Back to GetFilings.com
1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2000.
Commission File No.: 0-29098
NAVIDEC, INC.
(Exact name of registrant as specified in its charter)
COLORADO 33-0502730
- -------- ----------
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
Fiddler's Green Center
6399 S. Fiddler's Green Circle, Suite 300
Greenwood Village, Colorado 80111
- --------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303-222-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
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 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the issued and outstanding common stock held by
non-affiliates of the registrant as of March 29, 2001 was approximately
$24,735,000 based on the closing price of the registrant's common stock as
reported by the NASDAQ National Market at that date. As of March 29, 2001,
11,640,000 shares of the registrant's common stock were outstanding.
2
PART I
Except as otherwise stated, the information contained in this Form 10-K is as of
December 31, 2000, the end of the registrant's last fiscal year. Information in
this Form 10-K contains forward-looking statements that involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the registrant to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. See "Forward-Looking Statements" in
Item 7 of this Form 10-K.
ITEM 1. BUSINESS
GENERAL
Navidec, Inc., a Colorado corporation organized in 1993, is a provider of
innovative, integrated solutions and services for customers engaging in
web-based operations. By combining its business consulting and technical
expertise, the Company designs, builds and manages comprehensive eSolutions for
a diverse range of customers. In addition, Navidec is a premier provider of
integration and related professional services, primarily to the customers of its
strategic partners.
Navidec utilizes a customer-driven, focused approach to solutions delivery,
enabling its customers to rapidly and effectively commence their web-based
operations and move those operations toward integrated e-business models. The
Company's proprietary NPact process is a premier methodology for solutions
delivery. NPact empowers customers to identify their e-business needs as well as
to manage the costs and timeframes for implementing an integrated solution. Once
the appropriate solution has been identified, Navidec and the customer, working
through the NPact process, segment the project into multiple fixed-price 90-day
to 120-day phases. Each phase, when completed, provides the customer with
immediate functionality.
Operations of Navidec's eSolutions business are centralized in the Company's
Denver Development Center ("DDC"). The centralization of development activities
at the DDC provides efficient coordination of project work. This results in
high quality, cost-effective solutions for the customer. A significant part of
the cost-effective outcomes at Navidec is attributable to its library of
proprietary, reusable software components. Navidec integrates its proprietary
components with best-of-breed vendor applications, producing solutions that are
rapidly deployable, highly reliable and scalable.
The Company's Professional Services Group ("PSG") provides implementation,
integration and consulting services for customers through in-field development
of PSG's consultants. These short-term, customer-driven engagements are
primarily the result of referrals from the Company's strategic partners.
Navidec is undertaking sales and marketing initiatives to expand PSG
engagements and, if appropriate, identify eSolutions opportunities for the PSG
customer.
SALE OF NAVIDEC'S INTERESTS IN DRIVEOFF.COM, INC.
On August 2, 2000 the Company entered into an agreement, related to the
acquisition of its subsidiary, DriveOff.com, Inc. ("DriveOff.com"), by
CarPoint.com, LLC. Upon completion of the transaction on September 30, 2000, the
Company became an 8.38% shareholder of CarPoint, Inc. Microsoft Corporation,
Ford Motor Company and WFC Holdings Corporation are also shareholders of
CarPoint, Inc.
NAVIDEC'S STRATEGY
The Company's strategy for sustainable growth and market leadership is to
continue providing customer-driven solutions and services for businesses
engaging in web-based operations. Navidec expects to achieve market leadership
through its (i) commitment to customer demands, (ii) expertise in best-of-breed
technologies and (iii) efficient operations.
Navidec has identified continued demand for comprehensive eSolutions. Yet, most
corporate internal information technology ("IT") departments have limited
resources to develop, implement and manage their web-based operations. This
dynamic creates significant opportunity for solutions providers, like Navidec,
3
with the expertise, experience and strategic partnerships to provide technically
complex eSolutions. The Company expects to continue its growth, while
maintaining its disciplined management of expenses, so that its revenue growth
is also a path to sustainable profitability and profit growth.
To achieve these objectives, the Company is pursuing the following:
EXPANSION OF SALES AND MARKETING ACTIVITIES. Navidec has established sales and
marketing offices in several new regions. As of December 31, 2000, Navidec had
its DDC and administrative offices in Denver as well as sales and marketing
offices in Atlanta, Austin, Boston, Chicago, Los Angeles, New York, San
Francisco and Washington D.C. These offices allow the Company to sell locally,
while delivering solutions from centralized operations at the DDC.
DEVELOPMENT OF VERTICAL MARKET PRACTICES. Navidec has commenced the evolution
of its business model from the general market strategy to a vertical markets
strategy. In July 2000, the Company launched its Financial Services Practice
("FSP") Group, dedicated to providing solutions to customers engaged in
financial services as well as the financial operations of customers engaged in
other industries. In fiscal year 2000, the FSP delivered eSolutions for loan
decisioning and loan processing as well as electronic bill presentment and
payment. These e-financial service applications were part of solutions that
also included document processing, e-business management and e-customer
relationship components. Navidec's FSP Group customers in fiscal year 2000
included Wells Fargo, First Union, Westar Financial and the Chicago Board of
Trade. Navidec expects to launch a second vertical market practice in the
second quarter of 2001. Additional vertical market practices will be commenced
as the Company identifies both customer demand and a clear path to revenue
recognition.
EXPANSION AND ENHANCEMENT OF CUSTOMER RELATIONSHIPS. Navidec continues to
leverage its industry expertise, technical skills and strategic partner
relationships to expand the scope of its current customer roster. In addition,
Navidec's relationship with each of its customers has become a more significant
component of the customer's e-business and general IT strategies. This enables
our customers to move more rapidly through the e-business integration process,
resulting in multiple engagements from the customer.
CONTINUED DEVELOPMENT OF MARKET-LEADING TECHNICAL CAPABILITIES. The Company
continues to expand its technical capabilities and strategic partner
relationships to enable it to deliver time-critical, mission-critical solutions
and to meet the changing needs of customers. Navidec also continues to develop
reusable software components, sometimes referred to as enterprise Java beans
("EJBs"), that can be utilized for rapid, reliable and cost-effective solutions
delivery. The Company's library of reusable components numbered 525 as of
December 31, 2000. The library included EJBs in the following categories:
- E-business management
- E-commerce management
- E-financial services
- E-customer relationship management
CONTINUED RECRUITMENT AND RETENTION OF EXPERIENCED PROFESSIONALS. Navidec's
growth is due, in large part, to its ability to attract and retain experienced
professionals. It has done this by recruiting professionals from major
consulting firms, creative design and information technology services firms as
well as from other eSolutions providers. Navidec's corporate culture is a
team-driven and results-oriented environment that is attractive to energetic,
talented professionals and that fosters innovation and customer-driven results.
4
NAVIDEC'S eSOLUTIONS BUSINESS
Navidec provides innovative, integrated solutions for customers engaging in
web-based business. The Company offers (i) e-business consulting, (ii) component
and custom application solutions, (iii) infrastructure expertise and (iv)
application environment management services in support of our customers'
e-business needs. These needs are often time-sensitive and mission-critical.
ESolutions are developed and delivered through Company's NPact process,
Navidec's premier proprietary methodology for customer engagement and solution
delivery. The four phases of NPact are:
- NSight - Pre-sales analysis of e-business needs and goals
- NVolve - Detailed analysis of project and creation of project
plans
- NTrust - Building the solution, including application components,
interface designs and quality assurance testing
- NAble - Customer training, maintenance and support and hosting
Navidec's Npact process is a collaborative project management approach to the
consult, build and manage component of successful eSolutions delivery. The goal
of NPact is single-source integrated solutions delivered on time and on budget.
NSight. This initial phase is the commencement of consulting exercises
with the customer. Navidec works with the customer to identify and
define the customer's e-business initiatives as well as time-to-market
requirements and success criteria.
NVolve. The goal of the NVolve phase is creation of a project plan with
specifications, functionality, prioritization, pricing, milestones and
infrastructure integration. This phase includes application design,
technology assessments, architectural services and customer training in
certain technologies.
NTrust. During the NTrust phase, Navidec builds the customer's solution
in accordance with the specifications of the NVolve project plan.
NTrust includes (i) application development, (ii) project management,
(iii) quality assurance testing, (iv) installation and deployment and
(v) systems integration.
NAble. The NAble phase is post-implementation customer support to
assure solution performance. NAble includes (i) managed hosting
services, (ii) service and support, (iii) applications maintenance,
(iv) customer training and (v) website analytical services.
Navidec's NPact process is designed to produce deliverables to the customer in
90-day to 120-day timeframes, each deliverable providing immediate functionality
for the customer.
NAVIDEC'S PROFESSIONAL SERVICES BUSINESS
The Company's Professional Services Group ("PSG") provides implementation,
integration and consulting services for existing business operations. The PSG is
a customer-driven organization responding to the acute IT issues that arise in
the deployment of new components of the enterprise's web-based operation. The
PSG is often deployed through the customer's relationship with one of Navidec's
strategic partners, such as Sun Microsystems, Inc., BEA Systems, Inc., Oracle
Corporation, Netegrity, Inc. and iPlanet E-Commerce Solutions.
Whether deployed through partner relationships or Navidec's direct sales, the
PSG is engaged in short-term cycles to resolve acute issues. While customer
engagements are smaller than the eSolutions business, the sales cycle is
considerably shorter. Navidec's sales and marketing strategy includes (i)
reliance on strategic partners for significant PSG opportunities and (ii)
utilizing the PSG engagement as an additional opportunity for Esolutions
marketing and sales. As of December 31, 2000, Navidec employed 37 consultants
in the PSG.
