U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended June 30, 1996.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _________ to __________.
Commission file number 0-19817
--------------------------------
INTRANET SOLUTIONS, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Chapter)
Minnesota 41-1652566
- -------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
9625 West 76th Street, Suite 150, Eden Prairie, Minnesota 55344
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(Address of Principal Executive Offices)
(612) 903-2000
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(Issuer's Telephone Number, Including Area Code)
MacGregor Sports and Fitness, Inc.
8100 White Horse Road, Greensville, SC 29611, July 31
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(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
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.
Yes X No
----------- ----------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At August 9, 1996 there were
29,762,425 shares of common stock, $0.01 par value outstanding.
INTRANET SOLUTIONS, INC.
Form 10-QSB Index
June 30, 1996
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1996 and March 31, 1996 3
Consolidated Statements of Operations -
for the three months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
for the three months ended June 30, 1996 and 1995 5
Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K 12
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(SEE NOTE 3 REGARDING REVERSE MERGER COMPLETED JULY 31, 1996)
JUNE 30, MARCH 31,
1996 1996
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 146,407 $ 37,513
Accounts receivable, net 2,933,557 3,102,394
Inventories 510,079 324,523
Prepaid expenses and other current assets 654,374 418,438
----------- -----------
Total current assets 4,244,417 3,882,868
PROPERTY AND EQUIPMENT, NET 1,683,876 1,539,318
INTANGIBLE ASSETS, NET 273,025 290,680
----------- -----------
$ 6,201,318 $ 5,712,866
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Revolving credit facility $ 1,488,644 $ 1,108,098
Convertible promissory notes 550,000 550,000
Current portion of long-term debt 127,496 127,496
Current portion of capital lease obligations 163,223 148,045
Current portion of stock redemption payable 9,500 9,500
Accounts payable 3,223,503 2,701,244
Sales tax payable 42,236 68,147
Accrued expenses 186,247 247,105
----------- -----------
Total current liabilities 5,790,849 4,959,635
DEFERRED INCOME TAXES 38,000 38,000
STOCK REDEMPTION PAYABLE 30,608 30,008
LONG-TERM DEBT, NET OF CURRENT PORTION 83,342 108,341
CAPITAL LEASE OBLIGATIONS, NET OF
CURRENT PORTION 535,589 598,065
----------- -----------
Total liabilities 6,478,388 5,734,049
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock,$.001 par value,100,000,000
shares authorized, 10,053,422 shares
issued and outstanding 10,053 10,000
Additional paid-in capital 35,976 7,289
Retained earnings (deficit) (308,113) (22,265)
Unearned compensation (14,986) (16,207)
----------- -----------
Total stockholders' equity (deficiency) (277,070) (21,183)
----------- -----------
$ 6,201,318 $ 5,712,866
=========== ===========
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(SEE NOTE 3 REGARDING REVERSE MERGER COMPLETED JULY 31, 1996)
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995
------------ ------------
REVENUES:
Hardware integration $ 2,391,762 $ 1,426,883
Software, technical services and support 1,102,957 1,142,144
Distribution services 686,215 282,216
------------ ------------
Total revenues 4,180,934 2,851,243
------------ ------------
COST OF REVENUES:
Hardware integration 2,000,661 1,187,365
Software, technical services and support 748,468 675,174
Distribution services 514,876 197,783
------------ ------------
Total cost of revenues 3,264,005 2,060,322
------------ ------------
Gross profit 916,929 790,921
OPERATING EXPENSES:
Sales and marketing 582,349 354,301
General and administrative 408,065 289,274
Research and development 258,080 117,734
Depreciation and amortization 56,110 31,636
------------ ------------
Total operating expenses 1,304,604 792,945
------------ ------------
Income (loss) from operations (387,675) (2,024)
INTEREST EXPENSE (48,173) (27,737)
------------ ------------
LOSS BEFORE INCOME TAXES (435,848) (29,761)
Provision for (benefit of) income taxes (150,000) 0
------------ ------------
NET LOSS ($ 285,848) ($ 29,761)
============ ============
NET LOSS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT ($ 0.01) ($ 0.00)
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (NOTE 2) 29,406,063 29,406,063
============ ============
<TABLE>
<CAPTION>
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(SEE NOTE 3 REGARDING REVERSE MERGER COMPLETED JULY 31, 1996)
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($285,848) ($ 29,761)
Adjustments to reconcile net income to
