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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 September 30, 2000.
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.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1652566
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7777 Golden Triangle Drive, Eden Prairie, Minnesota 55344-3736
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(Address of principal executive offices) (Zip Code)
(952) 903-2000
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(Registrant's telephone number, including area code)
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
21,503,229 shares as of November 6, 2000.
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INDEX
INTRANET SOLUTIONS, INC.
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2000 and March 31, 2000..........................3
Condensed Consolidated Statements of Operations - Three months and six months ended
September 30, 2000 and 1999............................................................................4
Condensed Consolidated Statements of Cash Flows - Six months ended
September 30, 2000 and 1999............................................................................5
Notes to Condensed 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............................................20
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders...................................................21
Item 6. Exhibits and Reports on Form 8-K......................................................................22
SIGNATURES......................................................................................................23
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 8,093 $ 8,859
Short-term investments .................................................... 91,492 124,883
Accounts receivable, net .................................................. 17,242 7,446
Current maturities of notes receivable .................................... 897 126
Inventories ............................................................... 643 149
Prepaid royalties ......................................................... 689 1,231
Prepaid expenses and other current assets ................................. 2,107 663
--------- ---------
Total current assets ........................................................ 121,163 143,357
Notes receivable, net of current maturities ................................. 529 --
Property and equipment, net ................................................. 3,729 887
Prepaid royalties ........................................................... 2,462 1,644
Intangibles relating to acquisitions ........................................ 37,756 --
Other ....................................................................... 4,331 1,427
--------- ---------
Total assets ................................................................ $ 169,970 $ 147,315
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations ............................... $ 73 $ 115
Accounts payable .......................................................... 1,616 2,922
Deferred revenues ......................................................... 5,925 1,433
Commissions payable ....................................................... 1,718 811
Accrued expenses .......................................................... 2,810 964
--------- ---------
Total current liabilities ................................................... 12,142 6,245
Deferred revenue, net of current portion .................................... 596 89
Long-term obligations, net of current maturities............................. 144 11
--------- ---------
Total liabilities ........................................................... 12,882 6,345
--------- ---------
Shareholders' equity:
Common stock, 21,431 and 20,665 shares issued and outstanding, respectively 214 207
Additional paid-in capital ................................................ 177,432 153,296
Accumulated deficit ....................................................... (20,558) (12,533)
--------- ---------
Total shareholders' equity ................................................ 157,088 140,970
--------- ---------
Total liabilities and shareholders' equity .................................. $ 169,970 $ 147,315
========= =========
</TABLE>
See accompanying notes.
Note: The balance sheet at March 31, 2000 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.
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INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------- ---------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product licenses ..................................... $ 12,747 $ 3,549 $ 20,194 $ 7,024
Services ............................................. 2,875 1,025 4,890 1,997
--------- --------- --------- ---------
Total revenues ........................................ 15,622 4,574 25,084 9,021
--------- --------- --------- ---------
Cost of revenues:
Product licenses ..................................... 834 401 1,499 725
Services ............................................. 1,551 553 2,709 965
--------- --------- --------- ---------
Total cost of revenues ................................ 2,385 954 4,208 1,690
--------- --------- --------- ---------
Gross profit .......................................... 13,237 3,620 20,876 7,331
--------- --------- --------- ---------
Operating expenses:
Sales and marketing .................................. 6,545 2,054 10,801 3,995
General and administrative ........................... 2,317 863 3,744 1,778
Research and development ............................. 2,652 576 3,706 1,147
Acquisition and related costs ........................ 590 1,972 590 1,972
Amortization of acquired intangible assets and other.. 3,466 -- 3,629 --
Write-off of in-process research and development ..... 10,400 -- 10,400 --
--------- --------- --------- ---------
Total operating expenses .............................. 25,970 5,465 32,870 8,892
--------- --------- --------- ---------
Loss from operations .................................. (12,733) (1,845) (11,994) (1,561)
Other:
Interest income, net ................................. 1,719 361 3,969 394
--------- --------- --------- ---------
Net loss .............................................. $(11,014) $ (1,484) $ (8,025) $ (1,167)
========= ========= ========= =========
Net loss per common share - basic and diluted.......... $ (0.52) $ (0.09) $ (0.38) $ (0.08)
Weighted average common shares outstanding -
basic and diluted.................................. 21,331 16,695 21,257 15,088
</TABLE>
See accompanying notes.
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INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
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2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income .............................................................. $ (8,025) $ (1,167)
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization .......................................... 4,171 259
Write-off of in-process Research & Development ......................... 10,400 --
Amortization of intangibles and other acquisition costs ................ 3,382 72
Non cash marketing expense ............................................. 247 --
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net ............................................... (3,830) (543)
Prepaid expenses ....................................................... (535) (177)
Inventories ............................................................ 115 (84)
Accounts payable ....................................................... (412) 188
Accrued liabilities .................................................... 58 1,465
Deferred revenue ....................................................... (303) 287
Other current assets and liabilities ................................... (1,239) 13
------------ ------------
Net cash flows provided by operating activities......................... 4,029 313
------------ ------------
INVESTING ACTIVITIES:
Purchases of investments ............................................... (2,423,355) (58,522)
Maturities of investments .............................................. 2,456,746 32,664
Purchase of property and equipment ..................................... (5,177) (363)
Acquisitions, net of cash acquired ..................................... (54,521) --
Other investments ...................................................... (2,113) (402)
Other .................................................................. -- 70
----------- -----------
Net cash used in investing activities .................................. (28,420) (26,553)
----------- -----------
FINANCING ACTIVITIES:
Net repayments from revolving credit facility .......................... -- (421)
Payments on long-term debt obligations ................................. (90) (676)
Proceeds from long-term obligations .................................... -- 100
Issuance of common stock, net of offering expenses ..................... 22,244 26,956
Proceeds from exercise of stock options and warrants ................... 1,471 2,027
Other .................................................................. -- (504)
----------- -----------
Net cash flows provided by financing activities ........................ 23,625 27,482
----------- -----------
Net increase (decrease) in cash ........................................ (766) 1,242
Cash and cash equivalents, beginning of period ......................... 8,859 2,020
----------- -----------
Cash and cash equivalents, end of period ............................... $ 8,093 $ 3,262
=========== ===========
</TABLE>
See accompanying notes.
