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 June 30, 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
June 30, 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 JUNE 30, 2002
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial statements ................................................ 3
Balance sheet at June 30, 2002 ...................................... 3
Statement of operations for the three months
and six months ended March 31, 2002 and 2001 ...................... 4
Statement of cash flows for the six months ended June 30, 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
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRADA SOFTWARE, INC.
BALANCE SHEET
JUNE 30, 2002
ASSETS
Current assets
Cash and cash equivalents $ 17,299
Accounts receivable 119,672
Prepaid expenses and deposits 44,469
-----------
Total current assets 181,440
-----------
Furniture, fixtures and equipment 169,835
Less accumulated depreciation (72,653)
-----------
Net furniture, fixtures and equipment 97,182
-----------
Deposits 20,580
Intellectual property, net 21,714
-----------
Total assets $ 320,916
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,070,087
Deferred revenue 487,236
Notes payable 627,779
-----------
Total current liabilities 2,185,102
-----------
Other liabilities 108,185
-----------
Total liabilities 2,293,287
-----------
Stockholders' equity
Serial preferred stock, $.001 par value; authorized 20,000,000 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, 805,479 issued and
outstanding 806
Common stock; $.001 par value, authorized 70,000,000 shares, 7,381,676
shares issued and outstanding 7,381
Paid in capital 2,428,261
Accrued dividends (66,238)
Accumulated deficit (4,342,831)
-----------
Total stockholders' equity (1,972,371)
-----------
Total liabilities and stockholders' equity $ 320,916
===========
3
ENTRADA SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE, 2002 AND 2001
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Support and license revenue $ 355,507 $ 19,321 $ 653,432 $ 32,296
Other revenue 1,886 5,334
----------- ----------- ----------- -----------
Total revenue 357,393 19,321 658,766 32,296
Cost of sales 12,855 25,834
----------- ----------- ----------- -----------
Gross profit 344,538 19,321 632,932 32,296
----------- ----------- ----------- -----------
Operating expenses:
Administration, finance and general 251,852 190,649 439,655 371,291
Sales and marketing 159,606 63,540 328,167 212,817
Research and development 173,441 215,835 320,986 308,121
Product management 77,574 133,067
Customer support 50,524 13,014 147,905 13,014
----------- ----------- ----------- -----------
Total operating expenses 712,997 483,038 1,369,780 905,243
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Loss from operations (368,459) (463,717) (736,848) (872,947)
----------- ----------- ----------- -----------
Other income (expense)
Interest expense (21,370) (8,201) (44,365) (13,154)
Interest income 1,118
----------- ----------- ----------- -----------
Total other income (expense) (21,370) (8,201) (43,247) (13,154)
----------- ----------- ----------- -----------
Net loss $ (389,829) $ (471,918) $ (780,095) $ (886,101)
=========== =========== =========== ===========
Loss per common share
Basic $ (.05) $ (.06) $ (.11) $ (.11)
=========== =========== =========== ===========
Diluted $ (.05) $ (.06) $ (.11) $ (.11)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding:
Basic 7,381,626 7,381,626 7,381,626 7,381,626
=========== =========== =========== ===========
Diluted 7,381,626 7,381,626 7,381,626 7,381,626
=========== =========== =========== ===========
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ENTRADA SOFTWARE, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
SIX MONTHS ENDED JUNE 30
------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss $(780,095) $(886,101)
Adjustments:
Depreciation and amortization 19,455 16,671
Stock issued for services 21,450 22,951
Changes in assets and liabilities:
Receivables, prepaid expenses and deposits 127,411 (70,885)
Deferred revenue (2,464) 38,138
Payables, accruals and other liabilities 431,175 106,505
--------- ---------
Net cash used in operating activities (178,068) (772,721)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowing 72,153 420,000
Issuance of common and preferred stock 109,000 375,786
--------- ---------
Net cash provided by financing activities 181,153 795,786
--------- ---------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (7,670) (14,941)
Purchase of intangible assets (11,570)
--------- ---------
Net cash used in investing activities (7,670) (26,511)
--------- ---------
Net increase (decrease) in cash (4,585) (3,446)
Cash, beginning of period 21,884 4,224
--------- ---------
Cash, end of period $ 17,299 778
========= =========
Non-cash financing transaction:
Notes and payables converted to preferred stock $ 55,000 $ 192,000
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 7,197 --
========= =========
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ENTRADA SOFTWARE, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 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 and six-month periods ending June 30, 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 5,000,000 shares of common stock
for option and stock grants, and expires September 30, 2009. As of June 30,
2002, the Company had granted options for 1,419,126 shares with vesting periods
of from three months to four years, and exercise prices of $.50 to $2.50 per
share. Options to purchase 621,806 shares had vested and were exercisable, and
none had been exercised.
