10-Q/A 1 v011146_10qa.htm
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

AMENDMENT NO. 1
FORM 10-Q/A


x    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

o    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

 
Commission file number 1-12401


WITS BASIN PRECIOUS MINERALS INC.

(Exact Name of Registrant as specified in Its Charter)

Minnesota
84-1236619
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)


80 South 8th Street, Suite 900, Minneapolis, MN 55402
(Address of Principal Executive Offices)

612. 349.5277
(Issuer’s Telephone Number, Including Area Code)

ACTIVE IQ TECHNOLOGIES, INC.
800 Nicollet Mall, Suite 2690, Minneapolis, MN 55402
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)


Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes o No x

As of May 9, 2003, there were 13,057,181 shares of common stock, $.01 par value, outstanding.

     
 

PURPOSE OF AMENDMENT NO. 1

This Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2003, which amends the Company’s Form 10-Q originally filed on May 13, 2003, is being filed in response to comments received from the Securities and Exchange Commission in connection with its review of the Company’s registration statement on Form S-2 (file number 333-110831).

The Company has restated the financial statements contained in Part I, Item 1 of this Amendment No. 1 to, among other things, show reclassification to the Company’s financial statements for the quarter ended March 31, 2003, consolidated balance sheet as of March 31, 2003, the consolidated statement of operations for the quarter ended March 31, 2003, consolidated statement of cash flow for the quarter ended March 31, 2003 to reclass the operations of the Hosted Solutions Business from continuing operations to discontinued operations and correction of an error in recording deferred compensation, which resulted in a decrease in net loss of $140,749. In addition, loss per share decreased $0.01 for the quarter ended March 31, 2003. As reflected in the consolidated balance sheet, the assets and liabilities of the Hosted Solutions Business are shown on separate lines. In addition, in the consolidated statement of operations, the revenues and expenses attributable to the Hosted Solutions Business are included in discontinued operations. The Company has also restated the information contained in the Management’s Discussion and Analysis of Financial Conditions and Results of Operations contained in Part I, Item 2 of this Amendment No. 1.

For comparative purposes, the consolidated financial statements for the quarter ended March 31, 2002 have also been restated to reflect the Hosted Solutions Business as discontinued operations. See Note 6 - Restatement.

Only Items 1 and 2 of Part I are being amended hereby and the Company has not included any items of this report not being amended. This Amendment No. 1 does not update any other disclosures to reflect developments since the original date of filing.


 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Amendment No. 1, which are forward-looking in nature, are based on the current beliefs of our management as well as assumptions made by and information currently available to management, including statements related to the markets for our products, general trends in our operations or financial results, plans, expectations, estimates and beliefs. In addition, when used in this Amendment No. 1, the words “may,” “could,” “should,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict” and similar expressions and their variants, as they relate to us or our management, may identify forward-looking statements. These statements reflect our judgment as of the date of this Amendment No. 1 with respect to future events, the outcome of which is subject to risks, which may have a significant impact on our business, operating results or financial condition. Readers are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. We undertake no obligation to update forward-looking statements. The risks identified in the section following Item 2 entitled “Risk Factors” contained in the original Form 10-Q filed May 13, 2003, among others, may impact forward-looking statements contained in this Amendment No. 1.



 
  2  
 

WITS BASIN PRECIOUS MINERALS INC. and SUBSIDIARIES
(f/k/a ACTIVE IQ TECHNOLOGIES, INC.)
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets

 
Restated
(unaudited)
March 31, 2003
December 31, 2002
  
ASSETS
           
CURRENT ASSETS
           
     Cash and equivalents
  
$
738,929
  
$
13,211
  
     Accounts receivable, net
    
—
    
—
  
     Prepaid expenses
    
—
    
—
  
     Assets of operations of discontinued      
              
          hosted solutions business
    
84,757
    
1,169,154
  
     Assets of operations of discontinued
             
          accounting software business
    
3,548,784
    
3,589,741
  
               Total current assets
    
4,372,470
   
4,772,106
  
               
PROPERTY and EQUIPMENT, net
    
—
    
—
  
PREPAID ROYALTIES
    
—
    
—
  
               
   