STRATEGIC BUSINESS PARTNERSHIPS
Navidec remains committed to building strategic partnerships with best-of-breed
technology providers. These relationships are an integral part of Navidec's
commitment to providing the best technology
5
available for its customers' needs. In addition, strategic partnerships have
been a key component of Navidec's sales and marketing activities, as the
Company's partners have been a significant source, directly and indirectly, of
revenue for Navidec's PSG.
The relationship with Sun Microsystems, Inc. is a key component of the Company's
business strategy. Navidec is one of only 18 Authorized Java Development Centers
in the United States. Combining its extensive Java expertise with application
server, database and mail messaging capability, Navidec provides customers with
high quality end-to-end solutions. These solutions utilize J2EE, HTML, XML, Perl
and other proven technologies.
In addition to its partnership with Sun, Navidec has built strong partnerships
with leading companies like BEA Systems, Inc., Netscape Communications
Corporation, iPlanet E-Commerce Solutions, Oracle Corporation, Netegrity, Inc.,
Oblix Inc., Resonate, Inc. and VERITAS Software Corp. The Company remains
committed to strategic relationships with market leaders that provide Navidec
with the benefits of a broad product offering as well as product support and
training.
Strategic relationships and other technologies available to the Company allow
Navidec to operate without dependence upon any single technology or partner to
provide our services. We choose from multiple suppliers to incorporate the most
appropriate technologies and products for each customer solution. Third-party
providers typically license their software directly to our customers and,
accordingly, we are not at risk of losing licenses or relationships that are
necessary for our customers' solutions.
In addition to e-business development capabilities, Navidec, through its
partnerships, provides significant Internet infrastructure support expertise
including light directory application protocol, digital certificates and
messaging. Our certifications and qualifications include:
- Sun Elite status
- Sun Level 2000 Competency
- Authorized Netscape Premier Partner
- Authorized Netscape Professional Services Subcontractor
- Authorized BEA Weblogic Service Partner
- Authorized Oracle Alliance Partner and Professional Services
Subcontractor
SALES AND MARKETING
Sales and marketing is driven by the premise that web-based operations drive
sales, reduce costs and improve customer or supplier relations. Navidec's sales
and marketing is targeted at existing enterprises commencing or enhancing
e-business strategies. At December 31, 2000, a direct sales force, consisting of
27 individuals, was primarily responsible for identifying prospects, engaging
prospective customers and maintaining and growing customer relationships. As our
development capacity grows and demand for the services of the PSG remains high,
our direct sales force is expected to expand proportionately. In addition,
Navidec expects to continue its reliance on strategic partners for PSG sales
opportunities and, where appropriate, initiate co-marketing activities with
those partners.
Navidec's marketing efforts directly support the sales organization. The goal of
the marketing program is to create and sustain brand identification, preference
and loyalty and to identify and initiate sales opportunities. Marketing is
responsible for communications, advertising, public relations, trade show
participation, joint marketing with our partners and our web site content.
COMPETITION
The eSolutions business is a competitive environment with a large number of
regional and national firms providing services substantially similar to
Navidec's service offerings. Our competition approaches the business of
eSolutions from a variety of disciplines ranging from the technical expertise
of the consulting divisions of the "Big Five" accounting firms to the image and
creative expertise of major advertising agencies. Additionally, there are a
variety of direct competitors including (i) interactive agencies that use
digital technologies to enhance communications and interactions between
individuals and businesses and (ii) "e-builders" that provide Internet strategy
consulting and Internet-based solutions to businesses. Other potential
competitors could include browser software vendors, personal computer and Unix
software
6
vendors and Internet service providers. Additional competition results from
numerous client/server companies, database companies, multimedia companies,
document management companies, networking software companies, network management
companies and educational software companies. Some of our competitors have
longer operating histories, greater name recognition, larger customer bases or
significantly greater financial, technical and marketing resources. Competitive
factors in the eSolutions business include core technology, breadth of services
offered, creative and artistic ability, marketing and distribution resources,
customer service and support and price.
With the change in general market conditions and, more specifically, the adverse
effects of curtailment of operations by many web-based businesses, including the
"dotcoms", many e-solutions providers have experienced a weakening of demand for
services during 2000. While Navidec's results of operations for the last two
quarters do not reflect the slowdown in demand experienced by some of its
competitors, these factors could affect the Company's business and prospects in
2001 and beyond.
PRODUCT DISTRIBUTION
Navidec serves both as a national manufacturer's representative for the products
of certain international manufacturers and as a reseller of selected computer
products in the Rocky Mountain region. The Company purchases equipment directly
from the manufacturer or vendor and resells it to the purchaser at a price,
which includes the cost and a profit margin. Product distribution is not a part
of the Company's core strategy, and we do not intend to commit significant
resources to this line of business.
EMPLOYEES
As of December 31, 2000, we had a total of 275 employees, of which 182 provide
billable services to our customers. None of our employees are represented by a
labor union. In March 2001, the Company announced a reduction in force
affecting 44 employees, representing a 16% reduction of the Company's
workforce. The majority of the positions eliminated were general and
administrative positions. Six positions were billable personnel. These
reductions were a result of weakened customer demand for on-site Java
development services.
Navidec dedicates significant resources to its recruiting efforts. A majority of
our new hires come from employee referrals, with those individuals being
rewarded for successful recruitment. Recruiting also occurs from many of the
country's leading graduate and undergraduate programs and through professional
search firms.
Navidec's training and professional development programs advance the skills of
its employees enabling continued delivery of high-quality services to our
clients. The goal is to ensure that each professional in our organization has
the opportunity to develop the skills necessary to grow professionally and to
serve our customers' needs.
Navidec's compensation program has been structured to attract and retain highly
skilled professionals by offering competitive base salaries with
performance-based incentives. In addition, key employees may receive stock
options upon commencement of employment and additional options based upon
performance.
ITEM 2. PROPERTIES
Navidec's operations are principally located at Fiddler's Green Center, 6399
South Fiddler's Green Circle, Greenwood Village, Colorado, in a 70,000 square
foot facility. The lease for this facility expires in January, 2005 and has a
current lease rate of $101,000 per month. In April of 2001 the Company will be
required to lease an additional 35,000 square feet in the same campus at a
lease rate of $50,000 per month.
Navidec also has a lease at 14 Inverness Drive, Building F, Suite 116,
Englewood, Colorado, in a 13,000 square foot facility, which includes
approximately 1,500 square feet in warehouse space. The facility has been
subleased to an unaffiliated party, expiring in June 2001 and has a current
lease rate of $8,600 per month.
The Company holds a number of short-term (less than 6-month) leases for sales
and marketing offices in various locations across the United States. These
facilities are under lease with unaffiliated parties and have a combined current
monthly lease rate of $20,000 per month. We use short-term leases to allow the
Company flexibility in responding to changing market conditions.
7
ITEM 3. LEGAL PROCEEDINGS
On October 5, 1999, JDK & Associates, Inc. ("JDK"), a California corporation,
filed a complaint against Navidec in the Superior Court of the State of
California for Orange County. JDK claimed that it was entitled to damages as a
result of an alleged breach of a finder's fee agreement. In September 2000,
Navidec and JDK reached an out of court settlement in which Navidec agreed to
pay JDK $1.4 million as follows: $540,000 in the third quarter of 2000 and
$900,000 over a 60-month period. The settlement was not an acknowledgement of
any wrong doing on Navidec's part but deemed to be less costly than protracted
litigation.
In the normal course of business, Navidec is subject to, and may become a party
to, other litigation. Management believes there are no other matters currently
in litigation that could have a material impact on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 13, 2000, the shareholders of the Company voted to (i) amend the
Company's Amended and Restated Articles of Incorporation to allow for the
issuance of non-voting common stock, (ii) to increase the number of shares of
stock subject to the Company's Stock Option Plan from 2,000,000 to 3,000,000,
and (iii) to elect the Company's board of directors.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On October 22, 1999, Navidec's common stock commenced trading on the Nasdaq
National Market under the symbol "NVDC." Prior to that date, Navidec's common
stock traded on the NASDAQ SmallCap Market. The following table sets forth, for
the periods indicated, the high and low quarterly sales price for a share of
Navidec common stock as reported on the Nasdaq SmallCap Market or Nasdaq
National Market:
Common Stock
Quarter Ended High Low
- ------------- ---- ---
March 31, 1999 $16.625 $ 5.375
June 30, 1999 $14.813 $ 8.375
September 30, 1999 $14.125 $ 8.313
December 31, 1999 $14.000 $ 9.125
March 31, 2000 $21.500 $12.375
June 30, 2000 $14.063 $ 5.657
September 30, 2000 $ 9.375 $ 6.625
December 31, 2000 $ 7.031 $ 2.375
As of March 29, 2001, Navidec had 136 common shareholders of record.
Navidec has never declared a cash dividend on its common shares. The Company
currently intends to retain funds from earnings, if any, for future growth and
therefore does not intend to pay any cash dividends in the foreseeable future on
its common stock. The Company is not currently a party to any agreement
restricting the payment of dividends.
8
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Navidec's consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K.
