<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended June 30, 1999.
or
[ ] Transition Report Pursuant to 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 charter)
Minnesota 41-1652566
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8091 Wallace Road
Eden Prairie, Minnesota 55344-3775
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612) 903-2000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.01 par value -
15,091,747 shares as of August 5, 1999.
1
<PAGE> 2
INDEX
INTRANET SOLUTIONS, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999 and June 30, 1999....................................3
Consolidated Statements of Operations - Three months ended
June 30, 1998 and 1999............................................................................4
Consolidated Statements of Cash Flows - Three months ended
June 30, 1998 and 1999............................................................................5
Notes to Consolidated Financial Statements........................................................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..................................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................19
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................................................20
Item 6. Exhibits and Reports on Form 8-K.................................................................20
SIGNATURES.................................................................................................24
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRANET SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 JUNE 30, 1999
ASSETS (AUDITED) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................................. $ 1,950,893 $ 26,242,881
Accounts receivable, net ............................................................... 3,615,273 4,059,281
Current maturities of notes receivable ................................................. 113,959 116,832
Inventories ............................................................................ 52,001 287,572
Prepaid royalties ...................................................................... 391,579 527,469
Prepaid expenses and other current assets .............................................. 304,323 365,360
------------ ------------
Total current assets ..................................................................... 6,428,028 31,599,395
Notes receivable, net of current maturities............................................... 105,448 82,304
Property and equipment, net .............................................................. 766,509 1,254,747
------------ ------------
Total assets ............................................................................. $ 7,299,985 $ 32,936,446
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving credit facility .............................................................. $ 421,685 $ --
Current maturities of long-term obligations............................................. 177,631 193,054
Accounts payable ....................................................................... 447,446 576,654
Deferred revenues ...................................................................... 534,735 659,061
Commissions payable .................................................................... 230,228 310,642
Accrued expenses ....................................................................... 327,882 821,733
------------ ------------
Total current liabilities ................................................................ 2,139,607 2,561,144
Long-term obligations, net of current maturities ......................................... 84,492 46,455
------------ ------------
Total liabilities ........................................................................ 2,224,099 2,607,599
------------ ------------
Commitments and contingencies ............................................................ -- --
Shareholders' equity (deficit):
Series A convertible preferred stock, $0.01 par value
$5.00 stated value, 75,000 and 0 shares issued and outstanding at March 31,
1999 and June 30, 1999, respectively ................................................ 333,969 --
Common stock, $0.01 par value, 10,803,500 and 14,598,747 shares issued and
outstanding at March 31, 1999 and June 30, 1999, respectively ....................... 108,035 145,987
Additional paid-in capital ............................................................. 15,295,977 40,718,582
Accumulated deficit .................................................................... (10,637,166) (10,518,206)
Unearned compensation .................................................................. (24,929) (17,516)
------------ ------------
Total shareholders' equity ............................................................. 5,075,886 30,328,847
------------ ------------
Total liabilities and shareholders' equity ............................................... $ 7,299,985 $ 32,936,446
============ ============
</TABLE>
See accompanying notes.
Note: The balance sheet at March 31, 1999 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
3
<PAGE> 4
INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------------
1998 1999
------------------------------------
<S> <C> <C>
Revenues:
Product licenses ................................................................. $ 776,401 $ 2,701,571
Services ......................................................................... 224,629 801,506
Hardware integration and support ................................................. 3,215,314 --
----------- -----------
Total revenues .................................................................... 4,216,344 3,503,077
----------- -----------
Cost of revenues:
Product licenses ................................................................. 94,362 301,853
Services ......................................................................... 141,930 361,114
Hardware integration and support ................................................. 2,570,169 --
----------- -----------
Total cost of revenues ............................................................ 2,806,461 662,967
----------- -----------
Gross profit ...................................................................... 1,409,883 2,840,110
----------- -----------
Operating expenses:
Sales and marketing .............................................................. 937,410 1,609,018
General and administrative ....................................................... 650,702 772,291
Research and development ......................................................... 284,718 407,912
----------- -----------
Total operating expenses .......................................................... 1,872,830 2,789,221
----------- -----------
Income (loss) from operations ..................................................... (462,947) 50,889
Interest income (expense), net .................................................... (30,877) 68,071
----------- -----------
Income (loss) from continuing operations .......................................... (493,824) 118,960
Discontinued operations:
Loss on sale of distribution group .............................................. (111,103) --
Loss from operations of distribution group ...................................... (410,361) --
----------- -----------
Net income (loss) ................................................................. (1,015,288) 118,960
Preferred stock dividends and accretion ........................................... 603,034 --
----------- -----------
Income (loss) attributable to common shareholders ................................. $(1,618,322) $ 118,960
=========== ===========
Income (loss) per common share - basic:
Continuing operations ........................................................... $ (0.06) $ 0.01
Net income (loss) ............................................................... $ (0.12) $ 0.01
Income (loss) attributable to common shareholders ............................... $ (0.19) $ 0.01
Income (loss) per common share - diluted:
Continuing operations ........................................................... $ (0.06) $ 0.01
Net income (loss) ............................................................... $ (0.12) $ 0.01
Income (loss) attributable to common shareholders ............................... $ (0.19) $ 0.01
Weighted average number of common shares outstanding - basic ..................... 8,652,868 11,815,409
Weighted average number of common shares outstanding - diluted ................... 8,652,868 12,953,856
</TABLE>
See accompanying notes.
4
<PAGE> 5
INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------
1998 1999
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ..................................................................... $ (1,015,288) $ 118,960
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization ....................................................... 81,250 100,314
Discount amortization ............................................................... 194 --
Discontinued operations ............................................................. 709,128 --
Changes in operating assets and liabilities ......................................... (943,426) (607)
Other ................................................................................. 1,961 7,413
------------ ------------
Net cash flows provided by (used in) operating activities ............................. (1,166,181) 226,080
------------ ------------
INVESTING ACTIVITIES:
Proceeds from note receivable ......................................................... -- 20,271
Purchases of fixed assets ............................................................. (163,513) (554,219)
------------ ------------
Net cash provided by (used in) investing activities ................................... (163,513) (533,948)
------------ ------------
FINANCING ACTIVITIES:
Net advances (repayments) from revolving credit facility .............................. 25,237 (421,685)
Payments on long-term obligations ..................................................... (359,092) (23,139)
Issuance of preferred stock, net of offering expenses ................................. 2,853,028 --
Issuance of common stock, net of offering expenses .................................... -- 23,519,125
Payment of dividends on preferred stock ............................................... (33,034) --
Proceeds from exercise of stock options and warrants .................................. 148,887 1,525,030
Other ................................................................................. 525 525
------------ ------------
Net cash flows provided by financing activities ....................................... 2,635,551 24,599,856
------------ ------------
Net increase in cash ..................................................................... 1,305,857 24,291,988
Cash and cash equivalents, beginning of period ........................................... 994,526 1,950,893
------------ ------------
Cash and cash equivalents, end of period ................................................. $ 2,300,383 $ 26,242,881
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest ................................................................ $ 48,115 $ 5,986
Cash paid for income taxes ............................................................ 987 4,287
DETAIL OF CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable ................................................................... $ (770,942) $ (444,008)
Inventories ........................................................................... 8,321 (235,571)
Prepaid expenses and other current assets ............................................. (20,737) (148,827)
Accounts payable ...................................................................... (114,467) 129,208
Accrued expenses and other current liabilities ........................................ (45,601) 698,591
------------ ------------
Net changes in operating assets and liabilities ....................................... $ (943,426) $ (607)
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
IntraNet Solutions, Inc. (the "Company") is a leading provider of
Web-based document and content management solutions for intranets, extranets and
the Internet. The Company's Intra.doc! suite of products offers customers the
ability to rapidly access, manage and publish unstructured business data. The
Company's customers are primarily located throughout the United States and in
Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
Revenue Recognition: The Company currently derives all of its revenues
from licenses of its Intra.doc! suite of products and related services. Product
license revenue is recognized when a purchase order has been received, the
product has been shipped, and no significant obligations remain related to
implementation. Services revenue consists of fees from consulting and
maintenance. Consulting services include needs assessment, software integration,
security analysis, application development and training. The Company bills
consulting fees either on a time and materials basis or on a fixed-price
schedule. The Company's clients typically purchase maintenance agreements
annually, and the Company prices maintenance agreements based on a percentage of
the product license fee. Clients purchasing maintenance agreements receive
product upgrades, Web-based technical support and telephone hot-line support.
