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, 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
September 30, 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 SEPTEMBER 30, 2001
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial statements 3
Balance sheet at September 30, 2001 3
Statement of operations for the three months and
nine months ended September 30, 2001 and 2000 4
Statement of cash flows for the nine months
ended September 30, 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 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and reports on Form 8-K 11
Signatures 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRADA SOFTWARE, INC.
BALANCE SHEET
SEPTEMBER 30, 2001
ASSETS
Current assets
Cash and cash equivalents $ 5,169
Accounts receivable 178,016
Prepaid expenses and deposits 15,339
-----------
Total current assets 198,524
-----------
Furniture, fixtures and equipment 161,269
Less accumulated depreciation (46,525)
-----------
Net furniture, fixtures and equipment 114,744
-----------
Deposits 22,673
Intellectual property, net 24,036
-----------
Total assets $ 359,977
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses 464,116
Deferred revenue 244,910
Notes payable 555,626
-----------
Total current liabilities 1,264,652
-----------
Other liabilities 77,364
-----------
Total liabilities 1,342,016
-----------
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, 1,700,000 shares authorized,
600,029 issued and outstanding 600
Common stock; $.001 par value, authorized 70,000,000 shares,
7,381,676 shares issued and outstanding 7,381
Paid in capital 2,223,017
Accumulated deficit (3,213,287)
-----------
Total stockholders' equity (982,039)
-----------
Total liabilities and stockholders' equity $ 359,977
===========
The accompanying notes are an integral part of these financial statements.
3
ENTRADA SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
------------------------------- ------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Support and license revenue $ 175,710 $ 7,000 $ 208,066 $ 20,998
Operating expenses:
Administration, finance and general 162,321 149,180 533,814 451,023
Sales and marketing 137,005 118,336 349,621 388,063
Engineering and development 194,138 152,233 502,259 361,784
Customer support 96,980 109,994
----------- ----------- ----------- -----------
Total operating expenses 590,444 419,749 1,495,688 1,200,870
----------- ----------- ----------- -----------
Loss from operations (443,388) (412,749) (1,316,336) (1,179,872)
----------- ----------- ----------- -----------
Other income (expense)
Interest expense (11,327) (1,332) (24,480) (3,535)
Interest income 5,025 17,884
----------- ----------- ----------- -----------
Total other income (expense) (11,327) 3,693 (24,480) 14,349
----------- ----------- ----------- -----------
Net loss $ (454,715) $ (409,056) $(1,340,816) $(1,165,523)
=========== =========== =========== ===========
Loss per common share
Basic $ (.06) $ (.06) $ (.18) $ (.16)
=========== =========== =========== ===========
Diluted $ (.06) $ (.06) $ (.18) $ (.16)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding:
Basic 7,381,626 7,378,837 7,381,626 7,204,958
=========== =========== =========== ===========
Diluted 7,381,626 7,378,837 7,381,626 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, 2001 AND 2000
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
2001 2000
----------- -----------
Cash flows from operating activities:
Net loss $(1,340,816) $(1,165,523)
Adjustments:
Depreciation and amortization 26,104 13,938
Stock issued for services 42,801 6,000
Changes in assets and liabilities:
Receivables, prepaid expenses and deposits (189,373) (19,404)
Deferred revenue 207,410 (20,998)
Payables, accruals and other liabilities 315,689 63,032
----------- -----------
Net cash used in operating activities (938,185) (1,122,955)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowing 615,000
Sale of common and preferred stock 355,936 1,159,101
----------- -----------
Net cash provided by financing activities 970,936 1,159,101
----------- -----------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (20,236) (94,786)
Purchase of intangible assets (11,570) (6,382)
----------- -----------
Net cash used in investing activities (31,806) (101,168)
----------- -----------
Net increase (decrease) in cash 945 (65,022)
Cash, beginning of period 4,224 211,088
----------- -----------
Cash, end of period $ 5,169 $ 146,066
=========== ===========
Non-cash financing transactions:
Conversion of accrued expenses to notes payable $ 43,526 --
Conversion of notes payable to preferred stock $ 192,000 --
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest -- $ 3,535
=========== ===========
The accompanying notes are an integral part of these financial statements.
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ENTRADA SOFTWARE, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 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 and nine-month periods ending September 30, 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 September 30,
2001, the Company had granted options for 1,086,626 shares with vesting periods
of from three months to four years, and exercise prices of $.50 to $2.50 per
share. Options to purchase 367,166 shares had vested and were exercisable, and
none had been exercised.