Year Ended December 31,
1996 1997 1998 1999 2000
------- ------- ------- -------- --------
Statement of Operations Data
(In thousands, except per share amounts):
Revenues $ 5,407 $ 6,008 $ 8,555 $ 18,966 $ 33,078
Loss from operations (1,214) (3,883) (3,549) (9,048) (27,020)
Net income/(loss) (1,415) (4,107) (3,933) (8,161) 16,354
Net income/(loss) per share:
Basic $ (0.73) $ (1.47) $ (1.10) $ (1.08) $ 1.47
Diluted $ (0.73) $ (1.47) $ (1.10) $ (1.08) $ 1.37
Weighted average shares--
Basic 1,948 2,800 3,578 7,574 11,159
Diluted 1,948 2,800 3,578 7,574 11,950
December 31,
1996 1997 1998 1999 2000
------- ------- ------- -------- --------
Balance Sheet Data (in thousands):
Cash & cash equivalents $ 231 $ 369 $ 711 $ 35,860 $ 3,475
Investment in debt securities -- -- -- 9,855 2,990
Restricted cash -- 280 -- -- --
Working capital (deficit) (711) 678 293 46,264 17,328
Total assets 2,258 3,099 5,265 65,028 89,177
Long term debt including
current portion 410 310 989 779 2,270
Convertible debt 1,438 -- -- 19,876 --
Total stockholders'
equity (deficit) (710) 1,550 1,799 39,095 60,567
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Navidec, Inc., a Colorado corporation organized in 1993, is a provider of
innovative, integrated solutions and services for customers engaging in
web-based operations. By combining its business consulting and technical
expertise, the Company designs, builds and manages comprehensive eSolutions for
a diverse range of customers. In addition, Navidec is a premier provider of
integration and related professional services, primarily to the customers of its
strategic partners.
Organized in July 1993 as a value-added reseller of computer products under the
name of ACI Systems, Inc., the Company was renamed Navidec, Inc., in July 1996,
after its merger with Interactive Planet, Inc., a designer and developer of
Internet web sites. In July 1997, TouchSource, Inc., a designer and developer of
interactive kiosks was acquired. This acquisition significantly enhanced
Navidec's business model by combining expertise in traditional marketing and
distribution with Internet/Intranet technology. In December 1998, the assets of
CarWizard.com and LeaseSource.com were acquired, two prominent online automotive
sites, in order to expand Navidec's online automotive presence.
During 2000, Navidec generated revenues from three divisions: eSolutions,
product distribution and automotive. The majority of the eSolutions revenue was
generated from fixed-price, contracts.
9
In developing these contracts, consideration is given to the technical
complexity of the engagement, the resources required to complete the engagement
and the extent to which we will be able to deploy internally developed software
tools to deliver the solution. The goal is to make most eSolutions work
deliverable within a 90-day to 120-day time frame. Revenue for this work is
generally recognized on percentage-of-completion accounting basis using the
ratio of direct costs incurred as compared to the estimated total direct costs
needed to complete the engagement. Navidec is focused on expanding its
eSolutions services offerings and to incorporating applications management and
hosting services, which have the potential to generate recurring revenues.
Navidec's product distribution business generates revenue through the resale of
third party software and hardware components, graphical printers and supplies.
Since product distribution is not related to our core strategy, we expect that
revenue from this business will become a smaller percentage of total revenue as
our eSolutions business continues to grow.
Revenue and expenses were recognized for the first three quarters of 2000 from
DriveOff.com, Inc., an online, fully-integrated automotive sales site. In
September 2000, Navidec sold all of its remaining interest in DriveOff.com for
13,308,300 shares (8.38% of the outstanding shares) of CarPoint Inc., a private
company also owned by Microsoft Corporation, Ford Motor Company and WFC
Holdings. The sale of DriveOff.com resulted in a pretax gain of $43.3 million.
Navidec's operating expenses consist of product development, general and
administrative and sales and marketing. Product development includes salaries
and out-of-pocket expenses incurred in developing new technologies for our own
use or for future customer applications generally, as opposed to
customer-specific development. General and administrative consists primarily of
salary and benefit expenses for our non-billable employees. It also includes
expenses associated with our office facilities other operating leases. Sales and
marketing includes personnel costs, advertising costs, costs associated with
participation in trade shows and direct marketing program and related travel
expenses.
10
RESULTS OF NORMALIZED OPERATIONS(a)(In thousands)
Years ended December 31,
1997 1998 1999 2000
---- ---- ---- ----
REVENUE:
eSolutions $2,359 $5,443 $13,745 $31,294
Product distribution 3,426 2,173 1,944 1,071
------- ------- ------- -------
Total revenue(b) 5,785 7,616 15,689 32,365
COST OF REVENUE 4,182 5,627 10,081 17,185
------- ------- ------- -------
Gross margin(c) 1,603 1,989 5,608 15,180
OPERATING EXPENSES:
Product development 835 542 1,103 5,956
General and administrative 1,920 2,167 3,507 7,259
Sales and marketing 158 256 1,758 7,384
Depr/Amort & Impairment of Goodwill 1,305 422 950 3,268
------- ------- ------- -------
Total operating expenses(d) 4,218 3,387 7,318 23,867
------- ------- ------- -------
LOSS FROM NORMALIZED OPERATIONS $(2,615) $(1,398) $(1,710) $(8,687)
======= ======= ======= =======
RESULTS OF NORMALIZED OPERATIONS AS A PERCENTAGE OF REVENUES(a)
Years ended December 31,
1997 1998 1999 2000
---- ---- ---- ----
REVENUE:
eSolutions 40.8% 71.5% 87.6% 96.7%
Product distribution 59.2% 28.5% 12.4% 3.3%
------ ------ ------ ------
Total revenue(b) 100.0% 100.0% 100.0% 100.0%
COST OF REVENUE 72.3% 73.9% 64.3% 53.1%
------ ------ ------ ------
Gross margin(c) 27.7% 26.1% 35.7% 46.9%
OPERATING EXPENSES:
Product development 14.4% 7.1% 7.0% 18.4%
General and administrative 33.2% 28.5% 22.4% 22.4%
Sales and marketing 2.7% 3.4% 11.2% 22.8%
Depr/Amort & Impairment of Goodwill 22.6% 5.5% 6.0% 10.1%
------ ------ ------ ------
Total operating expenses(d) 72.9% 44.5% 46.6% 73.7%
LOSS FROM NORMALIZED OPERATIONS (45.2%) (18.4%) (10.9%) (26.8%)
======= ====== ====== ======
(a) The results of operations for the years reported have been normalized to
exclude non-recurring results from the ownership and subsequent sale of
DriveOff.com to CarPoint Inc. including a net gain of $56.4 million for
the year ended December 31, 2000, related to the sale of DriveOff.com and
a $4 million loss associated with a restructured receivable.
(b) Excludes revenue from DriveOff.com of $713,000, $3,277,000, $939,000 and
$223,000 for the years ending December 31, 2000, 1999, 1998 and 1997,
respectively.
(c) Excludes costs related to DriveOff.com revenue of $101,000, $664,000,
$243,000 and $37,000 for the years ending December 31, 2000, 1999, 1998 and
1997, respectively.
(d) Excludes operating expenses related to DriveOff.com's operations of
$14,929,000, $9,951,000, $2,847,000 and $1,454,000 for the years ending
December 31, 2000, 1999, 1998 and 1997, respectively and losses of
$4,016,000 in 2000 associated with a restructured receivable.
11
YEARS ENDED DECEMBER 31, 2000 AND 1999
Normalized revenue for 2000 increased $16.7 million, or 106.3%, over 1999
revenues, from $15.7 million to $32.4 million. The increase was primarily a
result of increased sales by eSolutions. Revenue in 2000 associated with the
eSolutions increased $17.6 million, or 127.7%, over 1999, up to $31.3 million
from $13.7 million. The increase in eSolutions revenue was driven by the
Company's decision to focus the majority of its assets on this business segment.
Product distribution revenue decreased $900,000, or 44.9%, from $1.9 million in
1999 to $1.1 million in 2000. The decrease in revenues was due to Navidec's
decision to focus on fewer but more profitable products within the lines that it
carries.
Normalized gross margin increased $9.6 million, or 170.7%, from $5.6 million in
1999 to $15.2 million in 2000. As a percentage of revenue, gross profit
increased from 35.7% to 46.9%. The increase in the gross margin was a result of
product mix and improved margins in eSolutions, which had a gross margin of
49.4% in 2000 up from 37.1% in 1999.
Normalized product development costs increased $4.9 million, or 440.0%, from
$1.1 million in 1999 to $6.0 million in 2000. As a percentage of revenue,
product development costs increased from 7.0% to 18.4% in 2000. This was the
result of increased work being done on the Company's e-commerce framework and
the implementation of new intranets and financial tracing systems.
Normalized general and administrative expenses increased $3.8 million, or 107%,
from $3.5 million in 1999 to $7.3 million in 2000. As a percentage of revenue,
general and administrative expenses remained constant at 22.4% in 1999 and in
2000. The increased spending was primarily due to increased personnel and
overhead expenses related to the increased personnel necessary to support
expanding revenues in 2000.
Normalized sales and marketing expenses increased $5.6 million, or 320%, from
$1.8 million in 1999 to $7.4 million in 2000. As a percentage of revenue, sales
and marketing expenses increased from 11.2% to 22.8% of revenue in 1999 and 2000
respectively. The increased spending was primarily due to increased marketing
activities and the opening of remote sales offices to support expanding revenue
in 2000.
During 2000, we also recognized a loss of $6 million related to JourneyLink. We
wrote-off our $2 million investment in JourneyLink because we believed it was
impaired. We also accepted additional equity for our $4 million in trade
receivables in JourneyLink which we similarly believe are impaired.
During 2000, we sold our interest in DriveOff.com in two transactions. First, we
sold 25.2% of DriveOff.com to Wells Fargo upon conversion of their debt into
equity. We recognized a pretax gain of $18.3 million and a pretax charge of $5.2
million related to this transaction. The pretax charge was for additional shares
in DriveOff.com given to Wells Fargo to incent them to convert their debt into
equity. Later in the year, we sold our remaining interest in DriveOff.com to
CarPoint in exchange for an 8.38% ownership share of CarPoint. We recognized a
pretax gain of $43.3 million on the sale.
