<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended December 31, 1998.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to .
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Commission file number 0-19817
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INTRANET SOLUTIONS, INC.
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(Exact Name of Registrant as Specified in Its Chapter)
Minnesota 41-1652566
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
8091 Wallace Road, 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)
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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
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: At February 9, 1999 there
were 10,673,364 shares of common stock, $0.01 par value outstanding.
<PAGE> 2
INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1998 1998
----------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,658,539 $ 994,526
Accounts receivable, net 3,437,440 4,925,301
Current portion of notes receivable 625,018 61,793
Inventories 54,417 233,121
Prepaid expenses and other current assets 809,467 540,472
----------------- ------------------
Total current assets 6,584,881 6,755,213
NOTES RECEIVABLE, NET OF CURRENT PORTION 123,946 215,910
PROPERTY AND EQUIPMENT, NET 739,877 776,088
NET ASSETS OF DISCONTINUED OPERATIONS -- 709,128
----------------- ------------------
$7,448,704 $8,456,339
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $1,345,650 $2,246,122
Current portion of long-term debt 20,000 663,631
Accounts payable 604,570 2,906,293
Deferred revenues 500,306 210,110
Accrued expenses 495,108 563,786
----------------- ------------------
Total current liabilities 2,965,634 6,589,942
LONG-TERM DEBT, NET OF CURRENT PORTION -- 156,250
OTHER 205,260 42,215
----------------- ------------------
Total liabilities 3,170,894 6,788,407
----------------- ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Preferred stock, $.01 par value, $5.00 stated value,
1,000,000 shares authorized, 80,000 and 450,000 shares
issued and outstanding, respectively 356,234 2,003,844
Common stock, $.01 par value, 24,000,000 shares authorized,
10,620,226 and 8,607,445 issued and outstanding, respectively 106,202 86,075
Additional paid-in capital 14,515,964 8,760,980
Accumulated deficit (10,653,611) (9,064,694)
Unearned compensation (46,979) (118,273)
----------------- ------------------
Total stockholders' equity 4,277,810 1,667,932
----------------- ------------------
$7,448,704 $8,456,339
================= ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 3
INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- --------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Hardware integration -- $ 3,119,082 $ 4,357,809 $ 9,675,921
Software, technical services and support $ 2,543,937 1,894,859 6,610,604 4,894,877
----------------- ---------------- ---------------- -----------------
Total revenues 2,543,937 5,013,941 10,968,413 14,570,798
----------------- ---------------- ---------------- -----------------
COST OF REVENUES:
Hardware integration -- 2,656,069 3,711,929 8,179,881
Software, technical services and support 515,944 725,055 1,936,015 2,291,556
----------------- ---------------- ---------------- -----------------
Total cost of revenues 515,944 3,381,124 5,647,944 10,471,437
----------------- ---------------- ---------------- -----------------
Gross profit 2,027,993 1,632,817 5,320,469 4,099,361
----------------- ---------------- ---------------- -----------------
OPERATING EXPENSES:
Sales and marketing 1,114,013 776,621 3,160,412 2,114,926
General and administrative 689,244 581,405 1,996,277 1,756,278
Research and development 345,850 305,933 974,820 942,904
----------------- ---------------- ---------------- -----------------
Total operating expenses 2,149,107 1,663,959 6,131,509 4,814,108
----------------- ---------------- ---------------- -----------------
Loss from operations (121,114) (31,142) (811,040) (714,747)
OTHER
Gain on sale of hardware integration unit -- -- 516,934 --
Interest expense, net (10,943) (91,126) (60,966) (287,269)
----------------- ---------------- ---------------- -----------------
LOSS FROM CONTINUING OPERATIONS (132,057) (122,268) (355,072) (1,002,016)
DISCONTINUED OPERATIONS
Loss from operations of Distribution Group -- (474,093) (410,361) (1,424,457)
Loss on sale of discontinued Distribution
Group -- -- (111,103) --
----------------- ---------------- ---------------- -----------------
NET LOSS (132,057) (596,361) (876,536) (2,426,473)
PREFERRED STOCK DIVIDENDS AND ACCRETION 80,102 640,000 712,381 1,620,000
----------------- ---------------- ---------------- -----------------
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS ($ 212,159) ($ 1,236,361) ($ 1,588,917) ($ 4,046,473)
================= ================ ================ =================
EARNINGS PER SHARE - BASIC AND DILUTED:
Loss from continuing operations
per common share ($ 0.01) ($ 0.02) ($ 0.04) ($ 0.13)
Net loss per common share ($ 0.01) ($ 0.08) ($ 0.10) ($ 0.31)
Loss attributable to common
shareholders per common share ($ 0.02) ($ 0.16) ($ 0.17) ($ 0.52)
Weighted average shares - basic and diluted 9,863,683 7,928,910 9,099,659 7,712,353
</TABLE>
See accompanying notes to the condensed consolidated financial statements
<PAGE> 4
INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
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DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 132,057) ($ 596,361) ($ 876,536) ($2,426,473)
Adjustments to reconcile net loss
to cash flows from operating activities -
Depreciation and amortization 71,581 72,698 222,500 200,342
Stock option compensation earned 12,875 16,865 28,867 51,122
Discount amortization -- 14,883 194 68,835
Gain on sale of hardware integration unit -- -- (516,934) --