The Company recognizes revenue from maintenance agreements ratably over the term
of the agreement, typically one year. Customer advances and billed amounts due
from customers in excess of revenue recognized are recorded as deferred revenue.
Cash and Equivalents: The Company considers all short-term, highly
liquid investments that are readily convertible into known amounts of cash and
have original maturities of three months or less to be cash equivalents.
Inventories: Inventories, consisting primarily of computer software,
are valued at the lower of cost (first-in, first-out) or market value.
Property and Equipment: Property and equipment, including leasehold
improvements, are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, ranging from
three to seven years, or the life of the lease for leasehold improvements,
whichever is shorter. Maintenance, repairs and minor renewals are expensed
when incurred.
Reclassifications: Certain reclassifications have been made to the
quarter ended June 30, 1998 to conform with the presentation used in the June
30, 1999 financial statements. The reclassifications did not effect net loss or
shareholders' equity as previously reported.
Net Income (loss) per Common Share. 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 the three months ended
June 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).
6
<PAGE> 7
3. DISCONTINUED OPERATIONS
During the quarter ended June 30, 1998, the Company sold substantially
all of the remaining assets of its on-demand publishing operations, located in
Phoenix, Arizona for approximately $486,680. The sale price was substantially
for assumption of liabilities. The Company incurred a loss on the sale of the
related assets of $111,103.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31,1999 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Equipment and furniture $ 1,584,938 $ 1,507,481
Leasehold improvements 75,842 76,913
Other -- 338,367
----------- -----------
1,660,780 1,922,761
Less accumulated depreciation (894,271) (668,014)
----------- -----------
$ 766,509 $ 1,254,747
=========== ===========
</TABLE>
5. SHAREHOLDERS' EQUITY
Common stock offering: The Company consummated a follow-on common stock
offering (the "Offering") on June 3, 1999, consisting of 3,230,000 shares of
common stock at an $8.00 per share price to the public. The net proceeds of the
Offering, after underwriting discounts, commissions and offering costs of
approximately $2.3 million, was approximately $23.5 million. In July 1999, the
underwriters' exercised their 15% over-allotment, resulting in the sale of an
additional 484,500 shares of common stock.
Series A convertible preferred stock: During the year ended March 31,
1998, the Company issued $4.0 million of Series A 5% convertible preferred
stock. The Company issued 800,000 units, each consisting of one share of $0.01
par value preferred stock and a warrant to acquire one share of the Company's
common stock at an exercise price of $5.18. The preferred stock is convertible
into the Company's common stock at a price equal to 75% of market value at the
time of conversion, with a maximum conversion price of $3.71 per share and a
minimum conversion price of $1.00 per share. During the quarter ended June 30,
1998, the Company paid $33,034 in preferred stock dividends. Pursuant to the
terms of the Series A preferred stock, all shares remaining outstanding upon the
completion of the Offering were converted into shares of common stock without
further action of the holders.
Series B convertible preferred stock: In May 1998, the Company issued
$3.0 million of Series B 4% convertible preferred stock. This series of
preferred stock was 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. During the quarter ended June
30, 1998, 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 loss, but has no net effect on
total shareholders' equity.
7
<PAGE> 8
6. REVOLVING CREDIT FACILITY
On April 1, 1999 the Company renewed its revolving credit agreement
which provides for borrowings of up to $2.25 million, subject to the
availability of assets securing the loan. Advances will be due on demand and
accrue interest at the bank's lending rate plus 2.0%. The new agreement is due
on demand and secured by substantially all the Company assets and requires the
Company to meet various covenants including maintenance of minimum levels of net
worth. The agreement automatically renews annually unless the Company provides
60 days notice to cancel or demand is made by the lender. In July, the Company
terminated the revolving line-of-credit facility.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information presented in this Item contains forward-looking statements
within the meaning of the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are subject to
risks and uncertainties, including those discussed under "Risk Factors" below,
that could cause actual results to differ materially from those projected.
Because actual results may differ, readers are cautioned not to place undue
reliance on these forward-looking statements.
OVERVIEW
IntraNet Solutions, Inc. is a leading provider of Web-based document
and content management solutions for intranets, extranets and the Internet. The
company responsible for developing our current business was founded in 1990. In
July 1996, it merged with and into a publicly traded corporation, which was
organized under Minnesota law in November 1989. The name of the entity surviving
this merger was changed to IntraNet Solutions, Inc. Following the merger, our
business included intranet document and content management software, on-demand
publishing and hardware integration services.
Our experience in assisting organizations in managing their documents
and other unstructured data led us to identify the need for a comprehensive
solution for accessing, managing and publishing documents and content in a Web
environment. In fiscal 1997, we launched our first Web-based software product
currently known as Intra.doc!. We incorporated a Java server architecture with
Intra.doc! Version 3.0 in January 1998 and began shipping Intra.doc! Version
3.5, which provided an enhanced enterprise-scaleable solution, in September
1998. In order to focus our resources exclusively on developing and marketing
Web-based document and content management solutions, we have disposed of our
other businesses. In mid-1998, we completed the final sale of substantially all
of our on-demand publishing assets, and we sold our hardware integration
operations in late 1998. Since October 1998, we have focused exclusively on
developing and marketing Web-based solutions for accessing, managing and
publishing documents and content. Accordingly, certain reclassifications have
been made to the categories of revenues and cost of revenues presented in our
quarter ended June 30, 1998 financial statements to conform with the
presentation used in the quarter ended June 30, 1999 financial statements. These
reclassifications had no effect on losses from continuing operations or net
losses as previously reported.
We currently derive all of our revenues from licenses of our Intra.doc!
suite of products and related services. Revenues are recognized on product
licenses when a purchase order has been received, the product has been shipped
and no significant obligations remain related to implementation. Services
revenues consist of fees from consulting and maintenance. Consulting services
include needs assessment, software integration, security analysis, application
development and training. We bill consulting fees either on a time and materials
basis or on a fixed price schedule. Our clients typically purchase annual
maintenance agreements, and we price maintenance agreements based on a
percentage of the product license fee. Clients purchasing maintenance agreements
receive product upgrades, Web-based technical support and telephone hot-line
support. We recognize revenues from maintenance agreements ratably over the term
of the agreement, typically one year.
Cost of revenues consists of technology royalties, costs to
manufacture, package and distribute our products and related documentation, as
well as personnel and other expenses related to providing services. Sales and
marketing expenses consist primarily of employee salaries, commissions, and
costs associated with marketing programs such as advertising, public relations
and trade shows. Research and development expenses consist primarily of salaries
and related costs associated with the development of new products, the
enhancement of existing products and the performance of quality assurance and
documentation activities. General and administrative expenses consist primarily
of salaries and other personnel-related
9
<PAGE> 10
costs for executive, financial, human resources, information services and other
administrative personnel, as well as legal, accounting and insurance costs.
Losses from discontinued operations consist of losses on the operations of our
former on-demand publishing distribution group and losses on the write-down and
sale of its assets.
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our sales and
marketing, research and development and services departments, and to establish
an administrative organization. As a result, we had an accumulated deficit of
$10.5 million at June 30, 1999. We anticipate that our operating expenses will
increase substantially in future quarters as we increase sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden services and improve operational and financial systems.
