<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 September 30, 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
--------------------------------
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)
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)
9625 W. 76th Street, Suite 150, Eden Prairie, Minnesota 55344
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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 November 10, 1998 there
were 9,447,214 shares of common stock, $0.01 par value outstanding.
<PAGE> 2
INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
----------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $1,462,360 $994,526
Accounts receivable, net 5,531,619 4,925,301
Notes receivable 1,840,874 277,703
Inventories 78,531 233,121
Prepaid expenses and other current assets 479,273 540,472
----------------- ------------------
Total current assets 9,392,657 6,971,123
PROPERTY AND EQUIPMENT, NET 726,356 682,750
INTANGIBLE ASSETS, NET -- 93,338
NET ASSETS OF DISCONTINUED OPERATIONS -- 709,128
----------------- ------------------
$10,119,013 $8,456,339
================= ==================
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Revolving credit facility $2,189,240 $2,246,122
Current portion of long-term debt 66,285 663,631
Accounts payable 2,629,796 2,906,293
Deferred revenues 322,374 210,110
Accrued expenses 791,094 563,786
----------------- ------------------
Total current liabilities 5,998,789 6,589,942
LONG-TERM DEBT, NET OF CURRENT PORTION -- 156,250
OTHER 235,079 42,215
----------------- ------------------
Total liabilities 6,233,868 6,788,407
----------------- ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Preferred stock, $.01 par value, $5.00 stated value, 1,000,000
shares authorized, 270,000 and 450,000 shares
issued and outstanding, respectively 1,202,304 2,003,844
Series B Preferred Stock, $.01 par value, $5.00 stated value,
300 shares authorized, 285 and 0 shares issued and
outstanding, respectively 2,709,942 --
Common stock, $.01 par value, 24,000,000 shares authorized,
9,105,286 and 8,607,445 issued and outstanding, respectively 91,053 86,075
Additional paid-in capital 10,405,779 8,760,980
Accumulated deficit (10,441,452) (9,064,694)
Unearned compensation (82,481) (118,273)
----------------- ------------------
Total stockholders' equity 3,885,145 1,667,932
----------------- ------------------
$10,119,013 $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 SIX MONTHS ENDED
------------------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Hardware integration $1,769,248 $3,605,149 $4,357,809 $6,556,839
Software, technical services and
support 2,438,884 1,395,055 4,066,667 3,000,018
----------------- ---------------- ---------------- -----------------
Total revenues 4,208,132 5,000,204 8,424,476 9,556,857
----------------- ---------------- ---------------- -----------------
COST OF REVENUES:
Hardware integration 1,527,607 3,089,770 3,711,929 5,523,812
Software, technical services and
support 797,932 577,588 1,420,071 1,566,501
----------------- ---------------- ---------------- -----------------
Total cost of revenues 2,325,539 3,667,358 5,132,000 7,090,313
----------------- ---------------- ---------------- -----------------
Gross profit 1,882,593 1,332,846 3,292,476 2,466,544
----------------- ---------------- ---------------- -----------------
OPERATING EXPENSES:
Sales and marketing 1,108,989 750,075 2,046,399 1,338,305
General and administrative 656,331 611,086 1,307,033 1,174,873
Research and development 344,252 331,605 628,970 636,971
----------------- ---------------- ---------------- -----------------
Total operating expenses 2,109,572 1,692,766 3,982,402 3,150,149
----------------- ---------------- ---------------- -----------------
Loss from operations (226,979) (359,920) (689,926) (683,605)
OTHER
Gain on sale of hardware
integration unit 516,934 -- 516,934 --
Interest expense, net (19,146) (103,360) (50,023) (196,143)
----------------- ---------------- ---------------- -----------------
INCOME (LOSS) FROM CONTINUING 270,809 (463,280) (223,015) (879,748)
OPERATIONS
DISCONTINUED OPERATIONS
Loss from operations of
Distribution Group -- (514,506) (410,361) (950,364)
Loss on sale of discontinued
Distribution Group -- -- (111,103) --
----------------- ---------------- ---------------- -----------------
NET INCOME (LOSS) $270,809 ($977,786) ($744,479) ($1,830,112)
PREFERRED STOCK DIVIDENDS AND ACCRETION 29,245 980,000 632,279 980,000
----------------- ---------------- ---------------- -----------------
INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS $241,564 ($1,957,786) ($1,376,758) ($2,810,112)
================= ================ ================ =================
EARNINGS PER SHARE - BASIC:
Income (loss) from continuing
operations per common share $0.03 ($0.06) ($0.03) ($0.12)
Net income (loss) per common
share $0.03 ($0.13) ($0.09) ($0.24)
Income (loss) attributable to
common shareholders per common
share $0.03 ($0.26) ($0.16) ($0.37)
EARNING PER SHARE - DILUTED:
Income (loss) from continuing
operations per common share $0.02 ($0.06) ($0.03) ($0.12)
Net income (loss) per common
share $0.02 ($0.13) ($0.09) ($0.24)
Income (loss) attributable to
common shareholders per common
share $0.02 ($0.26) ($0.16) ($0.37)
WEIGHTED AVERAGE SHARES - BASIC: 8,777,214 7,639,630 8,716,519 7,591,377
WEIGHTED AVERAGE SHARES - DILUTED: 10,930,096 7,639,630 8,716,519 7,591,377
</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 SIX MONTHS ENDED
-------------------------------------- -------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $270,809 ($977,786) ($744,479) ($1,830,112)
Adjustments to reconcile net loss
to cash flows from operating
activities -
Depreciation and amortization 69,669 74,474 150,919 127,644
Stock option compensation earned 14,031 16,896 15,992 34,257
Discount amortization -- 23,532 194 53,952
Gain on sale of hardware integration
unit (516,934) -- (516,934) --
Discontinued operations -- (148,703) 709,128 (24,321)
Changes in operating assets and
