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, 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
October 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 SEPTEMBER 30, 2002
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial statements.................................................. 3
Balance sheet at September 30, 2002................................... 3
Statement of operations for the three months and
nine months ended September 30, 2002 and 2001....................... 4
Statement of cash flows for the nine months ended
September 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRADA SOFTWARE, INC.
BALANCE SHEET
SEPTEMBER 30, 2002
ASSETS
Current assets
Cash and cash equivalents $ 490
Accounts receivable 95,493
Prepaid expenses and deposits 37,065
-----------
Total current assets 133,048
-----------
Furniture, fixtures and equipment 168,346
Less accumulated depreciation (78,219)
-----------
Net furniture, fixtures and equipment 90,127
-----------
Deposits 11,450
Intellectual property, net 20,940
-----------
Total assets $ 255,565
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses 1,315,571
Deferred revenue 478,422
Notes payable 624,813
-----------
Total current liabilities 2,418,806
-----------
Other liabilities 120,180
-----------
Total liabilities 2,538,986
-----------
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, 827,479 issued and outstanding 828
Common stock; $.001 par value, authorized 70,000,000
shares, 7,381,676 shares issued and outstanding 7,381
Paid in capital 2,450,239
Accrued dividends (72,488)
Accumulated deficit (4,669,631)
-----------
Total stockholders' equity (2,283,421)
-----------
Total liabilities and stockholders' equity $ 255,565
===========
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ENTRADA SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Support and license revenue $ 358,413 $ 175,710 $ 1,011,845 $ 208,006
Other revenue 8,845 14,179
----------- ----------- ----------- -----------
Total revenue 367,258 175,710 1,026,024 208,006
Cost of sales 29,948 28,654 55,782 28,714
----------- ----------- ----------- -----------
Gross profit 337,310 147,056 970,242 179,352
----------- ----------- ----------- -----------
Operating expenses:
Administration, finance and general 247,717 162,321 687,372 533,814
Product development 154,884 194,138 475,870 502,259
Business development 144,795 137,005 472,962 349,621
Customer support 45,730 96,980 193,635 109,994
Product management 48,809 -- 181,876 --
----------- ----------- ----------- -----------
Total operating expenses 641,935 590,444 2,011,715 1,495,688
----------- ----------- ----------- -----------
Loss from operations (304,625) (443,388) (1,041,473) (1,316,336)
----------- ----------- ----------- -----------
Other income (expense)
Interest expense (26,515) (11,327) (70,880) (24,480)
Other income 4,340 5,458
----------- ----------- ----------- -----------
Total other income (expense) (22,175) (11,327) (65,422) (24,480)
----------- ----------- ----------- -----------
Net loss $ (326,800) $ (454,715) $(1,106,895) $(1,340,816)
=========== =========== =========== ===========
Loss per common share
Basic $ (.04) $ (.06) $ (.15) $ (.18)
=========== =========== =========== ===========
Diluted $ (.04) $ (.06) $ (.15) $ (.18)
=========== =========== =========== ===========
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 NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss $(1,106,895) $(1,340,816)
Adjustments:
Depreciation and amortization 27,195 26,104
Stock issued for services 23,450 42,801
Changes in assets and liabilities:
Receivables, prepaid expenses and deposits 168,124 (189,373)
Deferred revenue (11,278) 207,410
Payables, accruals and other liabilities 777,257 315,689
----------- -----------
Net cash used in operating activities (122,147) (938,185)
----------- -----------
Cash flows from financing activities:
Net proceeds from borrowing (20,666) 615,000
Issuance of common and preferred stock 129,000 355,936
----------- -----------
Net cash provided by financing activities 108,334 970,936
----------- -----------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (7,581) (20,236)
Purchase of intangible assets (11,570)
----------- -----------
Net cash used in investing activities (7,581) (31,806)
----------- -----------
Net increase (decrease) in cash (21,394) 945
Cash, beginning of period 21,884 4,224
----------- -----------
Cash, end of period $ 490 $ 5,169
=========== ===========
Non-cash financing transaction:
Conversion of accrued expenses to notes payable $ 72,153 $ 43,526
Notes and payables converted to preferred stock $ 55,000 $ 192,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 54,167 --
=========== ===========
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ENTRADA SOFTWARE, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 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 nine-month periods ending September 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 September 30,
2002, the Company had granted options for 2,409,626 shares with vesting periods
of from three months to four years, and exercise prices of $.50 to $2.50 per
share. Options to purchase 741,406 shares had vested and were exercisable, and
none had been exercised.
WARRANTS
In connection with financing arrangements, the Company has issued 945,662
warrants to purchase common stock. At September 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 $555,660 of notes that are convertible into
555,660 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
In today's world, products are the result of world-wide supply chains and
distribution channels, and the former knowledge, intimacy, and local controls on
products and services have given way to globalization. Entrada believes that the
recall and quality challenges suffered by automotive companies, and the
counterfeit problems which plague product companies, illustrate the cost and
risk of having lost those controls. Our conclusion is that consumers and
suppliers alike are demanding more accountability, and regulatory bodies are
beginning to mandate companies identify and trace the products they sell. The
TREAD Act imposed on the consumer products industry last year is just one
example.