In addition, our limited operating history makes it difficult for us to predict
future operating results. We cannot be certain that we will achieve or sustain
revenue growth or profitability.
RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues
Total revenues decreased by $713,000, or 17%, to $3.5 million for the
three months ended June 30, 1999 from $4.2 million for the three months ended
June 30, 1998. This decrease related primarily to the sale of our hardware
integration business, partially offset by increased revenues for product
licenses of Intra.doc! software.
Product Licenses. Revenues for product licenses, which related entirely
to Intra.doc! software, increased by $1.9 million, or 248%, to $2.7 million for
the three months ended June 30, 1999 from $776,000 for the three months ended
June 30, 1998. The growth in revenues for product licenses was attributable to
the expansion of our customer base and increased sales to existing customers.
Services. Revenues for services, which related entirely to services
associated with Intra.doc! software, increased by $577,000, or 257%, to $802,000
for the three months ended June 30, 1999 from $225,000 for the three months
ended June 30, 1998. The increase in revenues for services was primarily
attributable to a larger installed base of products and the associated
maintenance contracts.
Hardware Integration and Support. Revenues for hardware integration and
support decreased by $3.2 million, or 100%, to zero for the three months ended
June 30, 1999 from $3.2 million for the three months ended June 30, 1998. The
decrease in revenues for hardware integration was due to the sale of the
hardware integration business during the quarter ended September 30, 1998.
Cost of Revenues and Gross Profit
Total cost of revenues decreased by $2.1 million, or 76%, to $663,000
for the three months ended June 30, 1999 from $2.8 million for the three months
ended June 30, 1998. Total cost of revenues as a percentage of total revenues
was 19% for the three months ended June 30, 1999 compared to 67% for the three
months ended June 30, 1998. Gross profit increased by $1.4 million, or 101%, to
$2.8 million for the three months ended June 30, 1999 from $1.4 million for the
three months ended June 30, 1998. Total gross profit as a percentage of total
revenues was 81% for the three months ended June 30, 1999 compared to 33% for
the three months ended June 30, 1998. The increase in gross profit was primarily
attributable to a shift in product mix from hardware integration and support to
product licenses and services related to Intra.doc! software.
Product Licenses. Cost of revenues for product licenses, which related
entirely to Intra.doc! software, increased by $208,000, or 220%, to $302,000 for
the three months ended June 30, 1999 from $94,000 for the three months ended
June 30, 1998. Gross profit as a percentage of revenues for product licenses was
89% for the three months ended June 30, 1999 compared to 88% for the three
months ended
10
<PAGE> 11
June 30, 1998.
Services. Cost of revenues for services, which related entirely to
services associated with Intra.doc! software, increased by $219,000, or 154%, to
$361,000 for the three months ended June 30, 1999 from $142,000 for the three
months ended June 30, 1998. Gross profit as a percentage of revenues for
services was 55% for the three months ended June 30, 1999 compared to 37% for
the three months ended June 30, 1998. The increase in gross profit as a
percentage of revenues for services was primarily due to an increase in the
number of maintenance contracts for the three month period ended June 30, 1999
and increased personnel productivity.
Hardware Integration and Support. Cost of revenues for hardware
integration and support decreased by $2.6 million, or 100%, to zero for the
three months ended June 30, 1999 from $2.6 million for the three months ended
June 30, 1998. The decrease in cost of revenues for hardware integration and
support was due to the sale of the hardware integration and support business
during the quarter ended September 30, 1998.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by
$671,000, or 72%, to $1.6 million for the three months ended June 30, 1999 from
$937,000 for the three months ended June 30, 1998. Sales and marketing expenses
as a percentage of total revenues were 46% in 1999 compared to 22% in 1998.
Sales and marketing expenses increased as a percentage of total revenues
primarily due to decreased revenues for hardware integration and support,
combined with increased staffing and marketing expenses for advertising, public
relations and trade shows supporting our Intra.doc! suite of products. The
increase was partially offset by decreased sales and marketing expenses related
to hardware integration and support programs.
General and Administrative. General and administrative expenses
increased by $121,000, or 19%, to $772,000 for the three months ended June 30,
1999 from $651,000 for the three months ended June 30, 1998. General and
administrative expenses as a percentage of total revenues were 22% in 1999
compared to 15% in 1998. General and administrative expenses increased primarily
due to increased personnel expenses, including recruiting expenses, increases in
allowances and increased expenses for professional services.
Research and Development. Research and development expenses increased
by $123,000, or 43%, to $408,000 for the three months ended June 30, 1999 from
$285,000 for the three months ended June 30, 1998. Research and development
expenses as a percentage of total revenue were 12% in 1999 compared to 7% in
1998. The increase in research and development expenses was primarily due to
increases in staffing and related costs required to support our continued
emphasis on product enhancements, partially offset by decreased expenses related
to our hardware integration operations.
Interest Income (Expense)
Interest income was $68,000 for the three months ended June 30, 1999
compared to interest expense of $31,000 for the three months ended June 30,
1998. Interest income for the three months ended June 30, 1999 was due primarily
to the cash received from the follow-on public stock offering completed in June
1999 partially offset by a smaller balance maintained on our revolving
line-of-credit. Interest expense for the three months ended June 30, 1998 was
due to a larger balance maintained on our revolving line-of-credit.
Discontinued Operations
Total losses on discontinued operations was zero for the three months
ended June 30, 1999 compared to $521,000 for the three months ended June 30,
1998. The three months ended June 30, 1998
11
<PAGE> 12
was the final quarter for which discontinued operations relating to our
on-demand publishing group were reported.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations and satisfied our capital expenditure
requirements primarily through revolving working capital and term loans from
banking institutions, private placements of debt and equity securities and
proceeds from the sale of assets related to prior lines of business. Net cash
provided by operating activities was $226,000 for the three months ended June
30, 1999, compared to net cash used in operating activities of $1.2 million for
the three months ended June 30, 1998.
To date, we have invested our capital expenditures primarily in
property and equipment, consisting largely of computer hardware and software.
Capital expenditures for the three months ended June 30, 1999 and 1998 were
approximately $554,000 and $164,000, respectively. We have also entered into
capital and operating leases for facilities and equipment. We expect that our
capital expenditures will increase as our employee base grows. At June 30, 1999,
we did not have any material commitments for capital expenditures.
As of June 30, 1999, we had $26.2 million in cash and cash equivalents
and $29 million in working capital. Net cash provided by financing activities
was $24.6 million for the three months ended June 30, 1999 and $2.6 million for
the three months ended June 30, 1998. At June 30, 1999, we had a $2.25 million
revolving line-of-credit with Diversified Business Credit, Inc. with a zero
balance outstanding and were in compliance with all financial covenants and
restrictions. In July 1999, we closed our revolving line-of-credit facility with
Diversified Business Credit, Inc.
We currently believe that the cash and cash equivalents on hand will be
sufficient to meet our working capital requirements for at least the next 12
months. After that time, we may require additional funds to support our working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity financings or from other sources. We
cannot be certain that additional financing will be available on terms favorable
to us, or on any terms, or that any additional financing will not be dilutive.
YEAR 2000 COMPLIANCE
The "Year 2000 issue" refers generally to the problems that some
software may have in determining the correct century. For example, software with
date-sensitive functions that are not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in system failures
or the creation of erroneous data.
We have adopted a Year 2000 readiness program for the current versions
of our products. Our program includes Year 2000 readiness assessment and
implementation of solutions to potential readiness issues. Solutions include
remediation, upgrading and replacement of certain product versions, as well as
validation testing, and contingency planning. We continue to respond to customer
questions about prior versions of our products on a case-by-case basis.
