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, 2002
[ ] 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, 2002 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, 2002
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial statements .............................................. 3
Balance sheet at March 31, 2002 ...................................... 3
Statement of operations for the three months ended
March 31, 2002 and 2001 ............................................ 4
Statement of cash flows for the three months ended
March 31, 2002 and 2001 ............................................ 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRADA SOFTWARE, INC.
BALANCE SHEET
MARCH 31, 2002
ASSETS
Current assets
Cash and cash equivalents $ 34,027
Accounts receivable 64,281
Prepaid expenses and deposits 45,999
-----------
Total current assets 144,307
-----------
Furniture, fixtures and equipment 168,228
Less accumulated depreciation (63,632)
-----------
Net furniture, fixtures and equipment 104,596
-----------
Deposits 21,476
Intellectual property, net 22,488
-----------
Total assets $ 292,867
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses 872,378
Deferred revenue 480,301
Notes payable 555,626
-----------
Total current liabilities 1,908,305
-----------
Other liabilities 98,954
-----------
Total liabilities 2,007,259
-----------
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, 667,379 issued and outstanding
667 Common stock; $.001 par value, authorized 70,000,000 shares,
7,381,676 shares issued and outstanding 7,381
Paid in capital 2,290,300
Accrued dividends (59,988)
Accumulated deficit (3,953,002)
-----------
Total stockholders' equity (1,714,392)
-----------
Total liabilities and stockholders' equity $ 292,867
===========
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ENTRADA SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
THREE MONTHS ENDED MARCH 31
----------------------------
2002 2001
----------- -----------
Support and license revenue $ 301,373 $ 12,975
Cost of sales 12,979
----------- -----------
Gross profit 288,394 12,975
Operating expenses:
Administration, finance and general 187,803 180,642
Sales and marketing 147,545 92,286
Engineering and development 168,561 149,277
Customer support 97,381
Product management 55,493
----------- -----------
Total operating expenses 656,783 422,205
----------- -----------
Loss from operations (368,389) (409,230)
----------- -----------
Other income (expense)
Interest expense (22,995) (4,953)
Interest income 1,118
----------- -----------
Total other income (expense) (21,877) (4,953)
----------- -----------
Net loss $ (390,266) $ (414,183)
=========== ===========
Loss per common share
Basic $ (.05) $ (.06)
=========== ===========
Diluted $ (.05) $ (.06)
=========== ===========
Weighted average number of common shares outstanding:
Basic 7,381,626 7,381,626
=========== ===========
Diluted 7,381,626 7,381,626
=========== ===========
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ENTRADA SOFTWARE, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
THREE MONTHS ENDED MARCH 31
---------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss $(390,266) $(414,183)
Adjustments:
Depreciation and amortization 9,660 7,957
Stock issued for services 8,850 19,850
Changes in assets and liabilities:
Receivables, prepaid expenses and deposits 180,376 (17,660)
Deferred revenue (9,399) (11,250)
Payables, accruals and other liabilities 180,485 98,575
--------- ---------
Net cash used in operating activities (20,294) (316,711)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowing 125,000
Sale of common and preferred stock 38,500 202,599
--------- ---------
Net cash provided by financing activities 38,500 327,599
--------- ---------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (6,063) (2,751)
Purchase of intangible assets (10,000)
--------- ---------
Net cash used in investing activities (6,063) (12,751)
--------- ---------
Net increase (decrease) in cash 12,143 (1,863)
Cash, beginning of period 21,884 4,224
--------- ---------
Cash, end of period $ 34,027 $ 2,361
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest -- --
========= =========
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ENTRADA SOFTWARE, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2002
(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, 2002 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, 2001.
(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 March 31, 2002. As of March 31, 2002,
the Company had granted options for 1,195,626 shares with vesting periods of
from three months to four years, and exercise prices of $.50 to $2.50 per share.
Options to purchase 471,506 shares had vested and were exercisable, and none had
been exercised.