cash flows from operating activities -
Depreciation and amortization 107,031 68,545
Stock option compensation earned 1,221 0
Changes in operating assets and liabilities 182,835 (310,443)
--------- ---------
Cash flows from operating activities 5,239 (271,659)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (233,934) (88,395)
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Cash flows from investing activities (233,934) (88,395)
--------- ---------
CASH FLOWS FROM FINANCING ACITIVITES:
Net advances from line of credit 380,546 408,005
Payments on long-term debt (24,999) (16,666)
Payments on capital leases (47,298) (25,248)
Issuance of common stock 29,340 0
--------- ---------
Cash flows from financing activities 337,589 366,091
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NET INCREASE IN CASH 108,894 6,037
CASH, BEGINNING OF PERIOD 37,513 9,239
--------- ---------
CASH, END OF PERIOD $ 146,407 $ 15,276
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest $ 86,045 $ 50,367
Cash paid for income taxes $ 0 $ 750
DETAIL OF CHANGES IN OPERATING
ASSETS AND LIABILITIES:
Accounts receivable $ 168,837 $ 44,540
Inventories (185,556) 82,000
Other current assets (235,936) 18,913
Accounts payable 522,259 (370,696)
Accrued expenses (86,769) (85,200)
--------- ---------
Net changes in operating assets and liabilities $ 182,835 ($310,443)
========= =========
</TABLE>
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulation. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim consolidated financial statements be read in conjunction with the
Company's most recent audited consolidated financial statements and notes
thereto included in the Company's proxy statement dated July 5, 1996 issued in
connection with a special meeting of the shareholders of the company (formerly
known as MacGregor Sports and Fitness Inc.) for the year ended March 31, 1996.
The financial statements presented are those of the surviving entity from the
reverse merger (see note 3). In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim period presented have been made. Operating results for the three
months ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ending March 31, 1997.
(2) LOSS PER COMMON SHARE
Primary and fully diluted income per common share are determined by dividing net
income by the weighted average number of common shares and common share
equivalents outstanding during each period. Common share equivalents include the
dilutive effects of options and warrants which are assumed to be exercised or
converted into common shares at the beginning of the period. Common stock
equivalents have not been included in the calculation of loss per common share
because the effects would have been anti-dilutive. Primary and fully diluted
loss per share are the same for the periods presented. The effects of reverse
merger (see note 3) have been retroactively applied.
(3) REVERSE MERGER
On July 31, 1996, the Company's predecessor, MacGregor Sports and Fitness, Inc.
("MSF"), and IntraNet Integration Group, Inc., a Minnesota corporation (formerly
known as Technical Publishing Solution, Inc.) (IIGI) closed on their previously
announced tax-free reorganization pursuant to which IIGI became a wholly-owned
subsidiary of the Registrant and the Registrant subsequently changed its name to
IntraNet Solutions, Inc. ("IntraNet Solutions"). The transaction was
accomplished through a tax-free reverse subsidiary merger whereby IntraNet
merged with and into MG Acquisition Subsidiary, Inc. ("MG"), a wholly-owned
subsidiary of MSF, with IntraNet as the surviving corporation pursuant to such
merger.
The financial statements presented in this 10-QSB are those of the surviving
entity from the reverse merger. The following unaudited pro forma consolidated
balance sheet presents the financial position of the company as if the above
mentioned transaction had occurred as of June 30, 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS)
IIGI MSF PRO FORMA
ASSETS HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Current assets $ 4,244 $ 3,000 ($250) (B) $ 6,994
Property and equipment, net 1,684 1,684
Intangible assets, net 273 273
------- ------- ------- -------
$ 6,201 $ 3,000 ($250) $ 8,951
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS'S EQUITY
Current liabilities 5,790 $ 0 ($550) (A) $ 5,240
Long-term liabilities 689 0 688
------- ------- ------- -------
6,478 0 ($550) 5,928
3,000 550 (A)
Stockholder's equity (277) (250) (B) 3,023
------- ------- ------- -------
$ 6,201 $ 3,000 ($250) $ 8,951
======= ======= ======= =======
</TABLE>
Pro forma adjustments to reflect:
(A) Conversion of promissory notes to common stock.
(B) Estimated legal, accounting and banking fees and other costs of the
transaction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On July 31, 1996, the Company's predecessor, MacGregor Sports and Fitness, Inc.