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INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. NATURE OF THE BUSINESS
IntraNet Solutions, Inc., (the "Company") is a leading provider of
Web-based content management solutions and mobile and wireless access for
intranet, extranet and Internet applications that offer customers the ability to
rapidly access, manage and publish business data. IntraNet Solutions' Xpedio
Content Management System is the industry's first single source, end-to-end
content management solution. The Company's customers are primarily located
throughout the United States and in Europe.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Regulation S-X 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.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position as of
September 30, 2000 and March 31, 2000 and the results of operations for the
three months and six months ended September 30, 2000 and 1999 and cash flows for
the six months ended September 30, 2000 and 1999. The results of operations for
the three months and six months ended September 30, 2000 are not necessarily
indicative of the results for the full year.
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. See
note 5 for a discussion of recent acquisitions.
Revenue Recognition: The Company currently derives all of its revenues
from licenses of its suite of products and related services. Product license
revenue is recognized when evidence of a purchase arrangement exists, the
product has been shipped, the fee is determinable and collectible, and no
significant obligations remain related to implementation. Technical services and
support 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.
Customers 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.
Short-term Investments: Investments in debt securities with a remaining
maturity of three months or less at the date of purchase are classified as
short-term investments. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
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each balance sheet date. The book value of the investments approximates their
estimated market value. As of September 30, 2000 the Company's investments were
in commercial paper and U.S. Government Agency securities. All investments have
a contractual maturity of three months or less and are held to maturity.
Reclassifications: Certain reclassifications have been made to the
three month and six month periods ending September 30, 1999 to conform with the
presentation used in the September 30, 2000 financial statements. The
reclassifications did not effect net income or shareholders' equity as
previously reported.
3. NET LOSS PER COMMON SHARE
The Company's basic net loss per share amounts have been computed by dividing
net loss by the weighted average number of outstanding common shares. The
Company's diluted net earnings (loss) per share is computed by dividing net
earnings (loss) by the weighted average number of outstanding common shares and
common share equivalents relating to options and warrants, when dilutive. As a
result of the Company's net loss, all of the Company's stock options and
warrants were anti-dilutive.
4. SHAREHOLDERS' EQUITY
Common stock offering: The Company consummated a common stock offering
on June 3, 1999, consisting of 3,230 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 $2,300, was
approximately $23,500. In July 1999, the underwriters' exercised their 15%
over-allotment, resulting in the sale of an additional 485 shares of common
stock. The net proceeds from the exercise of the over-allotment were
approximately $3,400.
On March 9, 2000, the Company completed a secondary offering of 2,305
shares of its common stock and received net proceeds of approximately $100,000.
The proceeds from both offerings will be used for working capital and general
corporate purposes. On April 10, 2000, 520 shares of the underwriters' over
allotment option from the Company's March 9, 2000 secondary offering were issued
for net proceeds of approximately $22,729.
5. ACQUISITIONS
On September 29, 1999, the Company completed its acquisition of
InfoAccess, using the pooling-of-interests method of accounting. Accordingly,
the condensed consolidated financial statements, and related notes, have been
restated to include the operations and balance sheet amounts of InfoAccess in
all periods presented. Each share of InfoAccess common stock outstanding at the
time of the merger was converted into the right to receive 0.31230 shares of
common stock of the Company in accordance with the merger agreement. An
aggregate of 1,803 shares of common stock of the Company were issued in exchange
for the 5,775 shares of common stock of InfoAccess outstanding at the time of
the acquisition. In addition, the Company converted 1,207 outstanding options to
purchase InfoAccess common stock into 377 options to acquire the Company's
common stock, on substantially the same terms as the original option agreement.
On July 10, 2000, the Company acquired the Information Exchange
Division ("IED") of Inso Corporation ("Inso"). IED is the market leader in
mobile and wireless device viewing technologies and applications and Web file
conversion. Its mobile and wireless products provide viewing technology for the
Windows CE and Symbian operating systems that allows users of these mobile
devices to readily view files from desktop applications. Additionally, its Web
file conversion products provide conversion of over 225 different file types to
Web formats including Hypertext Markup Language (HTML),
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Extensible Markup Language (XML), or Wireless Markup Language (WML). The
transaction has been accounted for under the purchase method of accounting. The
total cost of the acquisition, including transaction costs, was approximately
$55.3 million. The acquired net assets were recorded at their estimated fair
values at the date of acquisition. The following table presents the allocation
of the purchase price:
<TABLE>
<S> <C>
In-process research and development $10,400
Core technology 13,200
Customer base 3,500
Workforce 3,000
Capitalized software 2,800
Trademarks 1,700
Non-compete provisions 1,400
Excess of cost over fair value of net assets acquired 15,212
Net fair value of tangible assets acquired and liabilities assumed 4,058
---------------
Purchase price $55,270
===============
</TABLE>
The amounts allocated to core technology, customer base, workforce,
capitalized software, trademarks and other intangibles are being amortized over
the assets' estimated useful life of three years. Similarly, the excess of cost
over fair value of net assets acquired is being amortized over the asset's
estimated useful life of three years.