$
4,372,470
  
$
4,772,106
  
               
LIABILITIES and SHAREHOLDERS’ EQUITY
              
CURRENT LIABILITIES
              
     Accounts payable
  
$
19,806
  
$
19,712
  
     Liabilities of operations of discontinued
             
          hosted solutions business
    
253,450
    
475,948
  
     Liabilities of operations of discontinued
             
          accounting software business
    
3,642,746
    
3,682,819
  
     Accrued expenses
    
10,782
    
4,494
  
               Total current liabilities
    
3,926,784
    
4,182,973
  
               
COMMITMENTS and CONTINGENCIES
              
               
SHAREHOLDERS’ EQUITY
              
     Common stock, $.01 par value, 150,000,000 shares authorized;
              
          13,057,181 and 13,264,681 shares issued and outstanding
    
130,572
    
132,647
  
     Additional paid-in capital
    
20,534,688
    
22,616,833
  
     Stock subscriptions receivable
    
—
    
(2,000,000
)
     Deferred compensation
    
(20,676
)
  
(182,213
)
     Warrants
    
2,602,860
    
2,602,860
  
     Accumulated deficit
    
(22,801,758
)
  
(22,580,994
)
               Total shareholders’ equity
    
445,686
    
589,133
  
   
$
4,372,470
  
$
4,772,106
  


See accompanying notes to condensed consolidated financial statements

  3  
 

WITS BASIN PRECIOUS MINERALS INC. and SUBSIDIARIES
(f/k/a ACTIVE IQ TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Operations
(unaudited)


 
     
Three months ended March 31, 
  
     
Restated 
        
     
2003 
    
2002 
  
               
REVENUES
  
$
—
  
$
—
  
               
OPERATING EXPENSES:
              
     Cost of sales
    
—
    
—
  
     General and administrative
    
59,332
    
80,010
  
     Depreciation and amortization      
    
—
    
—
  
     Loss (gain) on disposal of assets
    
—
    
—
  
               Total operating expenses
    
59,332
    
80,010
  
OPERATING LOSS
    
(59,332
)
  
(80,010
)
               
OTHER INCOME
          
 
     Interest and dividend income
    
23,544
    
12,669
  
     Other income
    
—
    
—
  
     Loss on sale of prepaid royalties
    
—
    
—
  
          Total other income
    
23,544
    
12,669
  
LOSS FROM CONTINUING OPERATIONS
  
$
(35,788
)
$
(67,341
)
               
DISCONTINUED OPERATIONS (See Notes 3 & 4)
    
       
     Loss from operations of discontinued segments
    
(184,976
)
  
(1,270,485
)
               
               
NET LOSS
  
$
(220,764
)
$
(1,337,826
)
               
BASIC AND DILUTED NET LOSS PER
     COMMON SHARE:
              
          Continuing operations
  
$
—
  
$
(0.01
)
          Discontinued operations
    
(0.02
)
  
(0.11
)
               NET LOSS
  
$
(0.02
)
$
(0.12
)
               
BASIC AND DILUTED WEIGHTED
             
AVERAGE OUTSTANDING SHARES
    
12,905,264
    
11,377,023
  


See accompanying notes to condensed consolidated financial statements
 

 
  4  

WITS BASIN PRECIOUS MINERALS INC. and SUBSIDIARIES
(f/k/a ACTIVE IQ TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
Three months ended March 31
Restated
2003
2002
  
           
OPERATING ACTIVITIES:
           
     Net loss
  
$
(220,764
)
$
(1,337,826
)
     Adjustments to reconcile net loss to cash flows from operating activities:
    
   
 
          Depreciation and amortization
    
16,160
    
344,150
  
          Deferred compensation expense
    
20,788
    
31,929
  
          Loss (gain) on disposal of assets
    
(749
)
  
71,145
  
          Warrants issued to non-employee
    
—
    
61,020
  
          Amortization of debt discount
    
—
    
31,272
  
          Amortization of acquired software developed
    
53,884
    
78,660
  
          Exchange of assets for services          
    
2,644
    
—
  
          Loss on sale of prepaid royalties
    
434,895
    
—
  
     Changes in operating assets and liabilities:
              
          Accounts receivable, net
    
38,957
    
242,968
  
          Inventories
    
4,983
    
5,550
  
          Prepaid expenses
    
31,749
    
(11,549
)
          Prepaid royalties
    
—
    
1,403
  
          Other assets
    
(2,890
)
  
26,742
  
          Accounts payable
    
(59,197
)
  
(103,387
)
          Deferred revenue
    
(71,568
)
  
111,304
  
          Accrued expenses
    
14,593
    
(299,373
)
               Net cash provided by (used in) operating activities
    
263,485
    
(745,992
)
               