("MSF"), and IntraNet Integration Group, Inc., a Minnesota corporation (formerly
known as Technical Publishing Solutions, Inc.) ("IIGI") closed on their
previously announced tax-free reorganization pursuant to which IIGI became a
wholly-owned subsidiary of the Registrant and the Registrant subsequently
changed its name to IntraNet Solutions, Inc. ("IntraNet Solutions"). The
transaction was accomplished through a tax-free reverse subsidiary merger
whereby IIGI merged with and into MG Acquisition Subsidiary, Inc. ("MG"), a
wholly-owned subsidiary of MSF, with IntraNet as the surviving corporation
pursuant to such merger.
IntraNet Solutions, is a Minnesota based technology company focused on assisting
large companies in designing and implementing open, integrated solutions for
managing and distributing business-critical information across and outside their
enterprises. In addition to its principal executive offices in Minneapolis,
Minnesota, IntraNet Solutions has sales offices in Boston, Denver, Milwaukee and
Phoenix and independent sales representation in Atlanta and distribution group
facilities in Minneapolis, Boston, and Denver.
The Company is divided into three distinct business groups including: (1)
IntraNet Integration Group (providing open, client-server products to assist
companies in managing their intellectual capital, including hardware and
software products, as well as installation, support, and educational services);
(2) IntraNet Distribution Group (offering customers various services for
off-site electronic document warehousing, electronic demand publishing and
multiple methods of digital distribution of information); and (3) IntraNet
Professional Services Group (providing assistance with product development,
project management, and customized software applications).
RESULTS OF OPERATIONS FOR THE QUARTER END JUNE 30, 1995
COMPARED TO THE QUARTER END JUNE 30, 1996
REVENUES. Total revenues increased to $4.2 million in 1996 from
$2.9 million in 1995, or $1.3 million (46.6%). This increase related primarily
to increases in hardware integration of $1.0 million ($1.4 million in 1995
compared to $2.4 million in 1996) and distribution services $400,000 ($300,000
in 1995 and $700,000 in 1996). The Company's software, technical and support
revenues declined slightly, primarily due to a focus on development of
proprietary software products.
COST OF REVENUES. Cost of hardware integration revenues was $1.2
million in 1995 and $2.0 million in 1996. Cost of hardware integration revenues
as a percent of hardware integration revenues was 83.2% in 1995 compared to
83.7% in 1996.
Cost of software, technical services, and support revenues was
$700,000 in 1995 and 1996. Cost of software, technical services, and support
revenues as a percent of software, technical services, and support revenue was
59.1% in 1995 compared to 67.9% in 1996. Lower margins on software, technical
services and support were primarily due to competitive pricing on non-custom
software products and lower technical service billings.
Cost of distribution services revenue were $200,000 in 1995
compared to $500,000 in 1996. Cost of distribution services revenues as a
percent of distribution services revenue were 70.1% in 1995 compared to 75.0% in
1996. Lower margins on distribution services were primarily due to large fixed
costs associated with additional high speed laser printing devices and expansion
costs related to the opening of locations in Denver and Boston.
OPERATING EXPENSES:
SALES AND MARKETING. Sales and marketing expenses were $400,000 in
1995 compared to $600,000 in 1996. Sales and Marketing expenses as a percent of
total revenues were 12.4% in 1995 compared to 13.9% in 1996. Sales and marketing
expenses increased as a percent of revenues primarily due to increases in
staffing and marketing programs.
GENERAL ADMINISTRATIVE. General and administrative expenses
increased by $100,000 from $300,000 in 1995 compared to $400,000 in 1996.
General and administrative expenses as a percent of total revenue were 10.2% in
1995 compared to 9.8% in 1996.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$100,000 in 1995 compared to $300,000 in 1996. Research and development expenses
as a percent of total revenue were 4.1% in 1995 and 6.2% in 1996. Total research
and development expenses increased $200,000 in 1996 compared to 1995 due to a
focus on development of proprietary software products.
LIQUIDITY AND CAPITAL RESOURCES. Since its inception and prior to
the merger (see financial statement note 3), the Company has funded its
operations primarily through revolving working capital and term loans through
banking institutions and capital equipment leases. In December 1995, the company
issued $550,000 of unsecured convertible notes to a limited number of accredited
investors. The unsecured notes accrued interest rate of 10%, and were converted
into common stock on July 31, 1996.