The values assigned to in-process research and development were
expensed at close, since technological feasibility had not been established. The
following unaudited pro forma statement of operations information was prepared
assuming the IED acquisition had occurred on April 1, 1999 and in process
research and development had been expensed as of that date:
<TABLE>
<CAPTION>
Six Months Ended
September 30,
--------------------------------------
2000 1999
--------------- -----------------
<S> <C> <C>
Total revenues $ 30,994 $ 23,146
In process research and development ......... -- (10,400)
Net income .................................. 616 (9,430)
Net earnings per share ...................... $ 0.03 $ (0.63)
================ ================
Weighted-average shares outstanding.......... 21,257 15,088
================ ================
</TABLE>
This unaudited pro forma information is not necessarily indicative of
the combined results of operations that would have occurred had the acquisition
occurred on the respective dates, nor are they indicative of the results, which
may occur in the future.
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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 is a leading provider of Web 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 content
management software, on-demand publishing and hardware integration services.
Our experience in assisting organizations in managing their diverse
business information, such as CAD files, engineering schematics, design
specifications, audio and video clips, graphics and traditional documents, led
us to identify the need for a comprehensive and easily deployed solution for Web
content management. In fiscal 1997, we launched our first Web-based software
product. We incorporated Java server architecture into this product in January
1998 and released an enhanced enterprise-scaleable version in September 1998. In
order to focus our resources exclusively on developing and marketing Web 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
content management solutions.
We currently derive all of our revenues from licenses of our software
products and related services. Revenues are recognized on product licenses when
a purchase order has been received, the product has been shipped, and accepted
by the customer and collection is probable. Revenues for technical services and
support 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 costs for executive, financial, human
resources, information services and other administrative personnel, as well as
legal, accounting, insurance costs and provisions for doubtful accounts.
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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 have an accumulated deficit of
approximately $20.6 million at September 30, 2000. 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
sustain revenue growth or profitability.
On July 10, 2000, we acquired the Information Exchange Division ("IED")
of Inso Corporation. IED is the market leader in mobile and wireless device
viewing technologies and applications and Web conversion. IED provides viewing
technology for the Windows CE and Symbian operating systems that allows users of
these mobile and wireless devices to readily view files from desktop
applications. Additionally, IED's products provide conversion of over 225
different file types to Web formats including XML, HTML or Wireless Markup
Language (WML). The total cost of the acquisition, including transaction costs,
was approximately $55.3 million. The acquisition was accounted for as a purchase
business combination. Accordingly, the net fair value of tangible and intangible
assets acquired and liabilities assumed were recorded at their estimated fair
values at the effective date of the acquisition and the results of operations of
IED will be included with those of the Company for the periods subsequent to the
date of the acquisition.
RESULTS OF OPERATIONS-- THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
Total revenues increased by $11.0 million, or 242%, to $15.6 million
for the three months ended September 30, 2000 from $4.6 million for the three
months ended September 30, 1999. The increase in revenues was attributable to
internal expansion of our customer base, increased sales to existing customers
and the customer base derived from IED.
Product Licenses. Revenues for product licenses increased by $9.2
million, or 259% to $12.7 million for the three months ended September 30, 2000
from $3.5 million for the three months ended September 30, 1999. The increase in
revenues for product licenses was attributable to the internal expansion of our
customer base, increased sales to existing customers and the customer base
derived from IED.
Services. Revenues for services increased by $1.9 million or 180% to
$2.9 million for the three months ended September 30, 2000 from $1.0 million for
the three months ended September 30, 1999. The increase in revenues for services
was primarily attributable to a larger installed base of products.
COST OF REVENUES AND GROSS PROFIT
Total cost of revenues increased by $1.4 million or 150% to $2.4
million for the three months ended September 30, 2000 from $1.0 million for the
three months ended September 30, 1999. Total cost of revenues as a percentage of
total revenues was 15% for the three months ended September 30, 2000 compared to
21% for the three months ended September 30, 1999. Gross profit increased by
$9.6 million, or 266%, to $13.2 million for the three months ended September 30,
2000 from $3.6 million for the three months ended September 30, 1999. Total
gross profit as a percentage of total revenues was 85% for the three months
ended September 30, 2000 compared to 79% for the three months ended September
30, 1999. The increase in gross profit dollars was primarily due to increased
revenues for product licenses and services.
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Product Licenses. Cost of revenues for product licenses increased by
$0.4 million, or 108%, to $0.8 million for the three months ended September 30,
2000 from $0.4 million for the three months ended September 30, 1999. Gross
profit as a percentage of revenues for product licenses was 93% for the three
months ended September 30, 2000 and 89% for the three months ended September 30,
1999. The change in gross profit percentage is due primarily to the fluctuations
of product mix.
Services. Cost of revenues for services increased by $1.0 million or
180%, to $1.6 million for the three months ended September 30, 2000 from $0.6
million for the three months ended September 30, 1999. Gross profit as a
percentage of revenues for services was 46% for the three months ended September
30, 2000 and 1999.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased by $4.5
million, or 219%, to $6.5 million for the three months ended September 30, 2000
from $2.0 million for the three months ended September 30, 1999. Sales and
marketing expenses as a percentage of total revenues were 42% for the three
months ended September 30, 2000 compared to 45% for the three months ended
September 30, 1999. The increase in sales and marketing expense was primarily
due to increased staffing and marketing expenses for advertising, branding,
public relations and trade shows and the acquisition of IED.