INVESTING ACTIVITIES:
              
     Proceeds from sale of property and equipment     
    
109,895
    
—
  
     Proceeds from sale of prepaid royalties
    
540,105
    
—
  
     Purchases of property and equipment
    
(3,880
)
  
(20,025
)
               Net cash provided by (used in) investing activities
    
646,120
    
(20,025
)
               
FINANCING ACTIVITIES:
              
     Payments on short-term notes payable
    
(83,486
)
  
(1,197,740
)
     Common stock repurchased and retired
    
—
    
(63,035
)
     Cash proceeds from exercise of options and warrants
    
—
    
142,500
  
     Cash proceeds from short-term notes payable and warrants
    
—
    
450,000
  
               Net cash used in financing activities
    
(83,486
)
  
(668,275
)
               
CHANGE IN CASH AND EQUIVALENTS OF DISCONTINUED
             
     ACCOUNTING SOFTWARE BUSINESS
    
(100,401
)
  
189,076
  
INCREASE (DECREASE) IN CASH and EQUIVALENTS
    
725,718
    
(1,245,216
)
CASH AND EQUIVALENTS, beginning of period
    
13,211
    
1,377,315
  
CASH AND EQUIVALENTS, end of period
  
$
738,929
  
$
132,099
  
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
              
     Non-cash financing and investing activities:
              
          Common stock issued in exchange for stock subscription receivable
  
$
—
  
$
2,000,000
  
          Conversion of preferred stock into common stock
  
$
—
  
$
365,000
  
          Cancellation of stock subscription receivable
  
$
2,000,000
  
$
—
  
          Conversion of accrued wages into common stock
  
$
56,529
  
$
—
  

See accompanying notes to condensed consolidated financial statements


  5  
 


WITS BASIN PRECIOUS MINERALS INC.
(f/k/a ACTIVE IQ TECHNOLOGIES, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(unaudited)


NOTE 1 - NATURE OF BUSINESS

Wits Basin Precious Minerals Inc. (f/k/a Active IQ Technologies, Inc.) “we,” “us,” “our,” or the “Company,” provided industry-specific solutions for managing, sharing and collaborating on business information via the Web though our Hosted Solutions Business until March 2003, and accounting software through our Accounting Software Business. In December 2002, our Board of Directors authorized a plan to sell the Accounting Software Business and as a result of the formal plan, the results of operations have been reported as discontinued operations and previously reported condensed consolidated financial statements have been restated for the quarter ended March 31, 2002. See Notes 4 and 7 for further discussions regarding the discontinued operations of Accounting Software Business.

During the first quarter of 2003, we came to the conclusion that due to current market conditions for capital funding, it would be extremely unlikely for us to secure the financing necessary to fund our Hosted Solutions Business beyond the near term and thereby provide assurance to future customers of our long-term viability. On March 14, 2003, we sold all of our assets related to the Hosted Solutions Business and thereby as a result of the sale, the results of operations have been reported as discontinued operations and previously reported condensed consolidated financial statements have been restated for the quarter ended March 31, 2002. See Notes 3 and 6 for a further discussion regarding the discontinued operations of Hosted Solutions Business.

We were originally incorporated under Colorado law in December 1992 under the name Meteor Industries, Inc. In April 2001, in conjunction with our merger with activeIQ Technologies, Inc., we reincorporated under Minnesota law.
 
Our principal office is located at 80 South 8th Street, Suite 900, Minneapolis, Minnesota 55402. Our telephone number is (612) 349-5277 and our Internet address is www.witsbasin.com.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Form 10-K filed March 31, 2003. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year as a whole.

Revenue Recognition and Deferred Revenue

The Company did derive revenues from customers of the online document management service for monthly access to the service and initial service configuration/implementation. Customers were invoiced at the beginning of each month for access service and revenue was recognized when invoiced. Configuration/implementation revenue was invoiced the month after the services were performed and recognized in the month invoiced.
 

 
  6  
 

The Company recognizes the revenues derived from the accounting software business sales after all of the following criteria have been met: there is an executed license agreement, software has been delivered to the customer, the license fee is fixed and payable within twelve months, collection is deemed probable and product returns are reasonably estimable. Revenues related to multiple element arrangements are allocated to each element of the arrangement based on the fair values of elements such as license fees, maintenance, and professional services. Fair value is determined based on vendor specific objective evidence. Service revenue is recognized ratably over the term of the agreement, which is typically one year. All service revenue invoiced in excess of revenue recognized is recorded as deferred revenue. At March 31, 2003 and 2002, deferred revenue was $1,702,923 and $1,774,491, respectively. See Notes 3 and 4 for details on our discontinued operations.