We have also agreed with our partner Avis Europe to cease operations in our
European venture in 2001. We have written-off our investment in this venture of
approximately $3 million.
Our net interest income remained consistent between years at approximately $.2
million. In 1999, we recognized a gain of $652,000 related to our investment in
BEA Systems, Inc. which did not recur in 2000.
Our effective tax rate was 32.8% in 2000 versus 0% in 1999 because of our pretax
income of $24.4 million in 2000 versus a loss in 1999. Our effective tax rate
was increased because of a higher effective tax rate upon the sale of
DriveOff.com principally because of the $5.2 million incentive paid to Wells
Fargo which will not be deductible. This was offset in part by our ability to
utilize $12 million in net operating losses in the future against which we had
previously provided a valuation allowance.
As a result of the items discussed above, we recorded net income of $16.4
million in 2000 versus a net loss of $8.2 million in 1999.
Years ENDED DECEMBER 31, 1999 AND 1998
Normalized revenue for 1999 increased $8.1 million, or 106.0%, over 1998
revenues, from $7.6 million to $15.7 million. The increase was a result of
increased sales by eSolutions. eSolutions revenue increased $8.3 million, or
152.5%, over 1998 revenue, from $5.4 million to $13.7 million. The increase in
eSolutions was primarily due to increased customer demand and marketing
activities.
Normalized product distribution revenue decreased $229,000 or 10.5%, from $2.2
million in 1998 to $1.9 million in 1999. The decrease in revenues was due to our
decision to discontinue distribution of certain less profitable products.
Normalized gross margin increased $3.6 million, or 182.0%, from $2.0 million in
1998 to $5.6 million in 1999. As a percentage of revenue, gross profit increased
from 26.1% to 35.7%. The increase in our gross margin was a result of increased
revenue in eSolutions which had a gross margin of 37.1% and our products
distribution division had gross margin of 26.2% for the same period.
Normalized product development costs increased $561,000, or 103.5%, from
$542,000 in 1998 to $1.1 million in 1999. As a percentage of revenue, product
development costs decreased from 7.1% to 7.0% in 1999. The increase was the
result of increased work being done on the reusable software components.
12
Normalized general and administrative expenses increased $1.3 million, or
61.8%, from $2.2 million in 1998 to $3.5 million in 1999. As a percentage of
revenue, general and administrative expenses decreased from 28.5% in 1998 to
22.4% in 1999. The increase in expenses was primarily due to increased personnel
expenses and increased overhead expenses related to the increased personnel
1999.
Normalized sales and marketing expenses increased $1.5 million or 586% from
$256,000, in 1998 to $1.8 million. As a percentage of revenue, sales and
marketing expenses increased from 3.4% to 11.2% of revenue in 1998 and 1999
respectively. This increase was primarily due to increased marketing activities
related to expansion of eSolutions.
In 1999, we recognized a nonrecurring gain of $652,000 from our investment in
BEA Systems, Inc. Also, our net interest charge decreased from net expense of
$395,000 in 1998 to net interest income of $234,000 in 1999. This was due to
increased cash balances arising principally from approximately $44 million in
equity raised during 1999.
Through December 31, 1999, we had net operating loss carryforwards of $18.5
million. Our ability to utilize these net operating loss carryforwards to offset
future taxable income will be significantly limited by certain provisions of the
Internal Revenue Code of 1986, and, in particular, Section 382 of the Code
relating to certain ownership changes of corporations which have losses. We
believe that it is more likely than not that the benefits of these net operating
loss carryforwards will not be realized. Accordingly, a valuation allowance has
been recorded against the entire deferred tax asset as of December 31, 1999 in
our financial statements for the period then ended.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through December 31, 2000, we funded our operations primarily
from the following sources:
- - equity proceeds through public offerings and private placements of our
securities;
- - revenue generated from operations;
- - loans from principal shareholders and employees;
- - loans and lines of credit; and
- - accounts receivable factoring arrangements made available by banks.
Cash used in our operating activities was $27.5 million in 2000 versus $9
million in 1999 and $3 million in 1998. The increase in cash usage was to fund
DriveOff.com start-up activities. DriveOff.com had operating losses of
approximately $15 million, $7 million and $2 million in 2000, 1999 and 1998
respectively. DriveOff.com was sold in 2000.
Operating losses excluding DriveOff.com similarly increased from approximately
$1 million in 1998 and 1999 to approximately $9 million in 2000. This increase
reflects an investment in infrastructure to support our plans to grow our
eSolutions business.
Cash flows used for investing activities decreased from $18.7 million in 1999 to
3.7 million in 2000. In 1999, we invested $10 million received from our various
equity offerings into short-term debt securities. We utilized $7 million of
these investments to fund operations in 2000. Our capital expenditures increased
slightly from $3.6 million in 1999 to $4.3 million in 2000. However, we ceased
our development of software for DriveOff.com which reduced our expenditures by
$3 million between the years. In 2000, we invested $5.6 million versus $2.4
million in 1999. Our 2000 investments included a loan of $3.7 million to Westar
Financial and $3 million into our European venture with Avis. We also paid a
$700,000 earnout to the selling shareholders of CarWizzard and LeaseSource in
2000.
We raised approximately $64 million in financing activities in 1999 principally
through various equity and debt placements. In 2000, we raised only $681,000
from the increase of previously issued options and warrants. We repaid $867,000
on our capital leases in 2000 versus $1 million in 1999. In 2000, we also paid
$540,000 as partial settlement of disputed offering costs related to prior
years' fundings and we reacquired $482,000 of our common stock.
As of December 31, 2000, we had cash and cash equivalents of $3.5 million,
short-term investments in debt securities of $3.0 million and working capital of
$17.3 million. This compares with cash and cash equivalents of $35.9 million,
short-term investments in debt securities of $9.9 million and working capital of
$46.3 million as of December 31, 1999.
We believe that our available cash resources will be sufficient to meet our
anticipated working capital, capital expenditure, capital investments and debt
service requirements for at least the next 12 months. If, however, our capital
requirements or cash flow vary materially from our current projections or if
unforeseen circumstances occur, we may require additional financing sooner than
we anticipate. Failure to raise necessary capital could restrict our growth,
limit our development of new products and services or hinder our ability to
compete.
13
FORWARD LOOKING STATEMENTS
Forward-looking statements in this Form 10-K, including, without limitation,
statements relating to our plans, strategies, objectives, expectations,
intentions and adequacy of resources, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. These factors include,
among others, the following: our limited operating history; our incubation
strategy; unknown liabilities associated with future acquisitions; availability
of qualified personnel; ability to manage growth; changes in technology; future
government regulations; ability to obtain additional financing; and other
factors described in this Form 10-K or in our other filings with the Securities
and Exchange Commission. We are under no obligation to publicly update or
revise any forward looking statements, whether as a result of new information,
future events or otherwise.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes and change in the
market values of its investments.
INTEREST RATE RISK - Navidec's exposure to market rate risk for changes in
interest rates relates primarily to its investment portfolio. The Company has
not used derivative financial instruments in its investment portfolio. The
Company invests its excess cash in high quality short-term corporate and
municipal debt instruments and, by policy, limits the amount of credit exposure
to any one issuer. The Company protects and preserves its invested funds by
limiting default, market and reinvestment risk. Investments in both fixed rate
and floating rate interest earning instruments carries a degree of interest rate
risk. Fixed rate securities may have their fair market value adversely impacted
due to a rise in interest rates, while floating rate securities may produce less
income than expected if interest rates fall. Due in part to these factors, the
Company's future investment income may fall short of expectations due to changes
in interest rates or the Company may suffer losses in principal if forced to
sell securities, which have declined in market value due to changes in interest
rates.
At December 31, 2000, the Company held $3 million of short-term debt
instruments. The effect of a hypothetical 10% change in market rates would not
be significant to the Company's investment portfolio because of its short-term
nature.
INVESTMENT RISK - The Company has investments in equity instruments in
information technology companies for business and strategic purposes. These
investments are included in other long-term assets and are accounted for under
the cost method since ownership is less than 20% and the Company does not assert
significant influence. For the non-quoted investments, the Company's policy is
to regularly review the assumptions underlying the operating performance and
cash flow forecasts in assessing the carrying value. The Company identifies and
records impairment losses on long-lived assets when events and circumstances
indicate that such assets might be impaired. To date, no such impairment has
been recorded. The Company also invests in primarily publicly-held, information
technology companies for business and strategic purposes. Such investments are
subject to significant fluctuations in fair market value due to the volatility
of the stock market.
The Company's marketable equity securities have a fair value of approximately
$2 million at December 31, 2000.
The Company owns 13.3 million shares of CarPoint, representing an 8.38% equity
interest. The investment has a carrying amount of $56.7 million at December 31,
2000. Subsequent to December 31, 2000, the market value of similar publicly
traded companies has decreased significantly. CarPoint is not publicly traded
and based upon recent sales of equity to Ford Motor Company, the Company does
not believe its investment is impaired on an other than temporary basis.
However, a continued decline in the value of technology stocks could
significantly impact the value and marketability of the Company's investment in
CarPoint. Because the Company's investment in CarPoint represents 64% of
Navidec's total assets any such decline in value or restriction in marketability
would result in a significant adverse impact on the Company.
14
ITEM 8. FINANCIAL STATEMENTS.
NAVIDEC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 2000 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1999 and 2000 F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998, 1999 and 2000 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1999 and 2000 F-6
Notes to Consolidated Financial Statements F-7
F-1
15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Navidec, Inc.:
We have audited the accompanying consolidated balance sheets of NAVIDEC, INC. (a
Colorado corporation) and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Navidec, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 16, 2001.