General and Administrative. General and administrative expenses
increased by $1.5 million or 168%, to $2.3 million for the three months ended
September 30, 2000 from $0.8 million for the three months ended September 30,
1999. General and administrative expenses as a percentage of total revenues were
15% for the three months ended September 30, 2000 compared to 19% for the three
months ended September 30, 1999. General and administrative expenses decreased
as a percentage of revenues due primarily to an increase in total revenues
partially offset by an increase in personnel expenses.
Research and Development. Research and development expenses increased
by $2.1 million, or 360%, to $2.7 million for the three months ended September
30, 2000 from $0.6 million for the three months ended September 30, 1999.
Research and development expenses as a percentage of total revenues were 17% for
the three months ended September 30, 2000 compared to 13% for the three months
ended September 30, 1999. The increase in research and development expenses as a
percentage of total revenues was primarily due to an increase in staffing
related to the personnel added by the acquisition of IED, and related costs to
support new products and product enhancements.
Purchased in-process Research and Development and Acquisition-Related
Charges. In connection with our acquisitions, primarily IED, we incurred certain
costs. A portion of the purchase price, $10.4 million, was allocated to
in-process research and development and was expensed.
Amortization of intangibles. A portion of the purchase price of IED was
allocated to excess cost over fair value of net assets acquired, core
technology, customer base, software, trademarks and other intangibles, and will
be amortized over the assets' estimated useful lives of three years. Intangible
amortization expense resulting from the acquisition was $3.4 million for the
three month period ended September 30, 2000.
OTHER INCOME, NET
Net interest income was $1.7 million for the three months ended
September 30, 2000 compared to net interest income of $0.4 million for the three
months ended September 30, 1999. Net interest income for the three months ended
September 30, 2000 and 1999 was primarily related to short-term investments
purchased with the proceeds of our public stock offerings completed in June 1999
and March 2000.
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RESULTS OF OPERATIONS-- SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX
MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
Total revenues increased by $16.1 million, or 178%, to $25.1 million
for the six months ended September 30, 2000 from $9.0 million for the six months
ended September 30, 1999. The increase in revenues was attributable to internal
expansion of our customer base, increased sales to existing customers and the
customer base acquired from IED.
Product Licenses. Revenues for product licenses increased by $13.2
million, or 188%, to $20.2 million for the six months ended September 30, 2000
from $7.0 million for the six months ended September 30, 1999. The increase in
revenues for product licenses was attributable to internal expansion of our
customer base, increased sales to existing customers and the customer base
acquired from IED.
Services. Revenues for services increased by $2.9 million or 145%, to
$4.9 million for the six months ended September 30, 2000 from $2.0 million for
the six months ended September 30, 1999. The increase in revenues for services
was primarily attributable to a larger installed base of products.
COST OF REVENUES AND GROSS PROFIT
Total cost of revenues increased by $2.5 million or 149%, to $4.2
million for the six months ended September 30, 2000 from $1.7 million for the
six months ended September 30, 1999. Total cost of revenues as a percentage of
total revenues was 17% for the six months ended September 30, 2000 compared to
19% for the six months ended September 30, 1999. Gross profit increased by $13.5
million, or 185%, to $20.9 million for the six months ended September 30, 2000
from $7.4 million for the six months ended September 30, 1999. Total gross
profit as a percentage of total revenues was 83% for the six months ended
September 30, 2000 compared to 81% for the six months ended September 30, 1999.
The increase in gross profit dollars was primarily due to increased revenues for
product licenses and services.
Product Licenses. Cost of revenues for product licenses increased by
$0.8 million or 107%, to $1.5 million for the six months ended September 30,
2000 from $0.7 million for the six months ended September 30, 1999. Gross profit
as a percentage of revenues for product licenses was 93% for the six months
ended September 30, 2000 and 90% for the six months ended September 30, 1999.
The change in gross profit percentage is due primarily to the fluctuations of
product mix.
Services. Cost of revenues for services increased by $1.7 million, or
181%, to $2.7 million for the six months ended September 30, 2000 from $1.0
million for the six months ended September 30, 1999. Gross profit as a
percentage of revenues for services was 45% for the six months ended September
30, 2000 compared to 52% for the six months ended September 30, 1999. The
decrease in the gross profit as a percentage of revenues for services was
primarily due to increased recruiting and staffing costs for consulting services
personnel.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased by $6.8
million, or 170%, to $10.8 million for the six months ended September 30, 2000
from $4.0 million for the six months ended September 30, 1999. Sales and
marketing expenses as a percentage of total revenues were 43% for the six months
ended September 30, 2000 compared to 44% for the six months ended September 30,
1999. The increase in sales and marketing expense was primarily due to increased
staffing and marketing expenses for advertising, branding, public relations and
trade shows.
12
<PAGE> 13
General and Administrative. General and administrative expenses
increased by $1.9 million or 111%, to $3.7 million for the six months ended
September 30, 2000 from $1.8 million for the six months ended September 30,
1999. General and administrative expenses as a percentage of total revenues were
15% for the six months ended September 30, 2000 compared to 20% for the six
months ended September 30, 1999. General and administrative expenses decreased
as a percentage of revenues due primarily to an increase in total revenues
partially offset by an increase in personnel expenses.
Research and Development. Research and development expenses increased
by $2.6 million, or 223%, to $3.7 million for the six months ended September 30,
2000 from $1.1 million for the six months ended September 30, 1999. Research and
development expenses as a percentage of total revenues were 15% for the six
months ended September 30, 2000 compared to 13% for the six months ended
September 30, 1999. The increase in research and development expenses as a
percentage of total revenues was primarily due to increases in staffing and
related costs to support new products and product enhancements, and the
acquisition of IED.