WARRANTS
In connection with financing arrangements, the Company has issued 711,712
warrants to purchase common stock. At September 30, 2001, such warrants
generally enabled the holder to purchase common stock for $1.00 per share for a
period of two years.
(3) NOTES PAYABLE:
At September 30, 2001 the Company had approximately $555,000 of convertible
notes payable, $275,000 of which was due September 30, 2001, with the balance
due on December 31, 2001. Notes are unsecured, bear interest at 9-10%, and are
convertible into Series B preferred stock at $1.00 per share. All the notes were
held by either officers of the Company or other individuals affiliated with the
Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Except for historical information contained herein, this Form 10-QSB
contains express or implied forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We intend that forward-looking statements be subject to
the safe harbors created thereby. We may make written or oral forward-looking
statements from time to time in filings with the SEC, in press releases,
quarterly conference calls or otherwise. The words "believes," "EXPECTS,"
"ANTICIPATES," "INTENDS," "FORECASTS," "PROJECTS," "PLANS," "ESTIMATES" and
similar expressions identify forward-looking statements. Forward-looking
statements reflect our current views with respect to future events and financial
performance or operations and speak only as of the date the statements are made.
Forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. Our actual
results may differ materially from such statements. Factors that cause or
contribute to the differences include, but are not limited to, those discussed
elsewhere in this Form 10-QSB, as well as those discussed in our Annual Report
on Form 10-KSB for the year ended December 31, 2000, including those in the
Notes to Financial Statements and in "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS" and "DESCRIPTION OF BUSINESS - FACTORS AFFECTING FUTURE
PERFORMANCE" sections which are incorporated by reference in this Form 10-QSB.
Although we believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in
forward-looking statements will be realized. The inclusion of forward-looking
information should not be regarded as a representation that the future events,
plans or expectations contemplated will be achieved. We undertake no obligation
to publicly update, review or revise any forward-looking statements to reflect
any change in our expectations or any change in events, conditions or
circumstances on which any forward-looking statements are based. Our filings
with the SEC, including the Form 10-KSB referenced above, may be accessed at the
SEC's Web site, www.sec.gov.
OVERVIEW
Entrada Software develops and markets a suite of business applications
software that facilitates improvement in quality and reduced development cycle
times for manufacturers and operators of complex products and systems. Entrada's
software gathers and delivers key product and process information for
businesses, and their suppliers and customers, and optimizes business
interactions and commerce across extended supply and value chains. Entrada's
KINNOSA software is a traceability system - a solution that allows businesses 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. Kinnosa is presently
installed and operational at two sites.
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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. We believe these products and the related
business opportunities are complementary to our Kinnosa products and strategies.
On May 1st we began to provide technical support and upgrades for the acquired
product line.
Our objectives in acquiring these assets are:
(1) Generate immediate revenue from supporting customers and users.
(2) Generate incremental license revenue from existing and new
customers.
(3) Incorporate features from the eChange product into Kinnosa, and
vice-versa, and offer a more comprehensive suite of products.
(4) Selectively migrate customers to Entrada's Kinnosa product, as
appropriate.
While there are no assurances that we will be successful in achieving these
objectives, 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 relationships.
OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
With the acquisition of the eChange product line in March 2001, we focused
our attention on stabilizing the eChange customer base, and establishing a
support organization capable of providing on-going technical support and
software maintenance for over 200 world wide customers. Through September 30,
2001 we had closed customer support contracts and new license sales for over
$650,000. Since the support contracts are generally for up to twelve-month
periods, the associated revenue will be recognized ratably over the contract
period.
While we have begun generating revenue from the acquired customer base,
such revenues were insufficient to offset operating expenses. Consequently, we
had an operating loss for this period of $454,715. Total operating expenses for
this period were $590,444, of which $429,600 was personnel related, $46,000 was
spent on our marketing and promotional activities and the remainder was for
occupancy, administrative and other costs. Despite the fact that we have
significantly increased customer-focused activities, the operating loss and
operating expenses are comparable to the same period last year when we were
completing product development and marketing studies.
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 January 2000. Based on the
information we gathered from these efforts, we refined our messages, completed
our software extensions, and began to develop our first narrowly targeted sales
activities in the second quarter of 2000. Since the solutions sales cycle is
lengthy - generally up to six months - we did not anticipate the generation of
any significant revenues from customer sales during the second quarter. 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 $302,000 was related to salaries and other personnel expenses,
$20,000 was spent on our marketing program and the remainder was for occupancy,
administration and other costs.
8
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
We began early sales activities in the fourth quarter of 2000, and closed
our first significant sale in December 2000. While we have continued to increase
our sales activities, the sales cycle for our products remains lengthy - up to
three months for eChange and up to twelve months for Kinnosa - and as such we
have not realized additional revenues from sales of Kinnosa.