Discontinued operations -- 122,156 709,128 97,835
Changes in operating assets and liabilities (131,298) (14,013) (1,125,302) (1,540,054)
----------------- ----------------- ---------------- -----------------
Cash flows from operating activities (178,899) (383,772) (1,558,083) (3,548,393)
----------------- ----------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from notes receivable 1,021,138 414,755 1,021,138 662,977
Purchases of fixed assets (118,213) (217,584) (351,887) (339,384)
----------------- ----------------- ---------------- -----------------
Cash flows from investing activities 902,925 197,171 669,251 323,593
----------------- ----------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from revolving credit facility (843,590) (1,417,236) (900,472) (774,673)
Payments on long-term debt (42,400) (106,149) (790,606) (319,199)
Payments on capital leases (3,885) (2,600) (9,469) (6,790)
Payments on other long-term liabilities (30,344) (21,441) (75,730) (93,701)
Repurchase of treasury stock 525 550 (8,425) (8,250)
Issuance of preferred stock -- (7,651) 2,852,571 3,521,373
Payment of dividends on preferred stock (68,069) (50,000) (128,293) (50,000)
Proceeds from stock options and warrants 459,916 722,984 613,269 938,842
----------------- ----------------- ---------------- -----------------
Cash flows from financing activities (527,847) (881,543) 1,552,845 3,207,602
----------------- ----------------- ---------------- -----------------
NET INCREASE (DECREASE) IN CASH 196,179 (1,068,144) 664,013 (17,198)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,462,360 1,172,744 994,526 121,798
----------------- ----------------- ---------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,658,539 $104,600 $1,658,539 $104,600
================= ================= ================ =================
NON-CASH TRANSACTIONS:
Conversion of debt to common stock -- -- -- $ 250,000
Conversion of debt to preferred stock -- -- -- $ 150,000
Issuance of common stock as dividends $ 12,033 -- $ 14,088 --
Issuance of common stock as advance royalties $ 120,000 -- $ 120,000 --
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid for interest $ 10,418 $ 69,716 $ 77,678 $ 229,732
Cash paid for income taxes $ 4,325 $4,500 $ 5,312 $8,031
DETAIL OF CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable $2,127,290 $ 737,160 $1,281,910 ($1,648,667)
Inventories 24,114 84,946 35,824 50,011
Prepaid expenses and other current assets (139,422) (236,745) (113,346) (445,146)
Accounts payable (2,025,226) (429,941) (2,309,866) 625,212
Accrued expenses and other current liabilities (118,054) (169,433) (19,824) (121,464)
----------------- ----------------- ---------------- -----------------
Net changes in operating assets and liabilities ($ 131,298) ($ 14,013) ($1,125,302) ($1,540,054)
================= ================= ================ =================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 5
INTRANET SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed 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 regulations. 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. 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 nine months ended December 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1999.
(2) NET INCOME (LOSS) PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per
Share," requires presentation of "basic" and " diluted" earnings per share
amounts, as defined. "Basic" earnings per share replaces primary earnings per
share under APB Opinion No. 15, and excludes the dilutive effects of common
stock equivalents, if any, from the calculation. Fully diluted earnings per
share has not changed significantly but has been named "diluted" earnings per
share. Statement No. 128 became effective for fiscal years ending after December
15, 1997. All earnings per share prior to 1998 have been restated, where
applicable, to comply with this statement.
The Company's basic net income (loss) per share amounts have been
computed by dividing net income (loss) by the weighted average number of
outstanding common shares. The Company's diluted net income (loss) per share is
computed by dividing net income (loss) by the weighted average number of
outstanding common shares and common share equivalents relating to stock
options, when dilutive. For all periods presented, the Company incurred net
losses and therefore basic and diluted share amounts are the same.
(3) SERIES B CONVERTIBLE PREFERRED STOCK
In May, 1998, the Company issued $3,000,000 of Series B 4% Convertible
Preferred Stock. The preferred stock is convertible into the Company's common
stock at a price equal to 84% of market value at the date of conversion with a
maximum conversion price of $7.56 and a minimum conversion price of $1.81. In
connection with this transaction, the Company recognized a non-cash deemed
dividend of $570,000. The deemed dividend was recorded as a discount to
preferred stock with a corresponding credit to additional paid-in capital. The
discount was recognized at the date of issue of the preferred stock, the same
date at which the shares were eligible for conversion. The accretion of the
discount is reflected in the statement of operations as an adjustment to net
income (loss), but has no net effect on total stockholders' equity.
During the quarter ended December 31, 1998, all remaining outstanding
shares of Series B Convertible Preferred Stock were converted into common shares
at prices ranging from $2.45 to $3.18.
<PAGE> 6
(4) SALE OF HARDWARE INTEGRATION UNIT
Effective September 30, 1998, the Company sold the operations of its
hardware integration unit to Osage Systems Group, Inc. The sale was completed
for a purchase price of $1.6 million, and certain future financial
consideration, dependent on the performance of the unit over the next two years.