We have completed all phases of our Year 2000 readiness program, except
for contingency planning, for the current versions of all of our products. As a
result, the current versions of each of our products are Year 2000 compliant,
when configured and used in accordance with the related documentation, and
provided that the underlying operating system of the host machine and any other
software used with or in the host machine or our products are also Year 2000
compliant.
We have tested software obtained from third parties that is
incorporated into our products, and are
12
<PAGE> 13
seeking assurances from our vendors that licensed software is Year 2000
compliant. Despite our testing, testing by current and potential clients and
assurances from developers of products incorporated into our products, our
products may contain undetected errors or defects associated with Year 2000 date
functions. Known or unknown errors or defects in our products could result in
delayed or lost revenues, diversion of development resources, damage to our
reputation or increased service and warranty costs, any of which may have a
material adverse affect on our business, operating results and financial
condition. Some commentators have predicted significant litigation regarding
Year 2000 compliance issues, and we are aware of such lawsuits against other
software vendors. Because of the unprecedented nature of such litigation, it is
uncertain whether or to what extent this may affect us.
Our internal systems include both our information technology, or IT,
and non-IT systems. We have completed an assessment of our material internal IT
systems, including both our own software products and third-party software and
hardware technology. We have also initiated an assessment of our non-IT systems.
We expect to complete testing and any required remediation of our IT systems in
1999. To the extent that we are not able to test the technology provided by
third-party vendors, we are seeking assurances from the vendors that their
systems are Year 2000 compliant. Although we are not currently aware of any
material operational issues or costs associated with preparing our internal IT
and non-IT systems for the Year 2000, we may experience material unanticipated
problems and costs caused by undetected errors or defects in the technology used
in our internal IT and non-IT systems.
We do not currently have complete information concerning the Year 2000
compliance status of all of our customers. Our current and potential clients may
incur significant expenses to achieve Year 2000 compliance. If our clients are
not Year 2000 compliant, they may experience material costs to remedy problems,
or they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate funds that current or potential customers would otherwise have had
for purchases of our products and services. Moreover, the information technology
personnel of our customers and potential customers may be required to focus
substantial efforts on addressing the Year 2000 issues of their own companies,
leaving them unable to evaluate or acquire new technology such as our products.
In addition, customers who currently believe they are Year 2000 compliant may
defer purchases of our products until after January 1, 2000 in order to reassess
their own compliance or to assess the compliance of our products. As a result,
our business, operating results and financial condition may be materially
adversely affected.
We have funded our Year 2000 program from available cash and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We may incur additional costs related to the Year 2000 program
for administrative personnel to manage the project, outside contractor
assistance, technical support for our products, product engineering and customer
satisfaction. We may experience material problems and costs associated with Year
2000 compliance that may materially adversely affect our business, operating
results and financial condition.
We have not yet completed development of a contingency plan to address
situations that may result if we are unable to achieve Year 2000 readiness of
our critical operations. The cost of developing and implementing such a plan may
itself be material. We are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failures and related service interruptions.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q for the first quarter ended June 30, 1999 contains
certain forward looking statements within the meaning of Section 21E of the
Exchange Act. Such forward-looking statements are based on the beliefs of the
Company's management as well as on assumptions made by and information currently
available to the Company at the time such statements were made. When used in
this Form 10-Q, the words "anticipate", "believe", "estimate", "expect",
"intend" and similar expressions, as they relate to the Company, are intended to
identify such forward-looking statements. Although the Company believes these
statements are reasonable, readers of this Form 10-Q should be aware that actual
results could differ
13
<PAGE> 14
materially from those projected by such forward-looking statements as a result
of the risk factors listed below and set forth in the Company's Annual Report on
Form 10-K for 1999 ("Form 10-K") under the caption "Risk Factors." Readers of
this Form 10-Q should consider carefully the factors listed below and under the
caption "Risk Factors" in the Company's Form 10-K, as well as the other
information and data contained in this Form 10-Q. The Company cautions the
reader, however, that such list of factors under the caption "Risk Factors" in
the Company's Form 10-K may not be exhaustive and that those or other factors,
many of which are outside of the Company's control, could have a material
adverse effect on the Company and its results of operations. All forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements set forth
hereunder and under the caption "Risk Factors" in the Company's Form 10-K.
RISK FACTORS
Certain statements made in this Form 10-Q are forward-looking
statements based on our current expectations, assumptions, estimates and
projections about our business and our industry. These forward-looking
statements involve risks and uncertainties. Our business, financial condition
and results of operations could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, as more fully
described below. You should consider carefully the risks and uncertainties
described below, which are not the only ones facing our Company. Additional
risks and uncertainties also may impair our business operations. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR PROSPECTS.
We recorded our first sale of Intra.doc! to customers in fiscal 1997.
Accordingly, we have only a limited operating history in our current product
line on which you can base your evaluation of our business and prospects. In
addition, our prospects must be considered in light of the risks and
uncertainties encountered by companies in an early stage of development in new
and rapidly evolving markets. Many of these risks are discussed under the
subheadings below.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY MAKE IT DIFFICULT TO PREDICT OUR
FUTURE PERFORMANCE.
Our revenues and operating results are difficult to predict and may
fluctuate significantly from quarter to quarter. If our quarterly revenues or
operating results fall below the expectations of investors or securities
analysts, the price of our common stock could fall substantially. A large part
of our sales typically occur in the last month of a quarter. If these sales were
delayed from one quarter to the next for any reason, our operating results could
fluctuate dramatically. In addition, certain of our products have long sales
cycles, making the timing of sales difficult to predict. Furthermore, our
infrastructure costs are generally fixed. As a result, modest fluctuations in
revenues between quarters may cause large fluctuations in operating results.
These factors all tend to make the timing of revenues unpredictable and may lead
to high period-to-period fluctuations in operating results.
Our quarterly revenues and operating results may fluctuate for several
additional reasons, many of which are outside of our control, including the
following:
- demand for our products and services;
- the timing of new product introductions and sales of our products and
services;
- unexpected delays in introducing new products and services;
- increased expenses, whether related to sales and marketing, research
and development or administration;
- changes in the rapidly evolving market for data and content
management solutions;
- the mix of revenues from product licenses and services, as well as
the mix of products licensed;
- the mix of services provided and whether services are provided by our
staff or third-party contractors;
14
<PAGE> 15
- the mix of domestic and international sales;
- costs related to possible acquisitions of technology or businesses;
- general economic conditions; and
- public announcements by our competitors.
WE MAY NOT BE PROFITABLE IN THE FUTURE.
Our revenues may not grow in future periods, may not grow at past rates
and we may not sustain our recent two consecutive quarters of profitability. If
we do not sustain our recent quarterly profitability, the market price of our
stock may fall. Our ability to sustain our recent profitable operations depends
upon many factors beyond our direct control. These factors include, but are not
limited to:
- the demand for our products;
- our ability to quickly introduce new products;
- the level of product and price competition;
- our ability to control costs; and
- general economic conditions.
THE INTENSE COMPETITION IN OUR INDUSTRY MAY REDUCE OUR FUTURE SALES AND PROFITS.
The market for our products is highly competitive and is likely to
become more competitive. We may not be able to compete successfully in our
chosen marketplace, which may have a material adverse effect on our business,
operating results and financial condition. Additional competition may cause
pricing pressure, reduced sales and margins, or prevent our products from
gaining and sustaining market acceptance. Many of our current and potential
competitors have greater name recognition, access to larger customer bases, and
substantially more resources than we have. Competitors with greater resources
than ours may be able to respond more quickly than we can to new opportunities,
changing technology, product standards or customer requirements.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
Any failure to properly manage our growth may have a material adverse
effect on our business, operating results and financial condition. The rapid
growth that we have experienced places significant challenges on our management,
administrative and operational resources. To properly manage this growth, we
must, among other things, implement and improve additional and existing
administrative, financial and operational systems, procedures and controls on a
timely basis. We will also need to expand our finance, administrative and
operations staff. We may not be able to complete the improvements to our
systems, procedures and controls necessary to support our future operations in a
timely manner. Management may not be able to hire, train, integrate, retain,
motivate and manage required personnel and may not be able to successfully
identify, manage and exploit existing and potential market opportunities. In
connection with our expansion, we plan to increase our operating expenses to
expand our sales and marketing operations, develop new distribution channels,
fund greater levels of research and development, broaden services and support
and improve operational and financial systems. Our failure to generate
additional revenue commensurate with an increase in operating expenses during
any fiscal period could have a material adverse effect on our financial results
for that period.