WARRANTS
In connection with financing arrangements, the Company has issued 780,562
warrants to purchase common stock. At March 31, 2002, such warrants generally
enabled the holder to purchase common stock for $1.00 per share for periods up
to five years.
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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, 2001, 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(TM) 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(R) approach. KINNOSA captures design,
development, and related business information into a structured PRODUCT
BIOGRAPHY(TM). It then enables the accumulation, analysis and exchange of
PRODUCT BIOGRAPHY 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 quickly 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 the 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 has been installed and
operational at two sites.
As part of our marketing strategy, in 2001 we acquired the electronic
document management solution known as ECHANGE(TM), which had a world-wide
customer base of over 200. We believe this product and the related business
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opportunities are complementary to our KINNOSA products and strategies. In May
2001 we began to provide technical support and upgrades for the acquired product
line. By March 31, 2002 we had completed maintenance and support contracts or
concluded additional license sales to over 70 of these customers. Total
cumulative new business generated exceeded $1.4 million, most of which was
through maintenance and support contracts, for which the revenue is recognized
over the term of the contract, generally one year.
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002
With the acquisition of the eChange product line in 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 the world wide customer base. Through March 31, 2002 we had closed
customer contracts for over $1.4 million with more than 70 customers. During the
first quarter of 2002, we continued our strategy to stabilize and gain the
confidence of the eChange customer base. While in 2001 our efforts were focused
primarily on North America, in 2002 we have begun addressing European eChange
partners and customers.
During the first quarter we completed an exclusive, world-wide joint
marketing and sales agreement with InfoGlyph, Inc., a company with a proprietary
marking technology that can place unique and permanent information-dense marks
on virtually any surface. We believe this next generation of marking technology
is a perfect compliment to our Kinnosa product line, which generates a product's
life history in the form of a Product BiographyTM. The combination of the two
solutions should enable any product's authenticity to be verified at any time,
and the product's entire life history to be accessed by a simple scan with a
standard reading device. We believe this combined solution has wide
applicability, with particular appeal to the automotive and aerospace
industries.
While we continued to generate revenue from the acquired eChange customer
base, such revenues were insufficient to offset operating expenses during the
quarter. Consequently, we had an operating loss for this period of $368,389.
Total operating expenses for this period were $656,783, of which $521,576 was
personnel related, with the remainder was for occupancy, administration and
other costs. Despite the fact that we have significantly increased
customer-focused activities, the operating loss was less than the comparable
period last year when we were completing product development and marketing
studies.
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 eChange line in
March, and began developing relationships with the related customers. Our
billing for software support began in the second quarter, 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.
LIQUIDITY AND CAPITAL RESERVES
As expected, although we generated revenues and working capital from
operations for the period ended March 31, 2002, such revenues were insufficient
to fully offset operating expenses and fund our operations. While we expect
revenues to increase in 2002, we do not expect to be at a break-even point until
late in 2002, if at all this year. Until sufficient sales revenues are realized,
we must continue to fund operating deficits by raising additional capital when
needed. Until we are able to transition to institutional financing, we will
8
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 when, or in the amounts, necessary to
fund our operations. In addition, even if we are successful raising additional
capital, the terms of any such transactions 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 2002
For almost one year we have been generating operating revenues, primarily
from our eChange product suite. We expect eChange revenues to increase as the
year progresses, as well as additional sales of our Kinnosa products,
particularly in conjunction with the InfoGlyph solution mentioned above.
However, we expect to continue to incur net losses, and project approximately a
break-even point from operations for the year 2002.
During the quarter ended March 31, 2002, we raised $28,500 in working
capital from the sale of preferred stock, and generated over $325,000 from
customer billings. These funds were marginally sufficient to fund operations for
the quarter, and we believe it will be necessary to raise additional outside
capital to fund operations in the remainder of the year.
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, 2002. We continue to develop investment
and business relationships with our industry partners, who have the potential to
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 operating revenues insufficient to offset
operating expenses, and we have incurred losses from operations of $1,737,753
for the year ended December 31, 2001 and $390,266 for the three-month period
ended March 31, 2002. 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.
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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
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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 8, 2002
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