Purchased in-process Research and Development and Acquisition-Related
Charges. In connection with our acquisitions, primarily IED, we incurred certain
costs. A portion of the purchase price, $10.4 million, was allocated to
in-process research and development and was expensed.
Amortization of intangibles. A portion of the purchase price of IED was
allocated to excess cost over fair value of net assets acquired, core
technology, customer base, software, trademarks and other intangibles, and will
be amortized over the assets' estimated useful lives of three years. Intangible
amortization expense resulting from the acquisition was $3.4 million for the six
month period ended September 30, 2000.
OTHER INCOME, NET
Net interest income was $4.0 million for the six months ended September
30, 2000 compared to net interest income of $0.4 million for the six months
ended September 30, 1999. Net interest income for the six months ended September
30, 2000 and 1999 was primarily related to short-term investments purchased with
the proceeds of our public stock offerings completed in June 1999 and March
2000.
NET OPERATING LOSS CARRYFORWARDS
As of March 31, 2000, we had net operating loss carryforwards of
approximately $35.7 million. The net operating loss carryforwards will expire at
various dates beginning in 2011, if not utilized. The Tax Reform Act of 1986
imposes substantial restrictions on the utilization of net operating losses and
tax credits in the event of an "ownership change" of a corporation. Our ability
to utilize net operating loss carryforwards on an annual basis will be limited
as a result of "ownership changes" in connection with the sale of equity
securities. We have provided a full valuation allowance on the deferred tax
asset because of the uncertainty regarding its realization. Our accounting for
deferred taxes involves the evaluation of a number of factors concerning the
realizability of our deferred tax assets. In concluding that a full valuation
allowance was required as of September 30, 2000, management considered such
factors as our history of operating losses, potential future losses and the
nature of our deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations and satisfied our capital expenditure
requirements primarily through operating revenues, revolving working capital and
term loans from banking institutions, private placements and public offerings of
securities and proceeds from the sales of assets related to prior lines of
business. Net cash provided by operating activities was $4.0 million for the six
months ended September 30, 2000, compared to net cash provided by operating
activities of $0.3 million for the six months ended September 30, 1999.
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<PAGE> 14
To date, we have invested our capital expenditures primarily in
property and equipment, consisting largely of computer hardware and software.
Capital expenditures for the six months ended September 30, 2000 and 1999 were
$5.2 million and $0.4 million, 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.
As of September 30, 2000, we had $8.1 million in cash and equivalents,
$91.5 million in short-term investments and $109.0 million in working capital.
Net cash provided by financing activities was $23.6 million for the six months
ended September 30, 2000 and $27.5 million for the six months ended September
30, 1999. In June 1999, we completed a public offering of our common stock that
raised approximately $27.0 million in proceeds for the Company, net of
underwriting discounts and offering costs of approximately $3.0 million. In
March 2000, we completed a public offering of our common stock that raised
approximately $100 million in proceeds for the Company, net of underwriting
discounts and offering costs of approximately $5.9 million. In April 2000, the
underwriters exercised their over-allotment option, raising additional net
proceeds of approximately $22.7 million. In July 1999, we terminated our
revolving line-of-credit facility with Diversified Business Credit, Inc.
We currently believe that the cash and cash equivalents on hand
together with the proceeds of this offering will be sufficient to meet our
working capital requirements for the foreseeable future. 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.
The Company continues to evaluate potential strategic acquisitions that
could utilize equity and, or, cash resources. Such opportunities could develop
quickly due to market and competitive factors.
PRO FORMA NET INCOME PER COMMON SHARE
The Company's pro forma basic net income per share is computed by
dividing pro forma net income by the weighted average number of outstanding
common shares and the Company's pro forma diluted net income per share is
computed by dividing pro forma net income by the weighted average number of
outstanding common shares and common share equivalents relating to stock options
and warrants, when dilutive. Common stock equivalent shares consist of stock
options and warrants (using the treasury stock method). The accompanying pro
forma supplemental financial information is presented for informational purposes
only and is not a substitute for the historical financial information presented
in accordance with accounting principles generally accepted in the United
States.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION: 2000 1999 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss................................ $ (11,014) $ (1,484) $ (8,025) $ (1,167)
Add back charges:
Amortization of intangible assets
and other............................ 3,466 -- 3,629 --
Write-off of in-process research
and development...................... 10,400 -- 10,400 --
Acquisition and related costs....... 590 1,972 590 1,972
------------- ----------- ------------ -----------
Total add back........................... 14,456 1,972 14,619 1,972
------------- ----------- ------------ -----------
Pro forma net income..................... $ 3,442 $ 488 $ 6,594 $ 805
============= =========== ============ ===========
Pro forma basic net income per share..... $ 0.16 $ 0.03 $ 0.31 $ 0.05
Pro forma diluted net income per share... $ 0.15 $ 0.03 $ 0.28 $ 0.05
Weighted average common shares
outstanding - basic................. 21,331 16,695 21,257 15,088
Weighted average common shares
outstanding - diluted............... 23,555 18,366 23,168 16,841
</TABLE>
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<PAGE> 15
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
FASB Interpretation 44, Interpretation of APB Opinion 25 (FIN 44) was
issued in March 2000. FIN 44 provides an interpretation of APB Opinion 25 on
accounting for employee stock compensation and describes its application to
certain transactions. FIN 44 is effective on July 1, 2000. It applies on a
prospective basis to events occurring after that date, except for certain
transactions involving options granted to nonemployees, repriced fixed options,
and modifications to add reload option features, which apply to awards granted
after December 31, 1998. The provisions of FIN 44 are not expected to have a
material effect on transactions entered into through September 30, 2000.