Net Loss per Common Share

Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the periods presented. The impact of common stock equivalents has been excluded from the computation of weighted average common shares outstanding, as the net effect would be antidilutive.

Use of Estimates

Preparing financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Income Taxes

We account for income taxes using the liability method to recognize deferred income tax assets and liabilities. Deferred income taxes are provided for differences between the financial reporting and tax bases of our assets and liabilities at currently enacted tax rates.

We have recorded a full valuation allowance against the net deferred tax asset due to the uncertainty of realizing the related benefits.

Software Development Costs 

Effective January 1, 1999, we implemented Statement of Position (“SOP”) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Pursuant to SOP 98-1, expenditures for internal use software are expensed during the preliminary project stage.

Stock Based Compensation

In accordance with Accounting Principles Board (“APB”) Opinion No. 25, the Company uses the intrinsic value-based method for measuring stock-based compensation cost which measures compensation cost as the excess, if any, of the quoted market price of the Company's common stock at the grant date over the amount the employee must pay for the stock. The Company's general policy is to grant stock options and warrants at fair value at the date of grant.

The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” The Company recorded compensation expense pursuant to APB Opinion No. 25 and related interpretations on options granted and due to modifications of options of $20,788 and $31,929, for the quarters ended March 31, 2003 and 2002, respectively. The Company recorded expense related to stock based compensation issued to non-employees in accordance with SFAS No. 123. Had compensation costs for employees been recognized based upon the fair value of options at the grant date consistent with the provisions of SFAS No. 123, the Company’s results would have been as follows for the quarters ended March 31:


 
  7  
 


   
Restated
  
   
2003
  
2002
  
Net loss:
          
     As reported
  
$
(220,764
)
$
(1,337,826
)
     Pro forma
    
(562,495
)
  
(1,728,484
)
               
Basic and diluted net loss per share:
              
     As reported
  
$
(0.02
)
$
(0.12
)
     Pro forma
  
$
(0.04
)
$
(0.15
)
               
Stock-based compensation
              
     As reported
  
$
20,788
  
$
31,929
  
     Pro forma
  
$
341,731
  
$
390,658
  


In determining the compensation cost of the options granted during the quarters ended March 31, 2003 and 2002, as specified by SFAS No. 123, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes pricing model and the weighted average assumptions used in these calculations are summarized below for the quarters ended March 31:


 
2003
2002
  
Risk free interest rate
    
4.5%
 
  
5%
 
Expected life of options granted
    
10 years
    
10 years
  
Expected volatility range
    
234.5%
 
  
128.8%
 
Expected dividend yield
    
0%
 
  
0%
 

 
NOTE 3 - DISCONTINUED OPERATIONS OF HOSTED BUSINESS SOLUTIONS

In 2001, through a licensing agreement, we acquired the rights to develop and market, on a hosted basis, the online document management solutions of Stellent, Inc. This application service provider (ASP) software license agreement was the basis for our Hosted Solutions Business model (“HSB”), in which we were required to make advanced royalty payments and certain minimum royalty fee payments to Stellent.

On March 14, 2003, we sold all of the assets relating to our HSB to Stellent, Inc. for $650,000 cash plus the reimbursement of transaction-related expenses incurred by us in the amount of $150,000 and the assumption of certain obligations, liabilities and employees of the Company. Included in the net loss from discontinued operations is a loss on prepaid royalties of $434,895 and $0 for the three months ended March 31, 2003 and 2002, respectively. The remaining balance of the prepaid royalties ($975,000 at December 31, 2002) was expensed and netted together with the assets and liabilities of the Hosted Solutions Business ($109,895 at March 14, 2003) together with the cash received ($650,000) in the transaction.

Under Minnesota law, shareholder approval is required when a corporation disposes of “all or substantially all” of its assets. The assets related to the Hosted Solutions Business, which represented only 25 percent of our total assets and which generated only 11 percent of our consolidated revenues for the year ended December 31, 2002, did not constitute the sale of all or substantially all of our assets. Therefore, the transaction was not subject to shareholder approval. With the completion of this sale, the Company no longer operates in the online document management business and will seek alternative business opportunities.