F-2
16
NAVIDEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
ASSETS 1999 2000
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 35,860 $ 3,475
Investments in debt securities 9,855 2,990
Accounts receivable, net 4,371 4,908
Costs and estimated earnings in excess of billings 148 1,545
Inventory 846 586
Notes receivable -- 3,700
Deferred taxes -- 6,395
Prepaid expenses and other 885 565
-------- --------
Total current assets 51,965 24,164
PROPERTY AND EQUIPMENT, net 7,398 6,379
OTHER ASSETS:
Goodwill, net of accumulated
amortization of $244 in 1999 1,175 --
Deferred financing costs, net of accumulated
amortization of $45 in 1999 901 --
Investment in Carpoint -- 56,670
Other investments 3,589 1,964
-------- --------
TOTAL ASSETS $ 65,028 $ 89,177
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,437 $ 2,362
Bank overdrafts 149 --
Accrued liabilities 1,692 3,030
Current borrowings 423 1,028
Deferred revenue -- 416
-------- --------
Total current liabilities 5,701 6,836
NONCURRENT LIABILITIES:
Long-term borrowings 356 1,242
Convertible debt obligations 19,876 --
Other -- 20,532
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares authorized:
Voting, 10,855 and 10,939 shares outstanding 54,910 53,775
Nonvoting, none and 701 shares outstanding -- 5,817
Warrants for common stock 1,207 1,141
Accumulated other comprehensive income 290 792
Accumulated deficit (17,312) (958)
-------- --------
Total stockholders' equity 39,095 60,567
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 65,028 $ 89,177
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
F-3
17
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended
December 31,
1998 1999 2000
------- -------- --------
REVENUE $ 8,555 $ 18,966 $ 33,078
COST OF REVENUE 5,870 10,745 17,286
------- -------- --------
GROSS PROFIT 2,685 8,221 15,792
OPERATING EXPENSES:
Product development 1,834 2,858 6,268
General and administrative 2,957 5,312 15,954
Sales and marketing 921 8,149 13,306
Loss on restructured receivable -- -- 4,016
Depreciation and amortization 522 950 3,268
------- -------- --------
Total operating expenses 6,234 17,269 42,812
------- -------- --------
LOSS FROM OPERATIONS (3,549) (9,048) (27,020)
OTHER INCOME (EXPENSE):
Gain on sale of DriveOff.com -- -- 43,302
Gain on issuance of DriveOff.com equity -- -- 18,291
DriveOff.com debt conversion incentive payment -- -- (5,195)
Impairment of investments -- -- (5,317)
Interest income 19 919 1,153
Interest expense (414) (685) (907)
Gain on investments -- 652 --
Other income 11 1 47
------- -------- --------
Total other income (expense), net (384) 887 51,374
------- -------- --------
NET INCOME (LOSS) BEFORE TAXES (3,933) (8,161) 24,354
PROVISION FOR INCOME TAXES -- -- 8,000
------- -------- --------
NET INCOME (LOSS) $(3,933) $ (8,161) $ 16,354
======= ======== ========
EARNINGS (LOSS), per basic share $ (1.10) $ (1.08) $ 1.47
======= ======== ========
EARNINGS (LOSS), per diluted share $ (1.10) $ (1.08) $ 1.37
======= ======== ========
WEIGHTED AVERAGE SHARES:
Basic 3,578 7,574 11,159
Diluted 3,578 7,574 11,950
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
18
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Warrants
Voting Common Stock Non-voting Common Stock for
------------------------ ----------------------------- Common
Shares Amount Shares Amount Stock
------ ------ ------ ------ ---------
BALANCES, December 31, 1997 3,201 $ 5,357 - $ - $ 1,411
Issuance of common stock and
warrants in a private
placement, net of offering
expenses of $350 406 131 - - 1,345
Issuance of warrants in connection
with borrowings - - - - 300
Issuance of common stock in a
private placement, net of
offering expenses of $70 700 1,330 - - -
Issuance of common stock for
acquisition of CarWizard
and LeaseSource 250 500 - - -
Exercise of employee stock options 69 284 - - -
Exercise of warrants 83 457 - - (165)
Net loss - - - - -
Comprehensive income (loss)
------ ------- ------- -- ------
BALANCES, December 31, 1998 4,709 8,059 - - 2,891
Issuance of common stock and
warrants, net of issuance
costs of $406 380 3,394 - - 780
Issuance of common stock in a
public offering, net of
offering costs of $2,555 2,625 21,726 - - -
Beneficial conversion feature
on convertible debt - 285 - - -
Issuance of warrants - - - - 1,356
Unrealized gain on investments - - - - -
Exercise of warrants 2,820 20,251 - - (3,820)
Exercise of employee stock options 321 1,195 - - -
Net loss - - - - -
Comprehensive income (loss)
------ ------- ------- ------ ------
BALANCES, December 31, 1999 10,855 54,910 - - 1,207
Conversion of promissory notes - - 701 5,817 -
Stock issuance costs (1,400) - - -
Exercise of warrants 24 176 - - (66)
Exercise of employee stock options 187 571 - - -
Repurchase of stock (127) (482) - - -
Unrealized gain on investments - - - - -
Net income - - - - -
Comprehensive income (loss)
------ ------- ------- -- ------
BALANCES, December 31, 2000 10,939 $53,775 701 $5,817 $ 1,141
====== ======= ======= ====== ======
Accumulated
Other Other Total
Comprehensive Accumulated Comprehensive Stockholders'
Income Deficit Income (Loss) Equity
------------- ------------ ------------- -------------
BALANCES, December 31, 1997 $ - $ (5,218) $ 1,550
Issuance of common stock and
warrants in a private
placement, net of offering
expenses of $350 - - 1,476
Issuance of warrants in connection
with borrowings - - 300
Issuance of common stock in a
private placement, net of
offering expenses of $70 - - 1,330
Issuance of common stock for
acquisition of CarWizard
and LeaseSource - - 500
Exercise of employee stock options - - 284
Exercise of warrants - - 292
Net loss - (3,933) $ (3,933) (3,933)
Comprehensive income (loss) $ (3,933)
------- -------- ========= -------
BALANCES, December 31, 1998 - (9,151) 1,799
Issuance of common stock and
warrants, net of issuance
costs of $406 - - 4,174
Issuance of common stock in a
public offering, net of
offering costs of $2,555 - - 21,726
Beneficial conversion feature
on convertible debt - - 285
Issuance of warrants - - 1,356
Unrealized gain on investments 290 - $ 290 290
Exercise of warrants - - 16,431
Exercise of employee stock options - - 1,195
Net loss - (8,161) (8,161) (8,161)
Comprehensive income (loss) $ (7,871)
------- -------- ========= -------
BALANCES, December 31, 1999 290 (17,312) 39,095
Conversion of promissory notes - - 5,817
Stock issuance costs - - (1,400)
Exercise of warrants - - 110
Exercise of employee stock options - - 571
Repurchase of stock - - (482)
Unrealized gain on investments 502 - $ 502 502
Net income - 16,354 16,354 16,354
Comprehensive income (loss) $ 16,856
------- --------- ========= -------
BALANCES, December 31, 2000 $792 $ (958) $60,567
======= ========= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
19
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1998 1999 2000
------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(3,933) $ (8,161) $ 16,354
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 522 1,094 3,268
Noncash interest expense 300 396 249
Provision for bad debt expense 75 182 155
Provision for deferred taxes -- -- 8,000
Gain on sale of DriveOff.com -- -- (56,398)
Stock received for services -- (206) --
Gains on investment -- (652) --
Write down of investments and receivables -- -- 9,333
Changes in operating assets and liabilities:
Accounts receivable (1,377) (2,386) (7,447)
Costs and estimated earnings in excess of billings (1) (41) (1,397)
Inventory 208 (505) 138
Prepaid expenses and other assets 47 (619) 470
Accounts payable 857 1,586 (1,000)
Bank overdrafts -- 149 (149)
Accrued liabilities and other 252 129 900
------- -------- --------
Net cash used in operating activities (3,050) (9,034) (27,524)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and software (224) (3,548) (4,304)
Capitalized software development costs (314) (2,979) --
Cash assumed in acquisitions 68 -- --
Funding of notes receivable -- -- (3,700)
Proceeds from the sale of debt securities -- -- 6,865
Purchase of debt securities -- (9,782) --
Additional purchase consideration -- -- (700)
Equity investments -- (2,441) (1,880)
------- -------- --------
Net cash used in investing activities (470) (18,750) (3,719)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and capital lease obligations (478) (1,050) (867)
Proceeds from notes payable 885 -- --
Proceeds from issuance of common stock and warrants 3,226 28,081 --
Proceeds from issuance of convertible debt -- 21,200 --
Proceeds from exercise of stock options 284 1,195 571
Proceeds from exercise of warrants 292 16,619 110
Repurchase of common stock -- -- (482)
Payment for offering and deferred financing costs (420) (2,909) (540)
Proceeds from factoring of accounts receivable 3,515 257 --
Payments to factor (3,502) (460) --
Other 60 -- 66
------- -------- --------
Net cash provided by (used for) financing activities 3,862 62,933 (1,142)
------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 342 35,149 (32,385)
CASH AND CASH EQUIVALENTS, beginning of year 369 711 35,860
------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 711 $ 35,860 $ 3,475
======= ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-6
20
NAVIDEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Navidec, Inc., a Colorado corporation (the "Company"), was incorporated in 1993.
The Company's experienced team designs, builds and manages open system,
component-based eSolutions that enable its customers to incorporate e-business
initiatives into their overall business strategies. The Company also serves as a
distributor of various high technology and other products through traditional
and electronic channels.