RISK FACTORS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q for the second quarter ended September 30, 2000 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 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 2000 ("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. 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.
Significant sales of our Xpedio Content Management Suite, which
includes Xpedio Content Server, Xpedio Content Publisher and Xpedio Web Asset
Management, began following our acquisition of InfoAccess, Inc. in September
1999. 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.
OUR SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY INTEGRATE IED WITH
OUR OPERATIONS
On July 10, 2000, we acquired IED from INSO in a transaction accounted
for under the purchase method of accounting. We are currently integrating the
business and products of IED with our existing business and products. We may
incur unanticipated costs in the course of this integration. In addition, the
integration of IED with our operations involves the following risks:
- failure to develop complementary product offerings and marketing
strategies;
- failure to maintain the customer relationships of IED;
- failure to retain the employees of IED;
- failure to coordinate product development efforts; and
- diversion of management's time and attention from other aspects of our
business.
We cannot be sure that we will be successful in integrating the
business and products of IED with our business and products. If we are not, our
business, operating results and financial condition may be materially adversely
affected.
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<PAGE> 16
FLUCTUATIONS IN OUR OPERATING RESULTS MAY MAKE IT DIFFICULT TO PREDICT OUR
FUTURE PERFORMANCE.
While our products and services are not seasonal, 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, our sales cycles may vary, 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 Web 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;
- 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.
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 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.
POTENTIAL ACQUISITIONS MAY BE DIFFICULT TO COMPLETE OR TO INTEGRATE AND MAY
DIVERT MANAGEMENT'S ATTENTION.
We may seek to acquire or invest in businesses, products or
technologies that are complementary to our business. If we identify an
appropriate acquisition opportunity, we may be unable to negotiate
16
<PAGE> 17
favorable terms for that acquisition, successfully finance the acquisition or
integrate the new business or products into our existing business and
operations. In addition, the negotiation of potential acquisitions and the
integration of acquired businesses or products may divert management time and
resources from our existing business and operations. To finance acquisitions, we
may use a substantial portion of our available cash or we may issue additional
securities, which would cause dilution to our shareholders.
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 quarterly profitability (excluding expenses incurred
in connection with acquisitions of InfoAccess in the quarter ended September 30,
1999 and IED in the quarter ended September 30, 2000). If we do not sustain our
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.
17
<PAGE> 18
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 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.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON SALES OF OUR CONTENT MANAGEMENT
SOFTWARE PRODUCTS FOR OUR REVENUES.
We currently derive all of our revenues from product licenses and
services associated with our suite of content management software products. The
market for content management software products is new and rapidly evolving. We
cannot be certain that a viable market for our products will emerge, or if it
does emerge, that it will be sustainable. 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 software products for the foreseeable future.
Our success will largely depend on our ability to increase sales from existing
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 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.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY 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 have been notified by a third party that it
believes our Xpedio mark infringes its trademark. We will cease the use of this
mark by December 31, 2000 and will develop and adopt a new mark.
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<PAGE> 19
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. We have been issued
trademarks for the Intranet Solutions and Intra.doc! marks.
OUR PRODUCTS MAY NOT BE COMPATIBLE WITH COMMERCIAL WEB BROWSERS AND OPERATING
SYSTEMS.
Our products utilize interfaces that are compatible with commercial Web
browsers. In addition, Xpedio is a server-based system written in Java that
functions in both Windows NT and UNIX environments. We must continually modify
our products to conform to commercial Web browsers and operating systems. If our
products were to become incompatible with commercial Web browsers and operating
systems, our business would be harmed. In addition, uncertainty related to the
timing and nature of product introductions or modifications by vendors of Web
browsers and operating systems may have a material adverse effect on our
business, operating results and financial condition.
WE COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS IF OUR PRODUCTS FAIL TO PERFORM
TO SPECIFICATIONS.
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 financial condition may be
materially adversely affected. In addition, we could be subject to product
liability claims if our security features fail to prevent unauthorized third
parties from entering our customers' intranet, extranet or Internet Web sites.
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 spread by third parties 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.
FUTURE REGULATIONS COULD BE ADOPTED THAT RESTRICT OUR BUSINESS.
Federal, state or foreign agencies may adopt new legislation or
regulations governing the use and quality of Web content. We cannot predict if
or how any future laws or regulations would impact our business and operations.
Even though these laws and regulations may not apply to our business directly,
they could indirectly harm us to the extent that they impact our customers and
potential customers.
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;
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- 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 CONTINUING GROWTH AND ACCEPTANCE OF THE WEB.
Our products are designed to be used with intranets, extranets and the
Internet. 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 Web 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 Web 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 HAVE SIGNIFICANT INFLUENCE OVER US.
Robert F. Olson, our Chairman and Chief Executive Officer, holds
approximately 12.1% of our outstanding common stock. Accordingly, Mr. Olson is
able to exercise significant control over the affairs of IntraNet Solutions.
Additionally, our directors and executive officers beneficially own
approximately 14.4% of our common stock. These persons have significant
influence over IntraNet Solutions' 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.
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.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On August 30, 2000, the Company held its Annual Meeting of the Shareholders to
consider and vote upon the following proposals. The tabulation of the votes, in
favor, against, and abstaining with regard to the proposals is set forth below.