liabilities (50,578) (1,412,489) (994,004) (1,526,041)
----------------- ----------------- ---------------- -----------------
Cash flows from operating activities (213,003) (2,424,076) (1,379,184) (3,164,621)
----------------- ----------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from note receivable -- -- -- 248,222
Purchases of fixed assets (70,161) (89,674) (233,674) (121,800)
----------------- ----------------- ---------------- -----------------
Cash flows from investing activities (70,161) (89,674) (233,674) 126,422
----------------- ----------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from revolving credit
facility (82,119) (177) (56,882) 642,563
Payments on long-term debt (407,552) (104,990) (748,206) (213,050)
Payments on capital leases (2,827) (2,535) (5,584) (4,190)
Payments on other long-term liabilities (29,705) (50,216) (45,386) (72,260)
Repurchase of treasury stock (9,475) (9,400) (8,950) (8,800)
Issuance of preferred stock (457) 3,529,024 2,852,571 3,529,024
Payment of dividends on preferred stock (27,190) -- (60,224) --
Proceeds from stock options and warrants 4,466 213,578 153,353 215,858
----------------- ----------------- ---------------- -----------------
Cash flows from financing activities (554,859) 3,575,284 2,080,692 4,089,145
----------------- ----------------- ---------------- -----------------
NET INCREASE (DECREASE) IN CASH (838,023) 1,061,534 467,834 1,050,946
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,300,383 111,210 994,526 121,798
----------------- ----------------- ---------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,462,360 $1,172,744 $1,462,360 $1,172,744
================= ================= ================ =================
NON-CASH TRANSACTIONS:
Conversion of debt to common stock -- -- -- $250,000
Conversion of debt to preferred stock -- $150,000 -- $150,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid for interest $50,022 $96,163 $98,137 $176,789
Cash paid for income taxes -- -- $987 $3,531
DETAIL OF CHANGES IN OPERATING ASSETS AND
LIABILITIES:
Accounts receivable ($74,438) ($1,369,517) ($845,380) ($2,385,827)
Inventories 3,389 (98,367) 11,710 (34,935)
Prepaid expenses and other current assets 46,813 (156,607) 26,076 (208,401)
Accounts payable (170,173) 93,449 (284,640) 1,055,153
Accrued expenses and other current
liabilities 143,831 118,553 98,230 47,969
================= ================= ================ =================
Net changes in operating assets
and liabilities ($50,578) ($1,412,489) ($994,004) ($1,526,041)
================= ================= ================ =================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 5
INTRANET SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 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 six months ended September 30, 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 "Dilutive" 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 except the quarter ended September 30, 1998, the Company
incurred net losses and therefore basic and diluted per share amounts are the
same. Common stock equivalent shares consist of convertible preferred stock
(using the if-converted method) and stock options and warrants (using the
treasury stock method).
<PAGE> 6
The table below sets forth the computation of earnings per common share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
Numerator: --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations $270,809 ($463,280) ($223,015) ($879,748)
Discontinued operations -- (514,506) (521,464) (950,364)
--------------- -------------- -------------- --------------
Net Income (loss) 270,809 (977,786) (744,479) (1,830,112)
Preferred stock dividends and
accretion 29,245 980,000 62,279 980,000
--------------- -------------- -------------- --------------
Numerator for basic earnings per
share - income attributable to
common shareholders 241,564 (1,957,786) (806,758) (2,810,112)
Effect of dilutive securities:
Preferred stock dividends and
accretion 29,245 -- -- --
--------------- -------------- -------------- ---------------
Numerator for diluted earnings per
share - income (loss)
attributable to common
shareholders $270,809 ($1,957,786) ($806,758) ($2,810,112)
=============== ============== ============== ==============
Denominator:
Denominator for basic earnings
per share - weighted average
shares 8,777,214 7,639,630 8,716,519 7,591,377
Effect of dilutive securities:
Employee stock options 399,279 -- -- --
Warrants 27,064 -- -- --
Convertible preferred stock 1,726,539 -- -- --
--------------- -------------- -------------- --------------
Dilutive potential common shares 2,152,882 -- -- --
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 10,930,096 7,639,630 8,716,519 7,591,377
=============== ============== ============== ==============
</TABLE>
(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.
(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 divested over the next
two years. The purchase price is to be paid in three installments, including
$750,000 on October 16, 1998, $250,000 on November 16, 1998, and $535,000 on
January 15, 1999. The total amount of these installments, $1,535,000, has been
recorded as a note receivable in the balance sheet as of September 30, 1998. The
remaining $65,000 in proceeds, which has
<PAGE> 7
been deducted from the purchase price as a cost of the transaction, will be paid
by Osage directly to certain former IntraNet employee's on or before October 15,
1999. The first installment due October 16, 1998 has been paid.
In conjunction with the sale of the hardware integration unit, the
Company has entered into a non-competition agreement with Osage. As a result,
the Company has 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.
(5) 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 three months ended September 30, 1998.
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.
(6) 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.
<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)