 
  8  
 



The following are condensed consolidated statements of discontinued operations for the quarters ended March 31,


HOSTED SOLUTIONS BUSINESS
  
2003
2002
  
Revenues
  
$
132,455
  
$
103,788
  
               
Operating expenses
              
     Costs of sales
    
35,354
    
78,015
  
     Selling, general and administrative
    
130,102
    
713,276
  
     Depreciation and amortization
    
8,719
    
338,701
  
     Loss (gain) on disposal of assets
    
(749
)
  
25,480
  
          Total operating expenses
    
173,426
    
1,155,472
  
Loss from discontinued operations
    
(40,971
)
  
(1,051,684
)
               
Other income
    
150,000
    
20,000
  
Loss on sale of prepaid royalties
    
(434,895
)
  
—
  
               
Net loss from discontinued operations
  
$
(325,866
)
$
(1,031,684
)


Assets and liabilities of the HSB consisted of the following at:


 
March 31, 2003
December 31, 2002
  
           
Accounts receivable, net
  
$
70,121
  
$
35,107
  
Prepaid expenses
    
11,640
    
35,542
  
Property and equipment, net
    
2,996
    
123,505
  
Prepaid royalties
    
—
    
975,000
  
     Total assets
  
$
84,757
  
$
1,169,154
  
               
Accounts payable    
    
237,943
    
284,814
  
Accrued expenses
    
15,507
    
191,134
  
     Total liabilities
  
$
253,450
  
$
475,948
  

 
NOTE 4 - DISCONTINUED OPERATIONS OF ACCOUNTING SOFTWARE BUSINESS

In December 2002, the Company’s Board of Directors authorized a plan to sell the Company’s Accounting Software Business (“ASB”) to key employees of that division. The ASB publishes traditional accounting and financial management software for small and medium sized businesses, farms and ranches throughout North America. The Company formed (through three mergers/acquisitions) the ASB during the year ended December 31, 2001 for the purpose of utilizing the businesses’ customer base to market other of the Company’s E-commerce products and services. The ASB consists of two accounting software applications companies: Red Wing Business Systems, Inc. and Champion Business Systems, Inc., collectively referred to as Red Wing. Also during 2002, the Company determined to abandon its E-commerce business after acquiring the rights to develop and market hosted online document solution products. Therefore, since the Company abandoned the E-commerce business model to focus on the hosted solutions business, the accounting software business no longer fit within the Company’s business plan. In February 2003, the Company entered into a definitive purchase agreement to sell substantially all the assets of the ASB. See Note 7 for a further discussion regarding the sale of the ASB, which was completed April 30, 2003.
The following are condensed consolidated statements of discontinued operations for the quarters ended March 31,


 
  9  
 


ACCOUNTING SOFTWARE BUSINESS
  
2003
2002
  
               
               
Revenues
  
$
1,186,729
  
$
1,120,526
  
               
Operating expenses
              
     Costs of goods sold
    
309,801
    
419,250
  
     Selling, general and administrative
         
463,009
    
778,614
  
     Depreciation and amortization
    
61,325
    
84,108
  
     Product development
    
165,348
    
44,869
  
          Total operating expenses
    
999,483
    
1,326,841
  
Income (loss) from discontinued operations
    
187,246
    
(206,315
)
               
Other expense
    
(46,356
)
  
(32,486
)
               
Net income (loss) from discontinued operations
  
$
140,890
  
$
(238,801
)


Assets and liabilities of the ASB consisted of the following at:


 
March 31, 2003
  
December 31, 2002
  
             
Cash
  
$
626,848
  
$
526,447
  
Accounts receivable, net
    
102,399
    
176,370
  
Inventories
    
41,455
    
46,438
  
Property and equipment, net
    
116,000
    
119,561
  
Acquired software developed, net
    
438,286
    
492,170
  
Goodwill, net
    
1,318,260
    
1,318,260
  
Other intangibles, net
    
869,927
    
869,927
  
Other assets
    
35,609
    
40,568
  
     Total assets
  
$
3,548,784
  
$
3,589,741
  
               
Accounts payable    
    
68,644
    
81,064
  
Accrued expenses
    
307,845
    
244,360
  
Deferred revenue
    
1,702,923
    
1,774,491
  
Notes payable
    
1,563,334
    
1,582,904
  
     Total liabilities
  
$
3,642,746
  
$
3,682,819
  

 
NOTE 5 - SHAREHOLDERS' EQUITY

Stock Subscription Receivable

On January 6, 2003 the Company entered into a severance agreement with D. Bradly Olah, its Chief Executive Officer, effective December 31, 2002. In addition, the Company exercised its right to a non-cash repurchase of 500,000 shares of common shares issued to Mr. Olah on January 7, 2002 in exchange for the cancellation of his stock subscription receivable to the Company.