<TABLE>
<CAPTION>
BROKER
PROPOSAL IN FAVOR WITHHELD AGAINST ABSTAIN NONVOTES
<S> <C> <C> <C> <C> <C>
1. Election of Directors: --
Robert F. Olson 18,247,405 121,975 0 --
Gregg A. Waldon 17,500,725 868,655 0 --
Ronald E. Eibensteiner 18,242,805 126,575 0 --
Kenneth H. Holec 18,247,405 121,975 0 --
Steven C. Waldron 16,705,305 1,664,075 0 --
2. Approval of Amendment to
Articles of Incorporation to
increase the number of shares
of capital stock issuable by
the Company to 100,000,000. 15,291,661 2,458,205 619,514 0
3. Adoption of the IntraNet
Solutions, Inc. 2000 Stock
Incentive Plan and
reservation of 2,000,000
shares for issuance
thereunder. 10,334,702 4,756,154 594,789 0
4. Ratification of the
appointment of Grant Thornton
LLP as independent auditors
for the fiscal year March 31,
2001
18,221,550 10,395 135,435 0
</TABLE>
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A.) EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
FILE DESCRIPTION REFERENCE
-------- ----------------------------------------- ------------------------------------------
<S> <C> <C>
3.1 Amended and Restated Articles of Electronic transmission
Incorporation
3.2 Bylaws Incorporated by reference to Exhibit A
of the Registrant's Definitive Proxy
Statement Schedule 14A, filed with the
Securities and Exchange Commission July
22, 1997, File No. 0-19817
10.4 IntraNet Solutions, Inc. 1994-1997 Stock Incorporated by reference to Exhibit A
Option and Compensation Plan of the Registrant's Definitive Proxy
Statement Schedule 14A, filed with the
Securities and Exchange Commission July
28, 1998
10.16 Schedule identifying certain material Incorporated by reference to Exhibit
details of documents substantially 10.16 of the Registrant's Form 10-KSB
identical to those set forth in for the fiscal year ended March 31,
Exhibits 10.17, 10.18, 10.19 and 10.20 1997.
10.17 Promissory Note dated December 20, Incorporated to Exhibit 10.17 of the
1996, made by the Registrant in favor Registrant's Form 10-KSB for the fiscal
of Rita M. Olson year ended March 31, 1997.
10.18 Amendment dated March 4, 1997, to the Incorporated by reference to Exhibit
Promissory Note made by the Registrant 10.18 of the Registrant's Form 10-KSB for
in favor of Rita M. Olson dated December the fiscal year ended March 31, 1997.
20, 1996
10.19 Amendment dated June 5, 1997, by and Incorporated by reference to Exhibit
between the Registrant and Rita M. Olson 10.19 of the Registrant's Form 10-KSB
dated December 20, 1996 for the fiscal year ended March 31,
1997.
10.20 Stock Purchase Warrant Agreement dated Incorporated by reference to Exhibit
December 20, 1996, by and between the 10.20 of the Registrant's Form 10-KSB
Registrant and Rita M. Olson for the fiscal year ended March 31,
1997.
10.21 Note Conversion and Subscription Incorporated by reference to Exhibit
Agreement dated June 6, 1997, by and 10.21 of the Registrant's Form 10-KSB
between the Registrant and Rita M. for the fiscal year ended March 31,
Olson 1997.
10.26 Employment Agreement Dated April 1, Incorporated by reference to Exhibit
1999, by and between the Registrant 10.26 of the Registrant's statement on
and Gregg A. Waldon. Form S-1, File No. 333-77389.
10.28 InfoAccess, Inc. 1990 Stock Option Incorporated by reference to Exhibit
Plan as amended September 29, 1999 99.1 of the Registrant's statement on
Form S-8, File No. 333-90843
10.29 InfoAccess, Inc. 1995 Stock Option Incorporated by reference to Exhibit
Plan as amended September 29, 1999 99.2 of the Registrant's statement on
Form S-8, File No. 333-90843
10.30 Employment Agreement Dated August 1, Incorporated by reference to Exhibit
1999, by and between the Registrant 10.30 of the Registrant's Form 10-Q for
and Robert F. Olson. the quarter ended September 30, 1999.
10.31 IntraNet Solutions, Inc. 1999 Employee Incorporated by reference to Exhibit
Stock Option and compensation Plan. 10.31 of the Registrant's Form 10-Q for
the three months ended September 30,
1999.
10.32 Agreement and Plan of Merger among Incorporated by reference to Exhibit 2
IntraNet Solutions, Inc., IntraNet to the Registrant's Current Report on
Chicago Acquisition Corporation, Form 8-K dated July 10, 2000
IntraNet Kansas City Acquisition
Corporation, Inso Chicago Corporation,
Inso Kansas City Corporation and Inso
Corporation, dated as of July 10, 1999.
10.33 IntraNet Solutions, Inc. 2000 Stock Incorporated by reference to Exhibit B
Incentive Plan to the Registrant's Definitive Proxy
statement on Schedule 14A, filed with
the Securities and Exchange Commission
on July 25, 2000
10.34 IntraNet Solutions, Inc. 2000 Employee Incorporated by reference to Exhibit
Stock Incentive Plan 10.34 of the Registrant's Form 10-Q for
the three months ended June 30, 2000.
10.35 IntraNet Solutions, Inc. 1997 Directors Incorporated by reference to Exhibit B
Stock Option Plan of the Registrant's Definitive Proxy
Statement Schedule 14A, filed with the
Securities and Exchange Commission July
28, 1998
11.1 Computation of earnings per share Electronic transmission
21 Subsidiaries of Registrant Incorporated by reference to Exhibit 21
of the Registrant's Annual Report on
Form 10-K for the fiscal year ended
March 31, 2000.