WE DEPEND ON THE INTEGRATION AND CONTINUED SERVICE OF OUR KEY PERSONNEL.
We are a small company and depend greatly on the knowledge and
experience of our senior management team, many of whom have only recently joined
us, and other key personnel. If we fail to quickly integrate our team or lose
any of these key personnel our business, operating results and financial
condition could be materially adversely affected. We must hire additional
employees to meet our business plan and alleviate the negative effect that the
loss of a senior manager could have on us. Our success will
15
<PAGE> 16
depend in part on our ability to attract and retain additional personnel with
the highly specialized expertise necessary to engineer, design and support our
products and services. Like other software companies, we face intense
competition for qualified personnel. We may not be able to attract or retain
such personnel.
OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND OUR SALES FORCE AND DISTRIBUTION
CHANNELS.
To increase our market share and revenues, we must increase the size of
our sales force and the number of our distribution channel partners. Our failure
to do so may have a material adverse effect on our business, operating results
and financial condition. There is intense competition for sales personnel in our
business, and we cannot be sure that we will be successful in attracting,
integrating, motivating and retaining new sales personnel. Our existing or
future distribution channel partners, primarily resellers, may choose to devote
greater resources to marketing and supporting the products of other companies.
In addition, we will need to resolve potential conflicts among our sales force
and distribution channel partners.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON SALES OF OUR INTRA.DOC! PRODUCT
LINE FOR OUR REVENUES.
We currently derive all of our revenues from product licenses and
services associated with our Intra.doc! software products. If we do not continue
to increase revenues related to our existing products or generate revenues from
new products and services, our business, operating results and financial
condition may be materially adversely affected. We will continue to depend on
revenues related to new and enhanced versions of our Intra.doc! product line for
the foreseeable future. Our success will largely depend on our ability to
increase sales from existing Intra.doc! products and generate sales from product
enhancements and new products. We cannot be certain that we will be successful
in upgrading and marketing our existing products or that we will be successful
in developing and marketing new products and services. The market for our
products is highly competitive and subject to rapid technological change.
Technological advances could make our Intra.doc! products less attractive to
customers and adversely affect our business. In addition, complex software
product development involves certain inherent risks, including risks that errors
may be found in a product enhancement or new product after its release, even
after extensive testing, and the risk that discovered errors may not be
corrected in a timely manner.
WE MAY REQUIRE ADDITIONAL FINANCING.
If we cannot raise funds as needed on acceptable terms, we may be
unable to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or anticipated requirements,
all of which may have a material adverse effect on our business, operating
results and financial condition. We expect the net proceeds of approximately
$23.5 million from our recent offering of common stock to meet our capital
requirements for at least the next 12 months. After that time, we may need to
raise additional funds. We cannot be certain that we will be able to do so on
favorable terms, if at all. Further, if we issue equity securities, our
shareholders may experience additional dilution.
THE YEAR 2000 MAY ADVERSELY AFFECT OUR PRODUCTS AND INTERNAL SYSTEMS.
We are subject to potential Year 2000 problems affecting our products,
our internal systems and the systems of our suppliers, any of which may have a
material adverse effect on our business, operating results and financial
condition.
Our products may be adversely affected by the Year 2000 as a result of
undetected errors or defects. Known or unknown errors or defects in our products
related to the Year 2000 could result in delay or loss of revenue, diversion of
development resources, damage to our reputation, or increased service and
warranty costs, any of which may materially adversely affect our business,
operating results, or financial condition.
16
<PAGE> 17
If our suppliers, vendors, major distributors or partners fail to
correct their Year 2000 problems, such failure could result in an interruption
in, or failure of, our normal business activities or operations. In addition,
our internal systems include both information technology, or IT, and non-IT
systems. We may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal IT and
non-IT systems.
We have not yet completed the development of a contingency plan to
address situations that may result if we are unable to achieve Year 2000
compliance of our critical operations. The cost of developing and implementing
such a plan may itself be material.
THE YEAR 2000 MAY ADVERSELY AFFECT PURCHASES OF OUR PRODUCTS.
Our current or future customers may incur significant expense to
achieve Year 2000 compliance. If our customers are not Year 2000 compliant they
may expend material costs to remedy problems or they may face litigation
expense. In either case, Year 2000 issues could reduce or eliminate customers'
budgets for purchases of our products. Even those customers who currently
believe they are Year 2000 compliant may defer purchases of our products until
after January 1, 2000 in order to reassess their own compliance or to assess the
compliance of our products. Delays in purchases of our products as a result of
the Year 2000 could have a material adverse effect on our business, operating
results and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETY TECHNOLOGY.
If we are unable to protect our intellectual property, or incur
significant expense in doing so, our business, operating results and financial
condition may be materially adversely affected. Any steps we take to protect our
intellectual property may be inadequate, time consuming and expensive. We
currently have no patents or pending patent applications. Without significant
patent or copyright protection, we may be vulnerable to competitors who develop
functionally equivalent products. We may also be subject to claims that our
current products infringe on the intellectual property rights of others. Any
such claim may have a material adverse effect on our business, operating results
and financial condition.
We anticipate that software product developers will be increasingly
subject to infringement claims due to growth in the number of products and
competitors in our industry, and the overlap in functionality of products in
different industries. Any infringement claim, regardless of its merit, could be
time-consuming, expensive to defend, or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements may not be available
on commercially favorable terms, or at all. We are not currently involved in any
intellectual property litigation.
We rely on trade secret protection, confidentiality procedures and
contractual provisions to protect our proprietary information. Despite our
attempts to protect our confidential and proprietary information, others may
gain access to this information. Alternatively, other companies may
independently develop substantially equivalent information. IntraNet Solutions
has been issued trademarks for the Intra.doc! mark and the IntraNet Solutions
mark and has applied for trademark registration for the following marks:
Document Refinery, Web Refinery and Web Vault.
We are not certain whether any trademarks that have been applied for
will be issued. In the absence of trademark protection, we may be unable to take
advantage of the brand name recognition we are attempting to build. In addition,
even if all trademarks applied for are issued, we cannot be sure that such
trademarks will prove valuable to us.
WE COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS IF OUR CUSTOMERS' DATA IS
DAMAGED THROUGH THE USE OF OUR PRODUCTS.
If software errors or design defects in our products cause damage to
customers' data and our agreements do not protect us from related product
liability claims, our business, operating results and
17
<PAGE> 18
financial condition may be materially adversely affected. Our software products
are complex and sophisticated and may contain design defects or software errors
that are difficult to detect and correct. Errors, bugs or viruses may result in
the loss of market acceptance or the loss of customer data. Our agreements with
customers that attempt to limit our exposure to product liability claims may not
be enforceable in certain jurisdictions where we operate.
SIGNIFICANT FLUCTUATION IN THE MARKET PRICE OF OUR COMMON STOCK COULD RESULT IN
SECURITIES LITIGATION AGAINST US.
In the past, securities class action litigation has been brought
against publicly held companies following periods of volatility in the price of
their securities. If we were subject to such litigation due to volatility in our
stock price, we may incur substantial costs. Such litigation could divert the
attention of our senior management away from our business, which could have a
material adverse effect on our business, operating results and financial
condition.