As of June 30, 1996 the Company had cash and cash equivalents of
$146,407. Net cash used in operating activities for the quarter ended June 30,
1995 was $272,000 compared to net cash provided by operations for the quarter
ended June 30, 1996 of $5,000. Capital expenditures for the quarters ended June
30, 1995 and 1996, including equipment financed with capital lease obligations,
were $88,000 and $234,000 respectively.
The Company's revolving working capital line of credit allows for
borrowings of up to $1.5 million based on available collateral at the bank's
base lending rate plus 2.5%. At June 30, 1996, the Company had advances of $1.5
million, which are due on demand. At June 30, 1996, the Company also had a term
loan outstanding in the amount of $183,338. The term loan requires monthly
principal payments of $8,333 plus interest at the bank's base lending rate plus
2.5%. At June 30, 1996 the Company also had a demand note payable to its
majority stockholder in the amount of $27,500 which accrues interest at a rate
of 12%.
The Company acquired a substantial portion of its distribution
services production equipment with capital lease obligations. These leases
require total monthly payments of $19,556 and carry interest rates between 14.6%
and 16.6%.
The Company also has a long-term consulting agreement with a former
stockholder that requires monthly payments of $10,300 through July 2000.
The Company believes that the approximately $3.0 million in gross
proceeds derived from the reverse merger with MacGregor Sports and Fitness,
Inc., along with its existing line of credit, will meet only its immediate
anticipated needs for working capital and capital expenditures. The company
plans to expand its distribution group concept to regional centers throughout
the United States over the next three years. The Company also plans to evaluate
several potential acquisitions, primarily in complimentary software development
areas, which it believes are necessary to expand its presence in the document
management marketplace. Future financings, if needed to pursue such short-term
objectives, may result in dilution to holders of Common Stock. It is anticipated
that funds required for future acquisitions and expansion will be provided from
operating cash flow, the proceeds expected from future debt or equity financings
and proceeds from future borrowings. However, there can be no assurance that
suitable acquisitions candidates will be identified by the Company in the
future, that suitable financing for any such acquisitions or expansion can be
obtained by the Company or that any such acquisitions or expansions will occur.
SECURITIES LITIGATION REFORM ACT.
Except for the historical information contained herein, certain
matters discussed in this quarterly report are forward-looking statements which
involve risks and uncertainties, including, but no limited to, economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices and other factors discussed
in the Company's filings with the Securities and Exchange Commission.
Therefore, if, for any reason, the Company's planned operations
require more capital than anticipated, revenues do not increase as planned, or
operating income is less than planned, the Company may need additional financing
in order to maintain its operations. There can be no assurances that the Company
would be able to obtain any such required financing, if and when needed, or that
such financing, if obtained, would be on terms and conditions favorable or
acceptable, to the Company.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings and, to the
best of its knowledge, its properties are not the subject of any such
proceedings.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27 - Financial Data Schedule
(b) Report on Form
For the quarter ended June 30, 1996, the Company did not file any reports on
Form 8-K.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTRANET SOLUTIONS, INC.
(the "Registrant" or "Company")
Dated August 13, 1996 By: /s/ Robert F. Olson
---------------------------------------
Robert F. Olson
Its: Chief Executive Officer
---------------------------------------
(Principal Executive Officer)
Dated August 13, 1996 By: /s/ Jeffrey J. Sjobeck
---------------------------------------
Jeffrey J. Sjobeck
Its: Chief Financial Officer
---------------------------------------
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 146,407
<SECURITIES> 0
<RECEIVABLES> 2,933,557
<ALLOWANCES> 0
<INVENTORY> 510,079
<CURRENT-ASSETS> 4,244,417
<PP&E> 1,683,876
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,201,318
<CURRENT-LIABILITIES> 5,790,849
<BONDS> 0
0
0
<COMMON> 10,053
<OTHER-SE> (287,070)
<TOTAL-LIABILITY-AND-EQUITY> 6,201,318
<SALES> 4,180,934
<TOTAL-REVENUES> 4,180,934
<CGS> 3,264,005
<TOTAL-COSTS> 3,264,005
<OTHER-EXPENSES> 1,304,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,173
<INCOME-PRETAX> (435,848)
<INCOME-TAX> (150,000)
<INCOME-CONTINUING> (285,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (285,848)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