Through its ECHANGE SOLUTIONS, Entrada already provides complete document
traceability management to nearly 100 companies in 12 countries across a variety
of industries, including automotive, aerospace, utilities, and pharmaceuticals.
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.
Following an extensive development effort over the past several years, the
company is now in the preparatory stages of launching its solution for PRODUCT
traceability, KINNOSA(TM). KINNOSA is an enterprise class software solution that
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provides a total business solution for identification, authentication and
traceability of goods or services, and enables collaboration throughout the
supply chain by giving manufacturers a PRODUCT-CENTRIC(R) view of their
business. KINNOSA captures design, development, and related business information
into a structured PRODUCT BIOGRAPHY(R). 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. It is also secure, affordable, scalable and easy-to-use.
OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
During this quarter we started our second year since the acquisition and
re-introduction of the ECHANGE product line in the second quarter 2001. Since
launching ECHANGE we have stabilized the ECHANGE customer base, and established
a support organization capable of providing on-going technical support and
software maintenance. Since introducing ECHANGE, we have closed cumulative
license sales and support contracts for over $2 million with nearly 100
customers. During the third quarter of 2002, we continued our strategy to
stabilize and gain the confidence of the global ECHANGE customer base, and added
new ECHANGE partners and customers in Europe. We closed support contracts or
license sales with 5 new customers during the period. Also during this quarter,
23 customers renewed annual support and maintenance contracts, which further
validated our belief that we have successfully gained credibility with our
customers.
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 $304,625. Total
operating expenses for this period were $641,935, of which $503,778 was
personnel related, with the remainder for occupancy, administration and other
costs. The operating loss was narrowed from the comparable period last year when
we were completing product development and expanding ECHANGE sales activities.
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 NINE MONTHS ENDED SEPTEMBER 30, 2002
During period, we continued our strategy to stabilize and gain the
confidence of the ECHANGE customer base, and continued focus on European ECHANGE
partners and customers. We closed support contracts or license sales with 33 new
customers during the period, and generated over $1 million in closed sales
contracts. Also during the period, 34 customers renewed annual support
agreements, which further validated our belief that we have successfully gained
credibility with the customer base.
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While we continued to generate revenue from our ECHANGE customer base, such
revenues were insufficient to offset operating expenses during the period,
including the continued development and launch of our KINNOSA product line.
Consequently, we had an operating loss for this period of $1,041,473. Total
operating expenses for this period were $2,011,715, of which $1,587,016 were
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 this period we completed a significant advancement of our KINNOSA
product suite. By integrating Kinnosa with several commercially available
marking symbology technologies, we added major new utility to Kinnosa's
capability. 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 any one of several inexpensive, commercial
reading devices. We believe this enhanced solution has wide applicability, with
particular appeal to the automotive and aerospace industries, as well as the
art, clothing and collectible markets where authenticity is always a prime
concern. During the second quarter we launched initiatives to test and deploy
this solution in both the aerospace and automotive industries. While both these
initiatives are progressing steadily, the sales cycle for this type of solution
is long -six to nine months - and so we believe we will not begin generating
significant revenue from KINNOSA sales before the end of this year.
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.
LIQUIDITY AND CAPITAL RESERVES
As expected, although we generated revenues and working capital from
operations for the period ended September 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 the fourth quarter, we expect to continue to operate at a deficit. Until
sufficient sales revenues are realized, we must continue to fund operating
deficits by raising additional capital when possible. 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 almost 18 months we have been generating operating revenues, primarily
from our ECHANGE product suite. We expect ECHANGE revenues to increase in the
fourth quarter, as well as additional sales of our KINNOSA products. However, we
expect to continue to incur net losses in the fourth quarter of 2002.
9
During the nine months ended September 30, 2002, we raised $129,000 in
working capital from the sale of preferred stock, and generated over $1,000,000
from customer billings. While these funds were marginally sufficient to fund
operations for the period, we believe it is necessary for the Company to raise
additional outside capital to fund growth operations for the remainder of the
2002 and for 2003. To this end, in October 2002 we entered into a agreement with
a Wall Street investment banking firm to assist the Company in the private
placement of up to $10 million of our equity or convertible securities. While
this firm has a successful track record in similar financing arrangements, and
after extensive due diligence has expressed to us their optimism concerning the
ultimate success of this placement, there are no guarantees or assurances that
we will be successful in this investment transaction. If this investment
transaction is not successful, it will be necessary for us to obtain alternative
sources of capital, or we may be forced to reduce the level of our operations.
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 incurred losses from operations of $1,737,753 for the
year ended December 31, 2001 and $1,041,473 for the nine-month period ended
September 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 September 30, 2002, the Company issued 22,000 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
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: November 11, 2002
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