 
  10  
 

Deferred Compensation

In conjunction with the severance agreement discussed above, the remaining amount associated with options granted to Mr. Olah was reversed due to his resignation in January 2003. A correction has been recorded, resulting in a reduction in the amount of $140,749 related to previously reported deferred compensation expense from this severance agreement.


NOTE 6 - RESTATEMENT

The following table reconciles the previously reported amounts to the restated amounts; the reclassification of the Hosted Solutions Business to discontinued operations effective with the sale of the business segment on March 14, 2003; and the previously reported deferred compensation expense error as described above.

   
Assets
  
Accounts Payable
  
Liabilities of HSB
  
Liabilities of ASB
  
Accrued Expenses
  
Add’t Paid
in Capital
  
Net Loss
  
Previously reported amounts
  
$
823,686
  
$
257,749
  
$
—
  
$
93,962
  
$
26,289
  
$
20,675,437
  
$
(361,513
)
Accounts receivable of HSB
    
(70,121
)
  
—
    
—
    
—
    
—
    
—
    
—
  
Prepaid expenses of HSB
    
(11,640
)
  
—
    
—
    
—
    
—
    
—
    
—
  
Property & Equipment of HSB
    
(2,996
)
  
—
    
—
    
—
    
—
    
—
    
—
  
Total assets of HSB (1)
    
84,757
    
—
    
—
    
—
    
—
    
—
    
—
  
Total assets of ABS
   
3,548,784
    
—
    
—
    
3,548,784
   
—
    
—
    
—
  
Accounts payable of HSB
    
—
    
(237,943
)
  
237,943
    
—
    
—
    
—
    
—
  
Accrued expenses of HSB
    
—
    
—
    
15,507
    
—
    
(15,507
)
  
—
    
—
  
Correction of error relating to
     deferred compensation expense
    
—
    
—
    
—
    
—
    
—
    
(140,749
)
  
140,749
  
Restated amounts
  
$
4,372,470
  
$
19,806
  
$
253,450
  
$
3,642,746
  
$
10,782
  
$
20,534,688
  
$
(220,764
)

(1) Reclassification of Accounts receivable of HSB, Prepaid expenses of HSB and Property & Equipment of HSB.

Also, the loss per share decreased $0.01 for the quarter ended March 31, 2003 due to the error corrected from the previously reported deferred compensation expense.

 
NOTE 7 - SUBSEQUENT EVENTS

On April 30, 2003, we completed the sale of substantially all of the assets of the Accounting Software Business to two employees of that division, Kenneth Hilton and James Long. Mr. Hilton served as the President and Mr. Long served as the Chief Financial Officer, collectively as (the “Purchaser”).

The assets sold consisted primarily of all intellectual property rights, cash, accounts receivable, inventories, property and equipment, and customer contracts. The Purchaser assumed substantially all the liabilities of the Accounting Software Business incurred in the ordinary course of the business consisting of trade payables, accrued expenses, debt and liabilities arising from contractual obligations related to the ongoing operations. The remaining outstanding debt (as of April 30, 2003 of $1,451,714) that was incurred during 2001 to acquire the Accounting Software Business was discharged as follows: (a) cash proceeds ($752,426) from the Purchaser were used to pay 17 of the note holders a negotiated 75 percent of the remaining balance due under the terms of their promissory notes, (b) the 25 percent discount ($250,809) re-negotiated with the 17 note holders, was booked as a component of discontinued operations, and (c) the remaining seven note holders (valued at $448,479) received new promissory notes issued by the Purchaser, again which was as a component of discontinued operations.

The shareholders of the Company approved the sale at a special meeting on April 29, 2003.


 
  11  
 

With the completion of this sale, we have no operating business assets, no debt and net assets of approximately $450,000. The Company is actively reviewing business opportunities for acquisition.