The market price of our common stock has fluctuated significantly in
the past and may do so in the future. The market price of our common stock may
be affected by each of the following factors, many of which are outside of our
control:
- variations in quarterly operating results;
- changes in estimates by securities analysts;
- changes in market valuations of companies in our industry;
- announcements by us of significant events, such as major sales,
acquisitions of businesses or losses of major customers;
- additions or departures of key personnel; and
- sales of our equity securities.
OUR PERFORMANCE WILL DEPEND ON THE GROWTH AND ACCEPTANCE OF THE INTERNET.
Our products are designed to be used with the Internet and private
intranets and extranets. If the use of these methods of electronic communication
does not grow, our business, operating results and financial condition may be
materially adversely affected. Continued growth in the use of the Internet will
require ongoing and widespread interest in its capabilities for communication
and commerce. Its growth will also require maintenance and expansion of the
infrastructure supporting its use and the development of performance
improvements, such as high speed modems. The Internet infrastructure may not be
able to support the demands placed on it by continued growth. The ongoing
development of corporate intranets depends on continuation of the trend toward
network-based computing and on the willingness of businesses to reengineer the
processes used to create, store, manage and distribute their data. All of these
factors are outside of our control.
OUR EXISTING SHAREHOLDERS WILL EXERCISE SIGNIFICANT CONTROL OVER INTRANET
SOLUTIONS.
Robert F. Olson, our President and Chief Executive Officer, holds
approximately 22% of our outstanding common stock. Accordingly, Mr. Olson will
be able to exercise significant control over the affairs of IntraNet Solutions.
Additionally, our directors and executive officers beneficially own
approximately 25% of our common stock. These persons effectively control
IntraNet Solutions and will be able to direct its affairs, including approval of
the acquisition or disposition of assets, future issuances of common stock or
other securities and the authorization of dividends on our common stock. Our
directors and executive officers could use their stock ownership to delay, defer
or prevent a change in control of IntraNet Solutions, depriving shareholders of
the opportunity to sell their stock at a price in excess of the prevailing
market price.
WE CAN ISSUE SHARES OF PREFERRED STOCK WITHOUT SHAREHOLDER APPROVAL, WHICH
COULD ADVERSELY AFFECT THE RIGHTS OF COMMON SHAREHOLDERS.
18
<PAGE> 19
Our Articles of Incorporation permit us to establish the rights,
privileges, preferences and restrictions, including voting rights, of unissued
shares of our capital stock and to issue such shares without approval from our
shareholders. The rights of holders of our common stock may suffer as a result
of the rights granted to holders of preferred stock that may be issued in the
future. In addition, we could issue preferred stock to prevent a change in
control of IntraNet Solutions, depriving shareholders of an opportunity to sell
their stock at a price in excess of the prevailing market price.
CERTAIN PROVISIONS OF MINNESOTA LAW MAY MAKE A TAKEOVER OF INTRANET SOLUTIONS
DIFFICULT, DEPRIVING SHAREHOLDERS OF OPPORTUNITIES TO SELL SHARES AT
ABOVE-MARKET PRICES.
Certain provisions of Minnesota law may have the effect of discouraging
attempts to acquire IntraNet Solutions without the approval of our Board of
Directors. Consequently, our shareholders may lose opportunities to sell their
stock for a price in excess of the prevailing market price.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk is unlikely to have a material adverse effect
on the Company's business, results of operations or financial condition.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company has issued the following equity securities pursuant to
exemptions from registration under the Securities Act of 1933, as amended (the
"Securities Act"). All such sales were made in reliance upon the exemptions from
registration provided under Sections 3(b) and 4(2) of the Securities Act.
In May 1999, the Company issued five-year warrants to purchase 17,120
shares of common stock at $6.56 for services performed by Andcor Companies, Inc.
The warrants were valued at fair market value on the date of grant.
In June 1999, the Company issued five-year warrants to purchase 4,000
shares of common stock at $8.44 for partial payment for a domain name from
Christopher Reed. The warrants were valued at fair market value on the date of
grant.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) EXHIBITS
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Articles of Incorporation (incorporated
by reference to Exhibit 3.1 of the Registrant's registration
statement on Form SB-2, File No. 333-13175).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the
Registrant's registration statement on Form SB-2, File No.
333-14175).
3.3 Articles of Amendment to Articles of Incorporation, as dated
June 20, 1997 (incorporated by reference to Exhibit 3.3 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
4.1 Certificate of Designation of Series B Preferred Stock
(incorporated by reference of Exhibit 4.1 of the Registrant's
registration statement on Form S-3, File No. 333-57181).
4.2 Securities Purchase Agreement, dated May 6, 1998, by and among
the Registrant, Stark International and Shepherd Investments
International, Ltd. (incorporated by reference to Exhibit 4.2
of the Registrant's registration statement on Form S-3, File
No. 333-57181).
4.3 Registration Rights Agreement, dated May 6, 1998, by and among
the Registrant, Stark International and Shepherd Investments
International, Ltd. (incorporated by reference to Exhibit 4.3
of the Registrant's registrations statement on Form S-3, No.
333-57181).
4.4 Certificate of Designation of Series A convertible preferred
stock (incorporated by reference to Exhibit 3 (i) (A) of the
Registrant's Form 10QSB for the three months ended June 30,
1997).
4.5 Form of Stock Purchase Warrant issued to purchases of units
containing the Registrant's Series A convertible preferred
stock and Stock Purchase Warrants (incorporated by reference
to Exhibit 4.1 of the Registrant's Form 10-QSB for the three
months ended June 30, 1997).
20
<PAGE> 21
4.6 Form of Registration Rights Agreement entered into by and
between the Registrant and purchasers of units containing the
Registrant's Series A convertible preferred stock and Stock
Purchase Warrants (incorporated by reference to Exhibit 10.1
Registrant's Form 10-QSB for the three months ended June 30,
1997).
10.1 Lease Agreement dated, April 24, 1996, by and between CSM
Investors, Inc. and Registrant (incorporated by reference to
Exhibit 10.1 of the Registrant's registration statement on
Form SB-2, File No. 333-14175).
10.2 Credit and Security Agreement, dated March 14, 1995, by and
between Diversified Business Credit, Inc. and the Registrant
(incorporated by reference to Exhibit 10.2 of the Registrant's
registration statement on Form SB-2, file No. 333-14175).
10.3 Term Loan supplement to Credit Agreement, dated March 14,
1995, by and between the Registrant and Diversified Business
Credit, Inc. (incorporated by reference to Exhibit 10.3 of the
Registrant's registration statement on Form SB-2, File No.
333-14175).
10.4 IntraNet Solutions, Inc. 1994-1997 Stock Option and
Compensation Plan (incorporated by reference to Exhibit 10.4
of the Registrant's registration statement on Form SB-2, File
No. 333-14175).
10.5 Employment Agreement, dated July 30, 1996, by and between the
Registrant and Robert F. Olson (incorporated by reference to
Exhibit 10.5 of the Registrant's registration statement on
Form SB-2, File No. 333-14175).
10.6 Employment Agreement, dated July 30, 1996, by and between the
Registrant and Jeffrey J. Sjobeck (incorporated by reference
to Exhibit 10.6 to the Registrant's Form 10-KSB for the fiscal
year ended March 31, 1997).
10.7 Promissory Note, dated December 23, 1996, made by the
Registrant in favor of Circle F. Ventures, LLC (incorporated
by reference to Exhibit 10.7 of the Registrant's Form 10-KSB
for the fiscal year ended March 31, 1997).
10.8 Amendment, dated March 4, 1997, to the Promissory Note made by
the Registrant in favor of Circle F Ventures, LLC dated
December 23, 1996 (incorporated by reference to Exhibit 10.8
of the Registrant's Form 10KSB for the fiscal year ended March
31, 1997).