Navidec is subject to various risks and uncertainties frequently encountered by
companies in the rapidly evolving market for Internet-based products and
services. Such risks and uncertainties include, but are not limited to, an
evolving and unpredictable business model and the management of rapid growth. To
address these risks, the Company must, among other things, maintain and increase
its customer base, implement and successfully execute its business and marketing
strategy, continue to develop and upgrade its technology, provide superior
customer service and attract, retain and motivate qualified personnel. There can
be no guarantee that the Company will be successful in addressing such risks.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Navidec and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Minority investments in entities over which Navidec exercises significant
influence through its board representation or ownership of equity securities are
accounted for using the equity method. Other minority interests in private
companies are accounted for at the lower of cost or net realizable value.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions. These estimates and assumptions may affect the reported amounts
of assets and liabilities, 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.
Cash and Cash Equivalents
For purposes of reporting cash flows, Navidec considers cash and cash
equivalents to include highly liquid investments with original maturities of 90
days or less that are readily convertible into cash and are not subject to
significant risk from fluctuations in interest rates. The recorded amounts for
cash equivalents approximate fair value due to the short-term nature of these
financial instruments.
Concentration of Credit Risk
Financial instruments that potentially subject Navidec to significant
concentrations of credit risk include cash and cash equivalents, marketable debt
securities and accounts receivable. The Company maintains its cash and
investment balances in the form of bank demand deposits, money market accounts,
commercial paper and short-term notes with financial institutions that
management believes to be of high credit quality. Accounts receivable are
typically unsecured and are derived from transactions with and from customers
primarily located in the United States.
Navidec performs ongoing evaluations of its customers' financial condition and
generally does not require collateral, except for billings in advance of work
performed. Allowances for uncollectable accounts receivable are determined based
upon information available and historical experience. Accounts receivable
F-7
21
are shown net of an allowance for doubtful accounts of $532,000 and $307,000 as
of December 31, 2000 and 1999, respectively.
Investment in Debt Securities
Navidec has investments in debt securities, consisting of short-term notes and
commercial paper. The investments are recorded at their amortized cost, which
approximates fair value due to their short-term nature. Debt securities are held
to maturity, with maturities ranging from three to fourteen months from December
31, 2000.
Investments
Investments in publicly traded equity securities over which Navidec does not
exercise significant influence are recorded at market value. Investments in
non-publicly traded equity securities or non-marketable equity securities are
stated at the lower of cost or estimated realizable value. Investments in equity
securities included the following for the year ended December 31, 1999 and 2000
(in thousands)
December 31, 1999 December 31, 2000
---------------------------- ----------------------------
Unrealized Carrying Unrealized Carrying
Cost Gain Value Cost Gain Value
------ ------ ------ ------ ------ ------
Marketable securities $ 702 $ 290 $ 992 $ 702 $1,262 $1,964
Non-marketable securities 2,207 - 2,207 - - -
------ ------ ------ ------ ------ ------
$2,909 $ 290 $3,199 $ 702 $1,262 $1,964
====== ====== ====== ====== ====== ======
Navidec received common stock with a market value of $702,000 in exchange for
common shares with a carrying value of $50,000 during 1999.
During 1999, the Company invested $2.2 million in equity securities of two
privately held companies. During 2000, the Company performed e-solutions related
services for one of these companies and recorded approximately $4 million in
revenue. Management determined that these receivables would likely be
uncollectable and charged-off the balance. The receivable was converted into
additional equity in the investee. Management also evaluated the recoverability
of its cost method investment in these companies. The investments were
determined to be impaired and the remaining $2.2 carrying amount was
written-off.
Inventory
Inventories are stated at the lower of cost (first-in, first-out) or market, and
consist primarily of products held for resale and use in on-line solutions.
Property, Equipment and Software
Equipment is stated at cost and depreciation is provided using the straight-line
method. Leasehold improvements are amortized using the straight-line method over
the shorter of the useful life of the improvement or the minimum term of the
lease. Maintenance and repairs are expensed as incurred and major additions,
replacements and improvements are capitalized.
Internal use software is amortized on a straight-line basis over its expected
economic life.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. A long-lived asset is considered impaired when estimated future
cash flows related to the asset, undiscounted and without interest, are
insufficient to recover the carrying amount of the asset. If deemed impaired,
the long-lived asset is reduced to its estimated fair value.
Long-lived assets to be disposed of are reported at the lower of their carrying
amount or estimated fair value less cost to sell.
F-8
22
Goodwill and Intangible Assets
Goodwill and intangible assets are amortized on a straight-line basis over their
estimated useful lives of five years. Amortization expense was $177,000,
$144,000, and $100,000 for 2000, 1999, and 1998, respectively
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, trade receivables and payables
approximated their fair value because of their short-term nature. Investments in
debt securities are recorded at their amortized cost, which approximates fair
value because of their short-term maturity. Investments in marketable equity
securities are recorded at fair value based upon quoted market prices.
Investments in non-marketable equity securities are based upon recent sales of
similar securities by the investee and approximate their carrying value. The
fair value of the Company's convertible debt obligations were estimated based
upon the fair value of the underlying stock. The Company's other borrowings
approximate their carrying amounts based upon interest rates currently available
to the Company.
Revenue Recognition
Contract Revenues
Revenues from fixed price and time and materials contracts are recognized on the
percentage of completion method for individual contracts. Revenues for fixed
price contracts are recognized once progress reaches a point where experience is
sufficient to estimate final results with reasonable accuracy. Revenues are
recognized in the ratio that costs incurred bear to total estimated contract
costs. Contract costs include all labor costs and those direct costs related to
contract performance. Changes in job performance, estimated profitability and
final contract settlements may result in revisions to costs and revenues in the
period in which the revisions are determined. Provisions for any estimated
losses on uncompleted contracts are made in the period in which such losses are
determinable. In instances when the work performed on fixed price agreements is
of relatively short duration, revenue is recognized when the work is completed.
Product Sales
Revenues from product sales are recognized when risk of loss passes to the
customer. Estimates of returns and allowances are recorded in the period of the
sale based on Navidec's historical experience and the terms of individual
transactions.
Other Revenues
Revenues from hosting, maintenance and support agreements are recognized on a
straight-line basis over the life of the related agreement.
Product Development
Costs incurred in the development of new products and enhancements to existing
products and services are charged to expense as incurred.
Advertising Costs
Advertising costs are expensed when the advertisement is released and are
included in sales and marketing expenses in the accompanying statements of
operations. Advertising expense totaled $5,078,000, $1,643,000 and $256,000 in
2000, 1999 and 1998, respectively. Included in prepaid expense at December 31,
1999, were prepaid advertising costs of $687,000.
Income Taxes
The current provision for income taxes represents actual or estimated amounts
payable on tax return filings each year. Deferred tax assets and liabilities are
recorded for the estimated future tax effects of temporary differences between
the tax basis of assets and liabilities and amounts reported in the accompanying
F-9
23
balance sheets, and for operating loss and tax credit carryforwards. The change
in deferred tax assets and liabilities for the period measures the deferred tax
provision or benefit for the period. Effects of changes in enacted tax laws on
deferred tax assets and liabilities are reflected as adjustments to the tax
provision or benefit in the period of enactment. Navidec's deferred tax assets
have been reduced by a valuation allowance to the extent it was deemed more
likely than not, that some or all of the deferred tax assets would not be
realized.
Stock-Based Compensation
The Company accounts for its employee stock-based compensation arrangements
using the intrinsic value method under which compensation expense related to
employee stock grants is recorded if the fair value of the underlying stock
exceeds the exercise price on the measurement date.
Accruals
Accrued expenses include the following at December 31 (in thousands):
1999 2000
---- ----
Accrued compensation and commissions $ 393 $ 622
Fees payable on sale of DriveOff.com -- 1,458
Accrued earnout 700 --
Accrued interest 159 --
Other 440 950
------ ------
$1,692 $3,030
====== ======
Sale of Stock by Subsidiaries and Equity Method Investees
The Company recognizes gains and losses from the sale of stock by its
subsidiaries and equity method investees in its statements of operations when
realization of the gain is reasonably assured.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing the net income (loss)
available to common shareholders for the period by the weighted average number
of common shares outstanding for the period. Diluted net income (loss) per share
is computed by dividing the net income (loss) for the period by the weighted
average number of common and potential common shares outstanding during the
period, if the effect of the potential common shares is dilutive.
F-10
24
Shares used in the computation of diluted earnings per share, using the treasury
stock method, were as follows (in thousands):
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- ----------
Weighted average common shares 3,578 7,574 11,159
Stock options - - 734
Warrants - - 57
-------- -------- ----------
Weighted average diluted shares 3,578 7,574 11,950
======== ======== ==========
Potentially dilutive securities which have been excluded from the determination
of diluted earnings per share because their effect would be anti-dilutive are as
follows:
1998 1999 2000
---- ---- ----
Navidec stock options 1,468 1,550 770
Convertible debt - 701 --
Warrants 2,937 298 125
-------- -------- ----------
Total anti-dilutive shares
excluded 4,405 2,549 895
======== ======== ==========
Comprehensive Income (Loss)
Comprehensive income (loss) includes the following adjustments to net income
(loss) for the years presented (in thousands):
1998 1999 2000
------------- ------------- -------------
Gross unrealized gains $ - $ 290 $ 972
Income taxes - - (470)
------------- ------------- -------------
$ - $ 290 $ 502
============= ============= =============
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
Costs incurred during the development of internal use software are capitalized,
while the costs incurred during the preliminary project and post-implementation
stages are expensed. The Company capitalized $0, $2,979,000 and $314,000 in
2000, 1999 and 1998, respectively.
Recent Accounting Pronouncements
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133 requires that all
derivative instruments be recorded at fair value. The adoption of SFAS No. 133
did not have a significant impact on Navidec's financial condition or results of
operations.