Recently, we received a letter from an attorney representing Jack A. Johnson, who served as our President and CEO until leaving the Company to accept employment from Stellent, Inc., following our sale of the hosted solutions business. Notwithstanding that he accepted a full-time employment position with Stellent, Mr. Johnson claims to be entitled to a lump sum severance payment from us in an amount exceeding $200,000 (including a $25,000 bonus) pursuant to the terms of an alleged employment agreement with the Company. As we have informed Mr. Johnson, it is our position that he does not have an enforceable employment agreement with us (other than an October 23, 2002 letter agreement) and that he is not entitled to any severance or other payments from us, except for the $25,000 bonus payment.

By letter dated May 5, 2003, we were given notice of a claim on behalf of Carroll Oil Company and Mr. Timothy L. White that we are obligated to pay $98,776 pursuant to an April 1999 agreement entered into with Meteor Industries, Inc., our predecessor. We are investigating this matter and do not currently have sufficient information to determine whether we are subject to liability to Carroll Oil Company or Mr. White.


  12  
 

WITS BASIN PRECIOUS MINERALS INC.
(f/k/a ACTIVE IQ TECHNOLOGIES, INC.)
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations


The following management’s discussion and analysis of financial condition and results of operations should be read in connection with the accompanying unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report and the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2002.


OVERVIEW

Wits Basin Precious Minerals Inc. (f/k/a Active IQ Technologies, Inc.) “we,” “us,” “our,” or the “Company,” provided industry-specific solutions for managing, sharing and collaborating on business information via the Web though our Hosted Solutions Business ("HSB”) until March 2003, and accounting software through our Accounting Software Business (“ASB”). In 2002, through a licensing agreement, we acquired the rights to develop and market, on a hosted basis, the online document management solutions of Stellent, Inc. This application service provider software license agreement was the basis for our HSB model. The ASB publishes traditional accounting and financial management software for small and medium sized businesses, farms and ranches throughout North America. The Company formed (through three mergers/acquisitions) the ASB during the year ended December 31, 2001 for the purpose of utilizing the businesses’ customer base to market other of the Company’s E-commerce products and services. The ASB consists of two accounting software applications companies: Red Wing Business Systems, Inc. and Champion Business Systems, Inc., collectively referred to as Red Wing.

In December 2002, our Board of Directors authorized a plan to sell the ASB and as a result of the formal plan, the results of operations have been reported as discontinued operations and previously reported condensed consolidated financial statements have been restated for the quarter ended March 31, 2002. See Notes 4 and 7, included elsewhere in this quarterly report, for details of said financial statements.

During the first quarter of 2003, we came to the conclusion that due to current market conditions for capital funding, it would be extremely unlikely for us to secure the financing necessary to fund our HSB beyond the near term and thereby provide assurance to future customers of our long-term viability. On March 14, 2003, we sold all of our assets related to the HSB and thereby as a result of the sale, the results of operations have been reported as discontinued operations and previously reported condensed consolidated financial statements have been restated for the quarter ended March 31, 2002. See Notes 3 and 6, included elsewhere in this quarterly report, for a further discussion regarding the sale of our HSB.

We were originally incorporated under Colorado law in December 1992 under the name Meteor Industries, Inc. In April 2001, in conjunction with our merger with activeIQ Technologies, Inc., we reincorporated under Minnesota law.
 
Our principal office is located at 80 South 8th Street, Suite 900, Minneapolis, Minnesota 55402. Our telephone number is (612) 349-5277 and our Internet address is www.witsbasin.com.


 

 
  13  
 

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2003 COMPARED TO
MARCH 31, 2002.

Revenues

With the sale of the HSB on March 14, 2003, we have no revenues from continuing operations for the quarter ended March 31, 2003 and 2002.

Additionally, with the subsequent sale of our ASB in April 2003, we have no operating business assets in which we can generate revenue. Our ability to continue is predicated on our ability to acquire new businesses or technologies, successfully implement the new business model and secure additional financing.

Operating Expenses

General and administrative expenses for the quarter ended March 31, 2003 were $59,332 compared to $80,010 for the same period in 2002. The overall operating expense trend will be dependent upon our next business model we adopt.
 
Other Income and Expenses

Our other income and expense consists of interest and dividend income. Interest income for the quarter ended March 31, 2003 was $23,544 compared to $12,669 for the same period in 2002. The interest income we reported for 2003 was earned from a Federal Income Tax refund filed with the IRS. The interest and dividend income we reported for 2002 was related equally to portfolio interest and the interest accrued on stock subscription receivables.

