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 March 31, 2001
[ ] 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
March 31, 2001 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 MARCH 31, 2001
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial statements 3
Balance sheet at March 31, 2001 3
Statement of operations for the three months ended
March 31, 2001 and 2000 4
Statement of cash flows for the three months ended
March 31, 2001 and 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 12
Item 4. Submission of Matters to Vote of Security Holders 12
Item 6. Exhibits and reports of Form 8-K 12
Signatures 13
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRADA SOFTWARE, INC.
BALANCE SHEET
MARCH 31, 2001
ASSETS
Current assets
Cash and cash equivalents $ 2,361
Prepaid expenses and deposits 17,077
-----------
Total current assets 19,438
-----------
Furniture, fixtures and equipment 143,784
Less accumulated depreciation (29,952)
-----------
Net furniture, fixtures and equipment 113,832
-----------
Deposits 27,238
Intellectual property, net 24,040
-----------
Total assets $ 184,548
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 258,843
Deferred revenue 26,250
Notes payable 257,626
-----------
Total current liabilities 542,719
-----------
Other liabilities 57,065
-----------
Total liabilities 599,784
-----------
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
Series B convertible preferred stock, $.001 par value;
$1.00 liquidation preference, 1,000,000 shares authorized,
222,000 issued and outstanding 222
Common stock; $.001 par value, authorized 70,000,000 shares,
7,381,676 shares issued and outstanding 7,381
Paid in capital 1,851,065
Accumulated deficit (2,274,154)
-----------
Total stockholders' equity (415,236)
-----------
Total liabilities and stockholders' equity $ 184,548
===========
The accompanying notes are an integral part of these financial statements.
3
ENTRADA SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
---------- ----------
Support and license revenue $ 12,975 $ 6,999
Operating expenses:
Administration, finance and general 180,642 143,016
Sales and marketing 92,286 115,770
Research and development 149,277 71,664
---------- ----------
Total operating expenses 422,205 330,450
---------- ----------
Loss from operations (409,230) (323,451)
---------- ----------
Other income (expense)
Interest expense (4,953) (1,102)
Interest income 3,550
---------- ----------
Total other income (expense) (4,953) 2,448
---------- ----------
Net loss $ (414,183) $ (321,003)
========== ==========
Loss per common share
Basic $ (.056) $ (.047)
========== ==========
Diluted $ (.056) $ (.047)
========== ==========
Weighted average number of common shares
outstanding
Basic 7,381,676 6,885,563
========== ==========
Diluted 7,381,676 6,885,563
========== ==========
The accompanying notes are an integral part of these financial statements.
4
ENTRADA SOFTWARE, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
--------- ---------
Cash flows from operating activities:
Net loss $(414,183) $(321,003)
Adjustments:
Depreciation and amortization 7,957 2,685
Stock issued for services 19,850 6,000
Changes in assets and liabilities:
Prepaid expenses and deposits (17,660) (38,753)
Deferred revenue (11,250) (6,999)
Payables, accruals and other liabilities 98,575 31,073
--------- ---------
Net cash used in operating activities (316,711) (326,997)
--------- ---------
Cash flows from financing activities:
Proceeds from notes 125,000
Sale of common and preferred stock 202,599 795,201
--------- ---------
Net cash provided by financing activities 327,599 795,201
--------- ---------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (2,751) (26,067)
Purchase of intangible assets (10,000) (6,382)
--------- ---------
Net cash used in investing activities (12,751) (32,449)
--------- ---------
Net increase (decrease) in cash (1,863) 435,755
Cash, beginning of period 4,224 211,088
--------- ---------
Cash, end of period 2,361 $ 646,843
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest -- $ 1,102
========= =========
The accompanying notes are an integral part of these financial statements.
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ENTRADA SOFTWARE, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2001
(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 period ending March 31, 2001 may not necessarily be indicative of
the results for the entire fiscal year. 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, 2000.
(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 March 31,
2001, the Company had granted options for 641,626 shares with a four year
vesting period and exercise prices of $.50 to $2.50 per share. Options to
purchase 226,626 shares had vested and were exercisable, and none had been
exercised.
(3) NOTES PAYABLE:
The Company has approximately $258,000 of convertible notes payable that
were due April 30, 2001. Subsequent to March 31, all note holders agreed to
extend these notes to either June 30 or July 31, 2001 on the same terms.
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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, .
OVERVIEW
Entrada Software develops and markets a suite of business software which
can dramatically improve quality and significantly reduce cycle times for
manufacturers and operators of complex products and systems. Entrada's software
gathers and delivers key information for businesses, and their suppliers and
customers, and optimizes business interactions and commerce across extended
supply and value chains in ways that existing business software systems cannot.
Entrada's KINNOSA software is a system for business and product traceability - a
breakthrough solution that businesses apply to become proactive and
comprehensive in dealing with the complete life cycle of complex products and
systems. This is accomplished through our unique and trademarked
PRODUCT-CENTRIC(TM) approach. Kinnosa captures the evolving plethora of design,
development, and related business information into a structured PRODUCT
BIOGRAPHY(TM). It then enables the accumulation, analysis and exchange of
PRODUCT BIOGRAPHY(TM) information within and among the people in businesses, in
conjunction with the existing technologies and systems used by the enterprises,
without concern for global location, since the information is exchanged through
Internet portals.