In December 1999, the Securities and Exchange Commission Staff released Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. The adoption of SAB 101, as of January 1, 2001, did not
have an impact on the Company's financial statements.
F-11
25
Reclassifications
Certain reclassifications to prior year financial statements have been made to
conform to the current year's presentation.
(3) ACQUISITIONS
1998 Acquisitions
Effective December 28, 1998, Navidec acquired 100% of the stock of both
CarWizard and LeaseSource. The combined purchase consideration was $539,000 and
consisted of $500,000 of the Company's common stock and the assumption of
$39,000 of net liabilities. The acquisition was accounted for under the purchase
method of accounting, and accordingly, the operating results of CarWizard and
LeaseSource have been included in the accompanying consolidated financial
statements from the effective date of the acquisitions. During 1999, $700,000
was recorded as additional purchase consideration based upon the achievement of
earnout criteria.
The following pro forma results of operations assumes the 1998 acquisitions were
completed on January 1, 1998:
Actual 1998 Pro Forma 1998
----------- --------------
Revenue $ 8,555,000 $ 9,162,000
Net loss $(3,933,000) $(4,142,000)
Basic and diluted loss per share $ (1.10) $ (1.08)
Basic and diluted weighted-average common
shares outstanding 3,578,000 3,828,000
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
Useful Lives 1999 2000
------------ ---- ----
Computers and equipment 3 to 4 years $ 4,025,000 $ 5,045,000
Software purchased 3 years 3,293,000 2,009,000
Furniture and office equipment 4 to 5 years 757,000 1,385,000
Leasehold improvements Lease term 831,000 1,346,000
------- -----------
8,906,000 9,785,000
Less accumulated depreciation (1,508,000) (3,406,000)
----------- -----------
Net property and equipment $ 7,398,000 $ 6,379,000
=========== ===========
Depreciation expense was $3,091,000, $950,000 and $422,000 for 2000, 1999, 1999,
respectively.
F-12
26
(5) BORROWINGS
Notes payable and convertible debt consist of the following:
December 31,
1999 2000
---- ----
Navidec convertible debt held by Wells Fargo; interest at 3%, principal and
interest due in December 2004,
convertible into 701,081 shares of Navidec common stock $ 6,200,000 $ --
DriveOff.com convertible debt held by Wells Fargo; interest at
3%, principal and interest due in December 2004,
convertible into 3,200,000 shares of DriveOff.com common stock 15,000,000 --
Unsecured note payable -- 860,000
Unamortized discount (1,324,000) --
------------ --------
$ 19,876,000 $860,000
============ ========
Convertible Debt
On September 30, 1999, WFC Holdings Corporation ("WFC"), a subsidiary of Wells
Fargo & Company, made an investment of $25 million in Navidec and DriveOff.com.
WFC purchased 380,000 shares of the Company's common stock for $3,800,000, or
$9.25 per share, and received a note for $6,200,000 that was convertible into
701,081 shares of the Company's non-voting common stock. For its $15 million
investment in DriveOff.com, WFC received a note convertible (as of September
30, 1999) into 3.2 millions shares (representing twenty percent of
DriveOff.com's common stock outstanding as of the closing of the transaction).
WFC also received a five-year warrant for an additional 160,000 shares of
DriveOff.com, exercisable one year after the transaction's closing at $6.5625
per share. The warrants were valued at $440,000 using the Black-Scholes option
pricing model assuming a fair value of the common stock on the grant date of
$4.69, volatility of 76%, 5% risk free interest rate, 0% expected dividend
yield and a contractual term of five years. This warrant was accounted for as a
discount on the DriveOff.com convertible debt and was being amortized to
interest expense over the term of the borrowing.
Adjustments to the conversion rate of the WFC convertible debt occurred because
the per share price received by the Company in its October 1999 secondary
offering was less than $10 per share. Because the secondary offering price was
$9.25 per share, the number of shares the debt was convertible into was
adjusted to 701,081 shares of Navidec common stock, or $8.84 per share.
Accordingly, the Company accounted for this $285,000 beneficial conversion
feature as additional interest expense on the convertible debt and an increase
to additional paid-in capital, as the debt was immediately convertible.
On June 30, 2000, WFC converted the $15 million face value note with a carrying
amount of $14,177,000 plus accrued interest of $338,000 and deferred offering
costs of $574,000, into common shares of DriveOff.com. A gain of $18.3 million
was recognized upon issuance of DriveOff.com's shares for the partial sale of
this subsidiary.
On Oct 13, 2000, WFC converted the $6.2 million face value note with a carrying
amount of $5,842,000 plus accrued interest of $196,000 and deferred offering
costs of $221,000, into non-voting common shares of Navidec, Inc.
In connection with the WFC transaction, the Company issued a warrant to a
securities firm to purchase 125,000 shares of common stock of the Company at an
exercise price of $9.25 per share over the next five years. The warrants were
valued at $780,000 using the Black-Scholes option pricing model assuming a fair
value of the common stock on the grant date of $9.25, 76% volatility, 5% risk
free interest rate, 0% expected dividend yield and a contractual term of five
years.
F-13
27
Note Payable
During 2000, the Company settled its outstanding litigation regarding amounts
allegedly due a placement agent in connection with raising equity in prior
years. As part of the settlement, the Company issued an $860,000 promissory
note payable in 57 monthly payments of $13,333 and two payments of $50,000 due
in 2002 and 2004.
Capital Lease Obligations
Navidec has entered into several capital lease obligations for furniture,
computers and equipment. The leases are for terms ranging from 36 to 60 months,
expiring at various times through 2004. Interest on the Company's capital lease
obligations are at rates ranging from 8% to 16%.
Equipment purchased under capital leases is included in the cost of property and
equipment and secures the repayment of the capital lease obligations. The
following is a summary of property and equipment purchased under capital leases
as of December 31:
1999 2000
---- ----
Furniture, computers and equipment $1,087,000 $2,585,000
Less - accumulated depreciation (265,000) (719,000)
---------- ----------
Net book value $ 822,000 $1,866,000
========== ==========
Navidec acquired property of $1,498,000, $840,000 and $72,000 in 2000, 1999 and
1998, respectively, under capital lease arrangements.
In connection with the sale of DriveOff.com, Navidec and CarPoint entered into a
sublease arrangement, whereby CarPoint makes a monthly lease payment to Navidec,
the original lessee of the equipment, for equipment transferred to CarPoint upon
the sale. Navidec has recorded the lease receivable of approximately $206,000 in
other assets at December 31, 2000. Future minimum lease payments receivable
under the sublease was as follows at December 31, 2000:
Year ended December 31,
2001 $119,000
2002 105,000
2003 18,000
---------
Total minimum lease payments 242,000
Less amount representing interest (36,000)
---------
Lease receivable $206,000
=========
Maturities
As of December 31, 2000, future minimum payments under the Company's borrowing
arrangements are as follows:
Year ended December 31, Capital Leases Notes Payable
----------- ---------
2001 $ 1,052,000 $ 160,000
2002 498,000 210,000
2003 29,000 160,000
2004 7,000 210,000
2005 0 120,000
----------- ---------
Total minimum lease payments 1,586,000 860,000
Less amount representing interest (176,000) --
----------- ---------
Total obligation 1,410,000 860,000
Less - current portion (868,000) (160,000)
----------- ---------
Long-term obligations $ 542,000 $ 700,000
=========== =========
F-14
28
The estimated fair value of Navidec's borrowings was $2,270,000 and $23,413,000
at December 31, 2000 and 1999, respectively. Cash paid for interest was
$282,000, $251,000 and $109,000 in 2000, 1999 and 1998, respectively.
(6) INCOME TAXES
The provision for income taxes consists of the following:
Year Ended December 31,
1998 1999 2000
---- ---- ----
Current:
Federal $ -- $ -- $ --
State -- -- --
--------- --------- -----------
Total current provision -- -- --
--------- --------- -----------
Deferred:
Federal (1,224,000) (2,616,000) 11,514,000
State (189,000) (395,000) 1,086,000
Valuation allowance 1,413,000 3,011,000 (4,600,000)
--------- --------- -----------
Total deferred provision -- -- 8,000,000
--------- --------- -----------
Total provision $ -- $ -- $ 8,000,000
========= ========== ============
Differences between the income tax expense reported in the statements of
operations and the amount reported by applying the statutory federal income tax
rate (35%) to earnings before income taxes are as follows:
Year Ended December 31,
1998 1999 2000
---- ---- ----
Expected rate (35.0)% (35.0)% 35.0%
State taxes, net of federal deduction (3.1) (3.1) 4.4
Tax gain greater than book on DriveOff.com -- -- 11.7
Nondeductible goodwill amortization 0.9 0.6 0.3
Other permanent items 1.3 0.6 0.3
Valuation allowance 35.9 36.9 (18.9)
---- ---- ----
0% 0% 32.8%
== == =====
The components of the net deferred income tax assets (liabilities) are as
follows:
December 31,
1999 2000
---- ----
Current assets (liabilities):
Investments $ -- $3,255,000
Accruals 30,000 2,935,000
Bad debt reserves 114,000 205,000
Valuation allowance (144,000) --
----------- ------------
-- 6,395,000
----------- ------------
Noncurrent assets (liabilities):
Basis difference in Carpoint -- (19,465,000)
Net operating losses 6,907,000 4,600,000
Property and equipment (1,260,000) --
Valuation allowance (5,647,000) --
----------- ------------
-- (14,865,000)
----------- ------------
Net deferred tax liability $ -- $ (8,470,000)
=========== ============
At December 31, 2000, for income tax purposes, Navidec had approximately $12
million of net operating loss carryforwards. Such net operating losses expire
between the years 2011 to 2020. The Tax Reform Act of 1986 contains provisions
that may limit the net operating loss carryforwards available to be used in any
F-15
29
given year if certain events occur, including significant changes in ownership
interests. The sale of Driveoff.com reduced the net operating losses available
to the Company by approximately $18.4 million.