Discontinued Operations

As a result of the discontinuation of the HSB, we recorded a loss from discontinued operations of $325,866 for the quarter ended March 31, 2003 as compared to a loss from discontinued operations of $1,031,684 for the same period in 2002.

The following are condensed consolidated statements of discontinued operations for the quarters ended March 31,


HOSTED SOLUTIONS BUSINESS
  
2003
2002
  
Revenues
  
$
132,455
  
$
103,788
  
               
Operating expenses
              
     Costs of sales
    
35,354
    
78,015
  
     Selling, general and administrative
    
130,102
    
713,276
  
     Depreciation and amortization
    
8,719
    
338,701
  
     Loss (gain) on disposal of assets
    
(749
)
  
25,480
  
          Total operating expenses
    
173,426
    
1,155,472
  
Loss from discontinued operations
    
(40,971
)
  
(1,051,684
)
               
Other income
    
150,000
    
20,000
  
Loss on sale of prepaid royalties
    
(434,895
)
  
—
  
               
Net loss from discontinued operations
  
$
(325,866
)
$
(1,031,684
)

 

 
  14  
 

As a result of the discontinuation of the ASB, we recorded income from discontinued operations of $140,890 for the quarter ended March 31, 2003 as compared to a loss from discontinued operations of $238,801 for the same period in 2002.

The following are condensed consolidated statements of discontinued operations for the quarters ended March 31,


ACCOUNTING SOFTWARE BUSINESS
  
2003
2002
  
               
Revenues
  
$
1,186,729
  
$
1,120,526
  
               
Operating expenses
              
     Costs of goods sold
    
309,801
    
419,250
  
     Selling, general and administrative
    
463,009
    
778,614
  
     Depreciation and amortization
         
61,325
    
84,108
  
     Product development
    
165,348
    
44,869
  
          Total operating expenses
    
999,483
    
1,326,841
  
Income (loss) from discontinued operations
    
187,246
    
(206,315
)
               
Other expense
    
(46,356
)
  
(32,486
)
               
Net income (loss) from discontinued operations
  
$
140,890
  
$
(238,801
)


Liquidity and Capital Resources

We have funded our operations and satisfied our capital requirements primarily through the sale of our business assets. Net cash provided by operating activities was $263,485 for the quarter ended March 31, 2003, compared to net cash used by operating activities of $745,992 for the same period in 2002.
 
We had working capital of $445,686 at March 31, 2003, compared to $589,133 at December 31, 2002. Cash and equivalents were $738,929 at March 31, 2003, representing an increase of $725,718 from the cash and equivalents of $13,211 at December 31, 2002.

On March 14, 2003, we sold all of the assets relating to our HSB to Stellent, Inc. for $650,000 cash plus the reimbursement of transaction-related expenses incurred by us in the amount of $150,000 and the assumption of certain obligations, liabilities and employees of the Company. Under Minnesota law, shareholder approval is required when a corporation disposes of “all or substantially all” of its assets. The assets related to the Hosted Solutions Business, which represented only 25 percent of our total assets and which generated only 11 percent of our consolidated revenues for the year ended December 31, 2002, did not constitute the sale of all or substantially all of our assets. Therefore, the transaction was not subject to shareholder approval. With the completion of this sale, the Company no longer operates in the online document management business and will seek alternative business opportunities.

We anticipate that the existing sources of liquidity will not provide cash to fund operations for the next twelve months. We will continue our attempt to raise additional capital. Some of the possibilities available to us are through private equity transactions, to develop a credit facility with a lender or the exercise of options and warrants. However, such additional capital may not be available to us at acceptable terms or at all. In the event that we are unable to obtain additional capital, we would be forced to reduce operating expenditures and/or cease operations altogether.




 
  15  
 

PART II.    OTHER INFORMATION

Item 6. Exhibits

 (a)  Exhibits
   31.1  Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   31.2  Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   32.1  Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   32.2  Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
    

 
  16  
 

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 


     
  WITS BASIN PRECIOUS MINERALS INC.
(f/k/a ACTIVE IQ TECHNOLOGIES, INC.)
 
 		  
 		  
 
January 14, 2005 By:   /s/ H. Vance White 
 
H. Vance White
  Chief Executive Officer
 

    
 
 
 		  
 		  
 
  By:   /s/ Mark D. Dacko
 
Mark D. Dacko
  Chief Financial Officer


 
  17