27 Financial Data Schedule for the six Electronic transmission
months ended September 30, 2000.
</TABLE>
(B) REPORTS ON FORM 8-K
On July 25, 2000 the Company filed a Current Report on Form 8-K
reporting the completion of the acquisition of the Information Exchange
Division ("IED") of eBT International Inc. (formerly Inso Corporation) on July
10, 2000.
On September 22, 2000 the Company filed an amendment to the Current
Report on Form 8-K filed on July 25, 2000 to include certain financial
statements of IED and certain pro forma combined financial statements of the
Company and IED.
22
<PAGE> 23
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: November 13, 2000 By: /s/ Robert F. Olson
-------------------
Robert F. Olson,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 By: /s/ Gregg A. Waldon
-------------------
Gregg A. Waldon
Chief Financial Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
FILE DESCRIPTION REFERENCE
-------- ----------------------------------------- ------------------------------------------
<S> <C> <C>
3.1 Amended and Restated Articles of Electronic transmission
Incorporation
3.2 Bylaws Incorporated by reference to Exhibit A
of the Registrant's Definitive Proxy
Statement Schedule 14A, filed with the
Securities and Exchange Commission July
22, 1997, File No. 0-19817
10.4 IntraNet Solutions, Inc. 1994-1997 Stock Incorporated by reference to Exhibit A
Option and Compensation Plan of the Registrant's Definitive Proxy
Statement Schedule 14A, filed with the
Securities and Exchange Commission July
28, 1998
10.16 Schedule identifying certain material Incorporated by reference to Exhibit
details of documents substantially 10.16 of the Registrant's Form 10-KSB
identical to those set forth in for the fiscal year ended March 31,
Exhibits 10.17, 10.18, 10.19 and 10.20 1997.
10.17 Promissory Note dated December 20, Incorporated to Exhibit 10.17 of the
1996, made by the Registrant in favor Registrant's Form 10-KSB for the fiscal
of Rita M. Olson year ended March 31, 1997.
10.18 Amendment dated March 4, 1997, to the Incorporated by reference to Exhibit
Promissory Note made by the Registrant 10.18 of the Registrant's Form 10-KSB for
in favor of Rita M. Olson dated December the fiscal year ended March 31, 1997.
20, 1996
10.19 Amendment dated June 5, 1997, by and Incorporated by reference to Exhibit
between the Registrant and Rita M. Olson 10.19 of the Registrant's Form 10-KSB
dated December 20, 1996 for the fiscal year ended March 31,
1997.
10.20 Stock Purchase Warrant Agreement dated Incorporated by reference to Exhibit
December 20, 1996, by and between the 10.20 of the Registrant's Form 10-KSB
Registrant and Rita M. Olson for the fiscal year ended March 31,
1997.
10.21 Note Conversion and Subscription Incorporated by reference to Exhibit
Agreement dated June 6, 1997, by and 10.21 of the Registrant's Form 10-KSB
between the Registrant and Rita M. for the fiscal year ended March 31,
Olson 1997.
10.26 Employment Agreement Dated April 1, Incorporated by reference to Exhibit
1999, by and between the Registrant 10.26 of the Registrant's statement on
and Gregg A. Waldon. Form S-1, File No. 333-77389.
10.28 InfoAccess, Inc. 1990 Stock Option Incorporated by reference to Exhibit
Plan as amended September 29, 1999 99.1 of the Registrant's statement on
Form S-8, File No. 333-90843
10.29 InfoAccess, Inc. 1995 Stock Option Incorporated by reference to Exhibit
Plan as amended September 29, 1999 99.2 of the Registrant's statement on
Form S-8, File No. 333-90843
10.30 Employment Agreement Dated August 1, Incorporated by reference to Exhibit
1999, by and between the Registrant 10.30 of the Registrant's Form 10-Q for
and Robert F. Olson. the quarter ended September 30, 1999.
10.31 IntraNet Solutions, Inc. 1999 Employee Incorporated by reference to Exhibit
Stock Option and compensation Plan. 10.31 of the Registrant's Form 10-Q for
the three months ended September 30,
1999.
10.32 Agreement and Plan of Merger among Incorporated by reference to Exhibit 2
IntraNet Solutions, Inc., IntraNet to the Registrant's Current Report on
Chicago Acquisition Corporation, Form 8-K dated July 10, 2000
IntraNet Kansas City Acquisition
Corporation, Inso Chicago Corporation,
Inso Kansas City Corporation and Inso
Corporation, dated as of July 10, 1999.
10.33 IntraNet Solutions, Inc. 2000 Stock Incorporated by reference to Exhibit B
Incentive Plan to the Registrant's Definitive Proxy
statement on Schedule 14A, filed with
the Securities and Exchange Commission
on July 25, 2000
10.34 IntraNet Solutions, Inc. 2000 Employee Incorporated by reference to Exhibit
Stock Incentive Plan 10.34 of the Registrant's Form 10-Q for
the three months ended June 30, 2000.
10.35 IntraNet Solutions, Inc. 1997 Directors Incorporated by reference to Exhibit B
Stock Option Plan of the Registrant's Definitive Proxy
Statement Schedule 14A, filed with the
Securities and Exchange Commission July
28, 1998
11.1 Computation of earnings per share Electronic transmission
21 Subsidiaries of Registrant Incorporated by reference to Exhibit 21
of the Registrant's Annual Report on
Form 10-K for the fiscal year ended
March 31, 2000.
27 Financial Data Schedule for the six Electronic transmission
months ended September 30, 2000.
</TABLE>
24