10.9 Lease Agreement dated April 22, 1998, by and between Lake
Corporate Center LLC and the Registrant (incorporated by
reference to Exhibit 10.9 of the Registrant's registration
statement on Form 10-KSB for the fiscal year ended March 31,
1998).
10.10 Stock Purchase Warrant Agreement, dated December 23, 1996, by
and between the Company and Circle F. Ventures, LLC
(incorporated by reference to Exhibit 10.10 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.11 Security Agreement, dated December 23, 1996, by and between
the Registrant and Circle F. Ventures, LLC (incorporated by
reference to Exhibit 10.11 of the Registrant's Form 10-KSB for
the fiscal year ended March 31, 1997).
10.12 Subordination Agreement, dated December 23, 1996, by and
between the Registrant Diversified Business Credit, Inc. and
Circle F. Ventures, LLC (incorporated by reference to Exhibit
10.12 of the Registrant's Form 10-KSB for the fiscal year
ended March 31, 1997).
21
<PAGE> 22
10.13 Promissory Note, dated March 18, 1997, made by the Registrant
in favor of Circle F Ventures, LLC (incorporated by reference
to Exhibit 10.13 of the Registrant's Form 10-KSB for the
fiscal year ended March 31, 1997).
10.14 Sublease Agreement, dated April 22, 1998, by and between CSM
Investors, Inc., Digital River, Inc. and the Registrant
(incorporated by reference to Exhibit 10.14 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.15 Stock Purchase Warrant Agreement, dated March 18, 1997, by and
between the Registrant and Circle F Ventures, LLC
(incorporated by reference to Exhibit 10.15 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.16 Schedule identifying certain material details of documents
substantially identical to those set forth in Exhibits 10.17,
10.18, 10.19 and 10.20 (incorporated by reference to Exhibit
10.16 of the Registrant's Form 10-KSB for the fiscal year
ended March 31, 1997).
10.17 Promissory Note, dated December 20, 1996, made by the
Registrant in favor of Rita M. Olson (incorporated to Exhibit
10.17 of the Registrant's Form 10KSB for the fiscal year ended
March 31, 1997).
10.18 Amendment, dated March 4, 1997, to the Promissory Note made by
the Registrant in favor of Rita M. Olson dated December 20,
1996 (incorporated by reference to Exhibit 10.18 of the
Registrant's Form 10KSB for the fiscal year ended March 31,
1997).
10.19 Amendment, dated June 5, 1997, by and between the Registrant
and Rita M. Olson dated December 20, 1996 (incorporated by
reference to Exhibit 10.19 of the Registrant's Form 10-KSB for
the fiscal year ended March 31, 1997).
10.20 Stock Purchase Warrant Agreement, dated December 20, 1996, by
and between the Registrant and Rita M. Olson (incorporated by
reference to Exhibit 10.20 of the Registrant's Form 10-KSB for
the fiscal year ended March 31, 1997).
10.21 Note Conversion and Subscription Agreement, dated June 6,
1997, by and between the Registrant and Rita M. Olson
(incorporated by reference to Exhibit 10.21 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.22 Note Conversion and Subscription Agreement, dated June 6,
1997, by and between the Registrant and Wayne W. Mills
(incorporated by reference to Exhibit 10.22 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.23 Asset Purchase Agreement, dated as of March 30, 1998, by and
among Midwest Graphics & Response Systems, Inc., Stephen M.
Krenz, and IntraNet Distribution Group, Inc. (incorporated by
reference to Exhibit 10.23 of the Registrant's Form 10-QSB for
the three months ended September 30, 1998).
10.24 Asset Purchase Agreement, dated August 13, 1998, by and among
Intranet Solutions, Inc., IntraNet Distribution Group, Inc,
and Communication Connections, Inc. (incorporated by reference
to Exhibit 10.24 of the Registrant's Form 10-QSB for the three
months ended September 30, 1998).
10.25 Asset Purchase Agreement, dated effective as of September 30,
1998, by and between Osage Systems Group, Inc., Osage Systems
Group Minneapolis, Inc. and IntraNet Solutions, Inc.
(incorporated by reference to Exhibit 10.25 of the
Registrant's Form 10-QSB for the three months ended September
30, 1998).
22
<PAGE> 23
10.26 Employment Agreement, dated April 1, 1999, by and between the
Registrant and Gregg A. Waldon. (incorporated by reference to
Exhibit 10.26 of the Registrant's statement on Form S-1, File
No. 333-77389).
10.27 Credit and Security Agreement, dated April 11, 1999, by and
between the Registrant and Diversified Business Credit, Inc.
(incorporated by reference to Exhibit 10.27 of Registrant's
statement on Form S-1, File No. 333-77389).
11.1 Statement RE: Computation of Earnings per Common Share.
21 Subsidiaries of Registrant (incorporated by reference to
Exhibit 21 of the Registrant's registration statement on Form
SB-2, File No. 333-14175).
27 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
No Reports on Form 8-K have been filed for the quarter ended June 30,
1999.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IntraNet Solutions, Inc.
------------------------
(Registrant)
Date: August 16, 1999 By: /s/ Robert F. Olson
-------------------
Robert F. Olson,
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: August 16, 1999 By: /s/ Gregg A. Waldon
-------------------
Gregg A. Waldon
Chief Financial Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
24
<PAGE> 25
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Articles of Incorporation (incorporated
by reference to Exhibit 3.1 of the Registrant's registration
statement on Form SB-2, File No. 333-13175).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the
Registrant's registration statement on Form SB-2, File No.
333-14175).
3.3 Articles of Amendment to Articles of Incorporation, as dated
June 20, 1997 (incorporated by reference to Exhibit 3.3 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
4.1 Certificate of Designation of Series B Preferred Stock
(incorporated by reference of Exhibit 4.1 of the Registrant's
registration statement on Form S-3, File No. 333-57181).
4.2 Securities Purchase Agreement, dated May 6, 1998, by and among
the Registrant, Stark International and Shepherd Investments
International, Ltd. (incorporated by reference to Exhibit 4.2
of the Registrant's registration statement on Form S-3, File
No. 333-57181).
4.3 Registration Rights Agreement, dated May 6, 1998, by and among
the Registrant, Stark International and Shepherd Investments
International, Ltd. (incorporated by reference to Exhibit 4.3
of the Registrant's registrations statement on Form S-3, No.
333-57181).
4.4 Certificate of Designation of Series A convertible preferred
stock (incorporated by reference to Exhibit 3 (i) (A) of the
Registrant's Form 10QSB for the three months ended June 30,
1997).
4.5 Form of Stock Purchase Warrant issued to purchases of units
containing the Registrant's Series A convertible preferred
stock and Stock Purchase Warrants (incorporated by reference
to Exhibit 4.1 of the Registrant's Form 10-QSB for the three
months ended June 30, 1997).
4.6 Form of Registration Rights Agreement entered into by and
between the Registrant and purchasers of units containing the
Registrant's Series A convertible preferred stock and Stock
Purchase Warrants (incorporated by reference to Exhibit 10.1
Registrant's Form 10-QSB for the three months ended June 30,
1997).
10.1 Lease Agreement dated, April 24, 1996, by and between CSM
Investors, Inc. and Registrant (incorporated by reference to
Exhibit 10.1 of the Registrant's registration statement on
Form SB-2, File No. 333-14175).
10.2 Credit and Security Agreement, dated March 14, 1995, by and
between Diversified Business Credit, Inc. and the Registrant
(incorporated by reference to Exhibit 10.2 of the Registrant's
registration statement on Form SB-2, file No. 333-14175).
10.3 Term Loan supplement to Credit Agreement, dated March 14,
1995, by and between the Registrant and Diversified Business
Credit, Inc. (incorporated by reference to Exhibit 10.3 of the
Registrant's registration statement on Form SB-2, File No.