WARRANTS
In connection with financing arrangements, the Company has issued 940,662
warrants to purchase common stock. At June 30, 2002, such warrants generally
enabled the holder to purchase common stock for $1.00 per share for periods up
to five years.
CONVERTIBLE NOTES
Included in notes payable are $555,626 of notes that are convertible into
555,626 shares of series B preferred stock at the option of the holder.
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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 those 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 helps businesses to gather and deliver key product, process and
document information, and optimizes business interactions and commerce across
extended supply and value chains.
KINNOSA(TM) is Entrada's enterprise class software solution that provides a
total business solution for identification, authentication and traceability of
goods or services. It enables collaboration throughout the supply chain by
giving manufacturers a PRODUCT-CENTRIC(R) view of their business. It is secure,
affordable, scalable and easy-to-use. KINNOSA captures design, development, and
related business information into a structured PRODUCT BIOGRAPHY(TM). KINNOSA'S
main advantage is that it traces the stages, development and changes of physical
objects by capturing information about the composition, construction events and
circumstances of each part. KINNOSA delivers control and analysis information to
manufacturers, their customers and suppliers. This information is integrated
globally from engineering, manufacturing and supplier systems during the
complete lifecycle of a product.
KINNOSA gives businesses and manufacturers an intuitive portal environment
that can be used in a web browser. This portal houses powerful and customizable
components and services suited to track and manage products throughout their
complete life cycle. KINNOSA tracks design, product, supplier, warranty and
customer data, resulting in improved quality of products, time-to-market, waste
control and communication throughout the enterprise. Following development and
successful pilots, Entrada is now expanding customer applications of KINNOSA.
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Entrada's ECHANGE Solutions is a leading electronic document management
solution that provides complete document control, revision history and workflow.
Entrada ECHANGE delivers effective design change management by providing secure
anywhere-access to design information, automated best practice change processes,
seamless integration with CAD and desktop systems and collaboration across the
enterprise. Its powerful technology infrastructure is widely accepted and easy
to deploy. Customers benefit from ECHANGE Solutions' ability to provide data
control, reduce engineering change time, increase data available to all users,
reduce time to market and development cycles, improve development productivity
and reduce overall engineering costs.
OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002
During this quarter we completed our first year since the acquisition of
the ECHANGE product line in April 2001. During that period we were successful in
stabilizing the ECHANGE customer base, and in establishing a support
organization capable of providing on-going technical support and software
maintenance for all customers. Since introducing ECHANGE, we have closed
cumulative license sales and support contracts for over $1.7 million with more
than 85 customers. During the second quarter of 2002, we continued our strategy
to stabilize and gain the confidence of the global ECHANGE customer base, and
began addressing new ECHANGE partners and customers. We closed support contracts
or license sales with 12 new customers during the period. Also during this
quarter, 11 customers renewed annual support contracts, which further validated
our belief that we have successfully gained credibility with the customer base.
