued are "restricted securities."
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Number Description
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27 Financial data schedule.
b. Reports on Form 8-K None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned who have been duly authorized.
ENTRADA SOFTWARE, INC.
By: /s/ Bruce D. Williams
-------------------------------
Bruce D. Williams
Chief Executive Officer
By: /s/ Terry J. Gustafson
-------------------------------
Terry J. Gustafson,
Chief Financial Officer, Secretary and Treasurer
Date: November 10, 2000
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EXHIBIT INDEX
Number Description
- ------ -----------
27 Financial data schedule.
13