The Kinnosa portal is a single point of access that deploys instantly and
delivers information to any authorized user worldwide via the Internet. The
content is naturally tailored, based on a user's role and relationships. Whether
a supplier or customer, executive, engineer or assembler, the Kinnosa portal
delivers specific, targeted, pertinent information. With Kinnosa, manufacturers
and everyone in their entire supply and value chains can interact about any
aspect of a product or system and its associated process and business
information. In addition, users can track and record product incident data,
allowing early detection of defects or potential claims. The results are
dramatic reductions in cycle times, improved product quality, and sharpened
customer focus.
Kinnosa has been incubated in a partnership with Motorola, Inc, is
presently installed and operational in two sites. The results have fully met
expectations and form the reference and technical bases for broad commercial
deployment into Entrada's target markets. We are now in the process of securing
the additional capital required to penetrate these markets.
As part of our marketing strategy, in March 2001, we completed the
acquisition of the products and other intangible assets of the Motiva Software,
Inc. Motiva had a world-wide base of over 200 customers for its electronic
document management products, known as DESIGN GROUP and ECHANGE SOLUTIONS, and
had generated sales of over $4 million through eight months of 2000, prior to
ceasing operations in October. Through an extensive discovery, diligence, and
negotiation process, we recognize these products and the related business
opportunities as complementary to our Kinnosa products and strategies. We began
May 1st to provide technical support and upgrades for the acquired product line.
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Our objectives in acquiring the Motiva assets are several:
(1) Generate immediate revenue from supporting former Motiva
customers and users.
(2) Generate incremental license revenue from existing and new
customers.
(3) Incorporate features from the Motiva products into Kinnosa, and
vice-versa, and offer a more comprehensive suite of products.
(4) Selectively migrate Motiva customers to Entrada's Kinnosa
product, as appropriate.
Through May 9, 2001, the Company had billed $28,000 of support revenue for
these products, and had outstanding proposals for $750,000 in additional support
and software licenses.
While there are no assurances that we will be successful in exploiting the
value of these assets, we believe that the acquisition gives us a
market-accepted product, access to an established customer base, support and
sales revenue potential and future opportunities to sell Kinnosa products to
certain customers with which we already have a relationship.
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001
We began early sales activities in the fourth quarter of 2000, and
completed our first significant sale in December 2000. While we have continued
to increase our sales activities, the sales cycle for our products is lengthy -
up to twelve months - and as such we have not realized additional revenues from
sales of Kinnosa. As noted above in OVERVIEW, we acquired the Motiva line in
March, and began developing relationships with the related customers. Our
billing for software support began in April, and so no related revenue was
recognized in the quarter ended March 31, 2001. In summary, we had an operating
loss of $409,230 for the three months ended March 31, 2001. Of the $422,205 of
operating expenses for the period, approximately $266,000 was related to
salaries and other personnel expenses, $44,000 was spent on business development
and the remainder of $112,205 was for occupancy, administrative and other costs.
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
We first started our business in September 1999. Once we established our
corporate offices and hired our core staff, our efforts first focused on the
product and market research we needed to develop competitive and differentiating
extensions and additions to our existing core Kinnosa product. We began
preparing marketing materials and commenced initial exploratory market and
business development activities in the first quarter of the year. Based on the
information we gathered from these efforts, we began refining our market
messages, completing our software extensions, and developing our first targeted
sales activities. Since the sales cycle for our initial product offering will be
lengthy - up to twelve months - we expected revenues from customer sales to
begin late in the year 2000. In summary, we experience an operating net loss of
$321,003 for the three months ended March 31, 2000. Of the $330,450 of operating
expenses for the period, approximately $203,000 were related to salaries and
other personnel expenses, $34,000 was spent on our marketing program and the
remainder of $93,450 was for occupancy, administrative and other costs.
LIQUIDITY AND CAPITAL RESERVES
As expected, we had limited revenues and generated no significant working
capital from operations for the year 2000 and for the quarter ended March 31,
2001. Most of the year 2000 was focused on investment in completing our products
and enhancing our marketing message. Business development activities began late
in 2000, but because of the long and careful sales process in developing the
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initial market entries, no significant revenues were anticipated nor generated.
Until significant sales revenues begin to flow, we plan to fund operations by
raising additional equity capital. Until we transition to institutional
financing, we maintain minimal cash reserves: a mere $2,361 at March 31, 2001.
We then infused $100,000 in April, sufficient to fund our operations until May
15, 2001, at which time additional funds will be solicited, in balance with
projected cash flows.
PLAN OF OPERATIONS FOR FISCAL YEAR 2001
We have begun to generate initial operating revenues, both from our Kinnosa
product suite and from the Motiva acquisition. These will increase as the year
progresses, but in aggregate we expect to continue to incur net losses for the
foreseeable future and do not project a profit for the year.
During the quarter ended March 31, 2001, we raised $200,000 from the sale
of preferred stock, with an additional $100,000 invested on April 1. In
addition, we received working capital loans of $125,000.
During the first quarter of 2001, we began efforts to place up to $5
million of preferred 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 project that this
additional capital would be sufficient to fund our operations through and beyond
the current fiscal year, ending December 31, 2001, at which time we will
evaluate revenue flows and plan the next round of financing. We continue 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 losses from
operations of $1,548,690 for the year ended December 31, 2000 and $409,230 for
the three-month period ended March 31, 2001. 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
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.
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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
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
10
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.
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PART II: OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
In the quarter ended March 31, 2001, the Company sold 222,000 shares of
Series B preferred stock. 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
None.
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 that 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: May 7, 2001
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