333-14175).
10.4 IntraNet Solutions, Inc. 1994-1997 Stock Option and
Compensation Plan (incorporated by reference to Exhibit 10.4
of the Registrant's registration statement on Form SB-2, File
No. 333-14175).
<PAGE> 26
10.5 Employment Agreement, dated July 30, 1996, by and between the
Registrant and Robert F. Olson (incorporated by reference to
Exhibit 10.5 of the Registrant's registration statement on
Form SB-2, File No. 333-14175).
10.6 Employment Agreement, dated July 30, 1996, by and between the
Registrant and Jeffrey J. Sjobeck (incorporated by reference
to Exhibit 10.6 to the Registrant's Form 10-KSB for the fiscal
year ended March 31, 1997).
10.7 Promissory Note, dated December 23, 1996, made by the
Registrant in favor of Circle F. Ventures, LLC (incorporated
by reference to Exhibit 10.7 of the Registrant's Form 10-KSB
for the fiscal year ended March 31, 1997).
10.8 Amendment, dated March 4, 1997, to the Promissory Note made by
the Registrant in favor of Circle F Ventures, LLC dated
December 23, 1996 (incorporated by reference to Exhibit 10.8
of the Registrant's Form 10KSB for the fiscal year ended March
31, 1997).
10.9 Lease Agreement dated April 22, 1998, by and between Lake
Corporate Center LLC and the Registrant (incorporated by
reference to Exhibit 10.9 of the Registrant's registration
statement on Form 10-KSB for the fiscal year ended March 31,
1998).
10.10 Stock Purchase Warrant Agreement, dated December 23, 1996, by
and between the Company and Circle F. Ventures, LLC
(incorporated by reference to Exhibit 10.10 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.11 Security Agreement, dated December 23, 1996, by and between
the Registrant and Circle F. Ventures, LLC (incorporated by
reference to Exhibit 10.11 of the Registrant's Form 10-KSB for
the fiscal year ended March 31, 1997).
10.12 Subordination Agreement, dated December 23, 1996, by and
between the Registrant Diversified Business Credit, Inc. and
Circle F. Ventures, LLC (incorporated by reference to Exhibit
10.12 of the Registrant's Form 10-KSB for the fiscal year
ended March 31, 1997).
10.13 Promissory Note, dated March 18, 1997, made by the Registrant
in favor of Circle F Ventures, LLC (incorporated by reference
to Exhibit 10.13 of the Registrant's Form 10-KSB for the
fiscal year ended March 31, 1997).
10.14 Sublease Agreement, dated April 22, 1998, by and between CSM
Investors, Inc., Digital River, Inc. and the Registrant
(incorporated by reference to Exhibit 10.14 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.15 Stock Purchase Warrant Agreement, dated March 18, 1997, by and
between the Registrant and Circle F Ventures, LLC
(incorporated by reference to Exhibit 10.15 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.16 Schedule identifying certain material details of documents
substantially identical to those set forth in Exhibits 10.17,
10.18, 10.19 and 10.20 (incorporated by reference to Exhibit
10.16 of the Registrant's Form 10-KSB for the fiscal year
ended March 31, 1997).
10.17 Promissory Note, dated December 20, 1996, made by the
Registrant in favor of Rita M. Olson (incorporated to Exhibit
10.17 of the Registrant's Form 10KSB for the fiscal year ended
March 31, 1997).
<PAGE> 27
10.18 Amendment, dated March 4, 1997, to the Promissory Note made by
the Registrant in favor of Rita M. Olson dated December 20,
1996 (incorporated by reference to Exhibit 10.18 of the
Registrant's Form 10KSB for the fiscal year ended March 31,
1997).
10.19 Amendment, dated June 5, 1997, by and between the Registrant
and Rita M. Olson dated December 20, 1996 (incorporated by
reference to Exhibit 10.19 of the Registrant's Form 10-KSB for
the fiscal year ended March 31, 1997).
10.20 Stock Purchase Warrant Agreement, dated December 20, 1996, by
and between the Registrant and Rita M. Olson (incorporated by
reference to Exhibit 10.20 of the Registrant's Form 10-KSB for
the fiscal year ended March 31, 1997).
10.21 Note Conversion and Subscription Agreement, dated June 6,
1997, by and between the Registrant and Rita M. Olson
(incorporated by reference to Exhibit 10.21 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.22 Note Conversion and Subscription Agreement, dated June 6,
1997, by and between the Registrant and Wayne W. Mills
(incorporated by reference to Exhibit 10.22 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.23 Asset Purchase Agreement, dated as of March 30, 1998, by and
among Midwest Graphics & Response Systems, Inc., Stephen M.
Krenz, and IntraNet Distribution Group, Inc. (incorporated by
reference to Exhibit 10.23 of the Registrant's Form 10-QSB for
the three months ended September 30, 1998).
10.24 Asset Purchase Agreement, dated August 13, 1998, by and among
Intranet Solutions, Inc., IntraNet Distribution Group, Inc,
and Communication Connections, Inc. (incorporated by reference
to Exhibit 10.24 of the Registrant's Form 10-QSB for the three
months ended September 30, 1998).
10.25 Asset Purchase Agreement, dated effective as of September 30,
1998, by and between Osage Systems Group, Inc., Osage Systems
Group Minneapolis, Inc. and IntraNet Solutions, Inc.
(incorporated by reference to Exhibit 10.25 of the
Registrant's Form 10-QSB for the three months ended September
30, 1998).
10.26 Employment Agreement, dated April 1, 1999, by and between the
Registrant and Gregg A. Waldon. (incorporated by reference to
Exhibit 10.26 of the Registrant's statement on Form S-1, File
No. 333-77389).
10.28 Credit and Security Agreement, dated April 11, 1999, by and
between the Registrant and Diversified Business Credit, Inc.
(incorporated by reference to Exhibit 10.27 of Registrant's
statement on Form S-1, File No. 333-77389).
11.1 Statement RE: Computation of Earnings per Common Share.
21 Subsidiaries of Registrant (incorporated by reference to
Exhibit 21 of the Registrant's registration statement on Form
SB-2, File No. 333-14175).
27 Financial Data Schedule.
<PAGE> 1
Exhibit 11.1 - Computation of Earnings Per Common Share.
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Numerator:
Income (loss) from continuing
operations $ (493,824) $ 118,960
Discontinued operations (521,464) --
------------ ------------
Net income (loss) (1,015,288) 118,960
Preferred stock dividends and
accretion (603,034) --
------------ ------------
Numerator for basic and diluted
earnings per share - income (loss)
attributable to common shareholders $ (1,618,322) $ 118,960
============ ============
Denominator:
Denominator for basic earnings per
share - weighted average shares 8,652,868 11,815,409
Effect of dilutive securities:
Employee stock options -- 680,195
Warrants -- 396,092
Convertible preferred stock -- 62,160
------------ ------------
Dilutive potential common shares -- 1,138,447
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 8,652,868 12,953,856
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 26,242,881
<SECURITIES> 0
<RECEIVABLES> 4,504,096
<ALLOWANCES> 444,815
<INVENTORY> 287,572
<CURRENT-ASSETS> 31,599,395
<PP&E> 1,922,761
<DEPRECIATION> 668,014
<TOTAL-ASSETS> 32,936,446
<CURRENT-LIABILITIES> 2,561,144
<BONDS> 0
0
0
<COMMON> 145,987
<OTHER-SE> 30,182,860
<TOTAL-LIABILITY-AND-EQUITY> 32,936,446
<SALES> 3,503,077
<TOTAL-REVENUES> 3,503,077
<CGS> 662,967
<TOTAL-COSTS> 662,967
<OTHER-EXPENSES> 2,789,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (68,071)
<INCOME-PRETAX> 118,960
<INCOME-TAX> 0
<INCOME-CONTINUING> 118,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,960
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