The purchase price was to be paid in three installments, totaling $1,535,000,
including $750,000 on October 16, 1998, $250,000 on November 16, 1998, and
$535,000 on January 15, 1999. As of December 31, 1998, the October and November
installments were received by the Company and the $535,000 January installment
was included in notes receivable. On January 13, 1999, the Company received the
final installment.
The remaining $65,000 in proceeds was deducted from the purchase price
as a cost of the transaction, and will be paid by Osage directly to certain
former IntraNet employee's on or before October 15, 1999.
In conjunction with the sale of the hardware integration unit, the
Company entered into a non-competition agreement with Osage. As a result,
the Company recorded the necessary provision for the reserve or write-down
of the assets and contracts associated with the hardware integration unit to
their net realizable value. The gain on the sale of the hardware integration
unit operations of $516,000 has been recorded net of transaction costs and the
aforementioned provision in the statement of operations as other income. The
Company is now solely dependent on the sale of its proprietary software products
and related services for its revenue. The Company no longer relies on its supply
contract with Sun Microsystems, Inc. as a source of revenue.
(5) NOTES RECEIVABLE
The Company has a note receivable as of December 31, 1998 in the amount
of $213,964, related to the sale of the its Minneapolis Distribution Group
operations during the year ended March 31, 1998. The note is to be paid in
quarterly installments of $27,100 including accrued interest. The Company also
has a note receivable as of December 31, 1998 in the amount of $535,000, as
discussed in Note 4 above. The note is to be paid in one payment on January 15,
1999. The payment due on January 15, 1999 has been paid.
Future maturities of notes receivable balances are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $625,018
2000 99,445
2001 24,501
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Total $748,964
========
</TABLE>
(6) RECENTLY ISSUED ACCOUNTING PRINCIPLES
In October, 1997, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position No. 97-2 ("SOP 97-2"),
"Software Revenue Recognition", which the Company has adopted for transactions
entered into during the fiscal year beginning April 1, 1998. SOP 97-2 provides
guidance for recognizing revenue on software transactions and supersedes SOP
91-1, "Software Revenue Recognition". In March 1998, the AICPA issued Statement
of Position No. 98-4 ("SOP 98-4"), "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition". SOP 98-4 defers, for one
year, the application of certain passages in SOP 97-2 which limit what is
considered vendor-specific objective evidence ("VSOE") necessary to recognize
revenue for software licenses in multiple-element arrangements when undelivered
elements exist. Additional guidance is expected to be provided prior to adoption
of the deferred provision of SOP 97-2. The Company will determine the impact, if
any, the additional guidance will have on current revenue recognition practices
when issued. Adoption of the remaining provisions of SOP 97-2 did not have a
material impact on revenue recognition during the nine months ended December 31,
1998.
<PAGE> 7
On April 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." Comprehensive income
includes certain changes in equity that are currently excluded from net
earnings. The adoption of this statement did not impact the Company's
consolidated financial statements; historically there have been no differences
between net earnings and comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information"("SFAS 131"). SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS 131 for the fiscal year ending March 31,
1999 and has not yet completed the evaluation of the impact of such adoption on
the notes to its consolidated financial statements.
(7) ROYALTY AGREEMENTS
During the quarter ended December 31, 1998, the Company entered into exclusive
royalty agreements to acquire certain source code and intellectual property of
Activedoc Corporation and Softgoods Development, Inc. The agreements required
initial advance royalty amounts of $100,000 each and subsequent advance royalty
payments not to exceed a maximum of $150,000 and $145,000 respectively.
Royalties are earned and expensed at the contract royalty rates of seven to ten
percent, of the applicable product sale.
(8) DISCONTINUED OPERATIONS
In September 1997, the Company formally adopted a plan of disposition
for its on-demand publishing distribution business. During the quarter ended
June 30, 1998, the Company sold its remaining on-demand publishing distribution
operation. The Company incurred a loss of approximately $100,000 on the sale of
those assets. The financial statements for all periods presented reflect the
operating results of the on-demand publishing distribution business as a
discontinued operation.
Revenue from discontinued operations for the three months ended
December 31, 1997 was $1,260,530. For the nine months ended December 31, 1998
and 1997, revenue from discontinued operations was $729,111 and $3,769,297,
respectively. Interest expense allocated to discontinued operations includes
interest expense directly attributable or related to the discontinued
operations. For the three months ended December 31, 1997 interest expense
allocated to discontinued operations was $59,480. For the nine months ended
December 31, 1998 and 1997, interest expense allocated to discontinued
operations was $35,329 and $181,933, respectively.
(9) RECLASSIFICATIONS
Certain accounts in the prior year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current year financial statements. These reclassifications had no effect on net
loss or stockholders' equity as previously reported.
<PAGE> 8
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 April 29, 1999 By: /s/ Gregg A. Waldon
--------------------------------------
Gregg A. Waldon
Its: Chief Financial Officer
--------------------------------------
(Principal Financial and Accounting
Officer)