As noted above, we have began generating revenue from the acquired customer
base, but such revenue was not sufficient to offset operating expenses.
Consequently, we had an operating loss for this period of $1,340,816. Total
operating expenses for this period were $1,495,688, of which $998,560 was
personnel related, $138,008 was spent on our marketing and promotional
activities and the remainder was for occupancy, administrative and other costs.
Despite the fact that we have significantly increased customer-focused
activities, the operating loss and operating expenses are comparable to the same
period last year when we were completing product development and marketing
studies.
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 $ 818,000 was related to
salaries and other personnel expenses, $91,000 was spent on our marketing
program and the remainder was for occupancy, administration and other costs.
LIQUIDITY AND CAPITAL RESERVES
As expected, we had limited revenues and generated insignificant working
capital from operations for the year 2000 and for the period ended September 30,
2001. Most of the year 2000 was focused on investing in completing our products
and enhancing our market message. Limited business development activities began
late in 2000, but because of the long process of developing initial market
entries, no significant revenues were anticipated nor generated through
September 30, 2001. Though we began billing for products and services related to
the eChange product line in May 2001, significant cash flow is not expected from
these activities until the fourth quarter. Until significant sales revenues
begin to flow, we will continue to fund operations by raising additional
capital. Until we are able to transition to institutional financing, we will
continue to maintain minimal cash reserves and request additional capital from
our current investors only as necessary, though there is no assurance that such
investors will provide additional capital. As such, there can be no assurance
that we will be able to raise additional capital in amounts necessary to fund
our operations. In addition, even if we are successful raising additional
capital, the terms of any such transaction may involve substantial interest,
fees and other transaction costs and/or result in substantial dilution to our
existing shareholders.
PLAN OF OPERATIONS FOR FISCAL YEAR 2001
We have begun to generate initial operating revenues, from both our Kinnosa
and eChange product suites. We expect these revenues to increase towards
year-end, but in aggregate we expect to continue to incur net losses for the
foreseeable future and do not project a profit for the year 2001.
During the quarter ended September 30, 2001, we raised $195,000 in working
capital from the issuance of convertible notes, and generated over $225,000 from
customer billings. These funds were sufficient to fund operations for the third
quarter, but we believe it will be necessary to raise additional outside capital
to fund operations in the fourth quarter.
We have continued efforts to place up to $5 million of preferred stock,
although there are no assurances that we will be successful in raising any
significant amount in this effort. If obtained, we project that this additional
capital would be sufficient to fund our operations through and beyond the
current fiscal year, ending December 31, 2001. We continue to develop investment
and business relationships with our industry partners, who have the potential to
9
provide us with capital, material, labor support, customer relationships, and
the further development of brand identity and equity. There can be no assurance,
however, that we will be successful in developing these relationships or in
realizing these potential benefits.
FACTORS AFFECTING FUTURE PERFORMANCE
WE HAVE A LIMITED RELEVANT OPERATING HISTORY, MAKING IT DIFFICULT TO
EVALUATE AND FORECAST OUR BUSINESS. We commenced our current operations through
the acquisition CIMsoft in September 1999. CIMsoft had been in existence since
May 1998. To date, we have had insignificant operating revenues and we have
incurred losses from operations of $1,548,690 for the year ended December 31,
2000 and $1,340,816 for the nine-month period ended September 30, 2001. Future
losses are planned and likely to occur. There can be no assurance that our
business plan will be successful or that we will achieve or be able to maintain
profitability.
We will encounter numerous risks and difficulties faced by early stage
companies in the rapidly developing enterprise software markets, and we may or
may not be successful in addressing these risks. Our business strategy may or
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 or may not be able to timely adjust spending to compensate
for any unexpected events. This could adversely affect our ability to achieve or
maintain profitability.
OUR STOCK IS QUOTED ON THE OTC BULLETIN BOARD AND IS 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. Our stock's trading
volume has historically been very low, and we believe that our stock is not now
subject to an active and orderly trading market. We estimate that less than 10%
of our outstanding common shares are actually tradable, and a stockholder
wishing to sell shares would likely experience difficulty since even a small
amount of common stock coming on the market at any one time could cause the
stock to decline significantly in price. If the Company does not comply with
ongoing eligibility rules, either voluntarily or involuntarily, our common stock
would be removed from the OTC Bulletin Board, which could affect the liquidity
of certain holders of our common stock whose shares are tradable.
10
PART II: OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
None
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
11
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: November 9, 2001
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