While we continued to generate revenue from the ECHANGE customer base, such
revenues were insufficient to offset operating expenses during the quarter,
which included expenses to support business development of our KINNOSA product
line. Consequently, we had an operating loss for this period of $368,459. Total
operating expenses for this period were $712,997, of which $561,662 was
personnel related, with the remainder for occupancy, administration and other
costs. The operating loss was less than the comparable period last year when we
were completing product development and commencing ECHANGE sales activities.
OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001
With the acquisition of the ECHANGE product line in March 2001, we focused
most of our attention on stabilizing the ECHANGE customer base, and establishing
a support organization capable of providing on-going technical support and
software maintenance for up to 200 world wide customers. Through July 31 we had
closed customer support contracts for over $258,000, and had over $900,000 in
support and new software license proposals outstanding. 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 began generating revenue from the acquired customer base, such
revenues were insufficient to offset operating expenses. Consequently, we had an
operating loss for the period of $463,717. Total operating expenses for the
period were $483,038, of which $302,000 was personnel related, $48,000 was spent
on our marketing and promotional activities and the remainder of $133,038 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 SIX MONTHS ENDED JUNE 30, 2002
During period, we continued our strategy to stabilize and gain the
confidence of the ECHANGE customer base, and began addressing European ECHANGE
partners and customers. We closed support contracts or license sales with 28 new
customers during the period. Also during the second quarter, 11 customers
renewed annual support contracts, which further validated our belief that we
have successfully gained credibility with the customer base.
8
While we continued to generate revenue from ECHANGE customer base, such
revenues were insufficient to offset operating expenses during the period,
including the launch of our KINNOSA product line. Consequently, we had an
operating loss for this period of $736,848. Total operating expenses for this
period were $1,369,780, of which $1,083,238 was personnel related, with the
remainder 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 commencing ECHANGE sales activities.
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. During the second quarter we launched initiatives to test and deploy
this solution in both the aerospace and automotive industries. The sales cycle
for this type of solution is long -six to nine months - and so we believe we
will begin generating revenue from KINNOSA sales in the second half of this
year.
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001
We began early sales activities in the fourth quarter of 2000, and
completed our first significant sale of KINNOSA in December 2000. Recognizing
that the market was not yet ready for a full launch of Kinnosa, we began looking
for alternative strategies. With the acquisition of ECHANGE in the second
quarter, we began renewing support agreements and selling new licenses. This
strategy allowed us to generate working capital to further KINNOSA development,
as well as develop a global customer base, many of which are future KINNOSA
candidates.
As noted above, we have begun generating revenue from the acquired customer
base, but such revenue was not sufficient to offset operating expenses.
Consequently, we had an operating loss for the period of $872,947. Total
operating expenses for the period were $905,243, of which $569,000 was personnel
related, $92,000 was spent on our marketing and promotional activities and the
remainder of $244,243 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.
LIQUIDITY AND CAPITAL RESERVES
As expected, although we generated revenues and working capital from
operations for the period ended June 30, 2002, such revenues were insufficient
to fully offset operating expenses and fund our operations, which included
business development of Kinnosa. 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, or generate significant additional
sales revenues, 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 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 over a year we have been generating operating revenues, primarily from
our ECHANGE product suite. We expect ECHANGE revenues to increase as the year
9
progresses, as well as additional sales of our KINNOSA products. However, we
expect to continue to incur net losses, and do not expect to break-even from
operations until at least the fourth quarter of 2002.
During the six months ended June 30, 2002, we raised $109,000 in working
capital from the sale of preferred stock, and generated over $650,000 from
customer billings. While these funds were marginally sufficient to fund
operations for the period, we believe it is appropriate for the Company to raise
additional outside capital to fund growth operations for the second half of the
year.
We have a placement up to $5 million of preferred stock available for
qualified investors. Though 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 growth operations
through and well 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 of 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 $872,947 for the six-month period ended
June 30, 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
In the quarter ended June 30, 2002, the Company issued 138,100 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
Incorporated by reference to the Company's Definitive Proxy Statement filed
May 10, 2002.
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: August 9, 2002
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