During 1999 and 1998, the Company increased its valuation allowance by
$3,011,000 and $1,413,000, respectively, due mainly to uncertainty relating to
the realizability of the net operating loss carryforwards. During 2000, the
Company reversed approximately $4.6 million of its valuation allowance primarily
because of the gain on the sale of DriveOff.com.
Navidec has paid no income taxes during the three years ended December 31, 2000.
(7) COMMITMENTS AND CONTINGENCIES
Operating Leases
Navidec leases certain facilities and equipment under operating leases that
expire at various times through 2004. Future minimum lease payments for such
operating leases are as follows as of December 31, 2000:
Year ended December 31 -
2001 $1,837,000
2002 1,815,000
2003 1,815,000
2004 1,815,000
----------
$7,282,000
==========
Rental expense related to these leases was $1,896,000, $244,000 and $125,000 for
2000, 1999, and 1998, respectively.
Defined Contribution Plan
Navidec has a 401(k) profit sharing plan (the "Plan"). Subject to limitations,
eligible employees may make voluntary contributions to the Plan. The Company
may, at its discretion, make additional contributions to the Plan. During 2000,
the Company contributed $64,000.
Litigation
In the normal course of business, Navidec is subject to, and may become a party
to, litigation. Management believes there are no matters currently in litigation
that will have a material impact on the Company's financial position or results
of operations.
(8) RELATED PARTY TRANSACTIONS
In April 1997, Navidec entered into a service agreement with a shareholder. This
agreement provides for payments of $5,000 per month plus 2 1/2% of any capital
raised as a result of the shareholder's efforts in the form of warrants for the
Company's stock. These warrants were priced at the closing price of the
Company's stock on the date of closing of any transaction, exercisable
commencing six months after each grant and expire five years from the date of
each grant. As of December 31, 2000 none of these warrants were outstanding.
In February 1998, Navidec entered into an additional service agreement with
this shareholder to provide financial and banking services. For this agreement,
the shareholder received a consulting fee of warrants to purchase 250,000
shares of common stock at $3.50 per warrant. During 1998 and 1999, the
shareholder exercised 83,000 and 165,000 of these warrants, respectively.
In November 2000, Navidec loaned $35,000 to an officer of the Company carrying
an annual interest rate of 7% with principal and interest due on May 30, 2001.
F-16
30
(9) STOCKHOLDERS' EQUITY
Initial Public Offering
In February 1997, Navidec completed an initial public stock offering of
1,000,000 units (comprised of 1,000,000 shares of common stock and warrants for
the purchase of 1,000,000 shares of common stock). The offering provided
proceeds to the Company of $3,436,000, net of offering costs of $1,094,000. Each
warrant allowed the holder to purchase one share of common stock at an exercise
price of $7.20 through February 2002. The warrants were redeemable by the
Company at $.05 per warrant upon 30 days notice if the market price of the
common stock for 20 consecutive trading days within the 30-day period preceding
the date the notice is given equaled or exceeded $8.40. These warrants were
called by the Company on February 12, 1999. The Company also sold to the
underwriter at the close of the public offering underwriter's warrants, at a
price of $0.001 per warrant, to purchase 100,000 shares of common stock. The
underwriter's warrants were exercisable for four years beginning in February
1998 at $7.38 per share.
Private Placement 1997 and 1998
During 1997 and 1998, Navidec raised $2,193,000 in a private placement, net of
offering costs of $482,000, by issuing 594,500 units (comprised of one share of
common stock and one warrant) at $4.50 per unit. Each warrant allowed the holder
to purchase one share of common stock at an exercise price of $7.20 for a period
extending through February 10, 2002. The warrants were redeemable by the Company
at $.05 per warrant upon 30 days notice if the market price of the common stock
for 20 consecutive trading days within the 30-day period preceding the date the
notice is given equaled or exceeded $8.40. These warrants were called by the
Company on February 12, 1999. Offering costs associated with the private
placement included underwriter commissions and non-accountable expense
allowances totaling 13% of proceeds, as well as placement agent warrants to
purchase 10% of the units sold for five years from the date of closing at $4.50
per unit. In addition, the Company agreed to issue any broker or registered
agent who placed four or more placement units (consisting of 6,000 units or
$27,000 each) one broker warrant for each $20 sold at a price of $4.50.
Accordingly, 118,849 of warrants were issued during 1998 to brokers and
registered agents. During 1999, 24,000 of these warrants were exercised
resulting in proceeds to the Company of $115,000. During 1998, the Company
issued 61,520 of warrants to brokers or registered representatives as part of
the offering cost, of which 58,000 were exercised during 1999, resulting in
proceeds to the Company of $259,000.
Private Placement 1998
In November 1998, Navidec completed a private placement resulting in the
issuance of 700,000 shares at $2.00 per share. This offering generated
$1,330,000 in proceeds net of offering costs of $70,000. No warrants were issued
in connection with this private placement.
Warrant Call
On February 12, 1999, Navidec called all publicly traded warrants. Each warrant
entitled the holder to purchase one share of common stock for $7.20. In total,
1,918,000 warrants were exercised prior to the expiration date of March 15,
1999. The warrants generated $13,810,000, net of offering costs of $100,000. In
addition, the Company issued 200,000 warrants with exercise prices ranging from
$4.00 to $6.031 to representatives for solicitation for the exercise of the
warrants. These warrants were valued at $1,356,000 using the Black-Scholes
option pricing model assuming a fair value of the common stock on the grant date
of $11.00, a 115% volatility, a 4.5% risk free interest rate, 0% expected
dividend yield and a contractual life of seven months. These warrants were
accounted for as costs of the warrant call.
Public Offerings
In October 1999, Navidec completed a public stock offering of 2,500,000 shares
of common stock and an over-allotment of 125,000 shares of common stock. The
offering provided proceeds to the Company of $21,726,000, net of offering costs
of $2,555,000.
F-17
31
Issuance of Non-Voting Common
On October 12, 2000, the shareholders of Navidec voted to amend the Company's
Amended and Restated Articles of Incorporation to allow for the issuance of
non-voting common shares. Subsequently, WFC Holdings Corp.'s convertible debt
was exchanged for 701,081 non-voting common shares.
The following table summarizes the warrants outstanding for the Company's common
stock as of December 31, 2000:
Exercise Remaining
Warrants Units Price Value Contractual Life
-------- ----- ----- ----- ----------------
A 15,925 $7.38 $ 13,000 2.25 years
B 11,862 $4.50 45,000 2.25 years
C 1,538 $3.50 3,000 2.25 years
D 3,788 $4.50 10,000 2.25 years
E 70,508 $4.50 202,000 2.25 years
F 40,500 $2.00 88,000 3.0 years
G 125,000 $9.25 780,000 3.75 years
------- ------------
269,121 $ 1,141,000
======= ============
Share Repurchase Plan
On October 12, 2000, the board of directors of Navidec authorized the repurchase
of up to 1,000,000 shares of the Company's common stock. As of March 29, 2001,
the Company had purchased approximately 127,000 shares at an average price of
$3.80 and retired them in accordance with Colorado State Law.
Stock Option Plan
The Company has adopted a Stock Option Plan (the "Plan") under which the Company
is authorized to grant incentive and non-qualified stock options to acquire up
to 2,000,000 shares of the Company's common stock to employees and directors of
the Company. Under the Plan, the exercise price per share of a non-qualified
stock option must be equal to at least 50% of the fair market value of the
common stock on the date of grant, and the exercise price per share of an
incentive stock option must equal the fair market value of the common stock on
the date of grant. Options granted vest over various terms with a maximum
vesting period of five years and expire after a maximum of 10 years.
On October 12, 2000, the shareholders of Navidec approved an amendment to
increase from 2,000,000 to 3,000,000 the number of shares of common stock
issuable under the Plan.
The following table summarizes the activity in the Plan:
1998 1999 2000
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of year 297,000 $4.58 1,468,000 $4.23 1,550,000 $5.70
Granted 1,390,000 4.17 477,000 9.45 747,000 7.14
Exercised (69,000) 4.12 (334,000) 3.98 (187,000) 2.95
Forfeited and canceled (150,000) 4.43 (61,000) 5.17 (114,000) 9.55
-------- ---- ------- ---- -------- ----
Outstanding at end of year 1,468,000 $4.23 1,550,000 $5.85 1,996,000 $6.28
--------- ----- --------- ----- --------- -----
Exercisable at end of year 263,000 $4.45 709,000 $4.01 757,000 $5.27
------- ----- -------- ----- --------- -----
Weighted average fair value
of options granted during year $2.20 $6.97 $5.35
===== ===== =====
F-18
32
The status of stock options outstanding and exercisable under the Plan as of
December 31, 2000 is as follows:
Stock Options Outstanding Stock Options Exercisable
------------------------- -------------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Number of Exercise Contractual Number of Exercise
Prices Shares Price Life (Years) Shares Price
-------- ---------- -------- ------------ --------- --------
$2.34 - $4.18 569,000 $2.76 3.28 363,000 $2.92
$4.62 - $5.93 604,000 5.32 3.72 193,000 5.12
$6.68 - $9.62 608,000 8.19 4.12 156,000 9.14
$10.06 - $15.00 170,000 12.58 3.98 45,000 11.47
$15.75 - $21.504 45,000 17.35 4.15 -- --
--------- ----- ---- ------- -----
1,996,000 $6.28 3.75 757,000 $5.27
========= =======
Pro Forma Fair Value Disclosures
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998, respectively: risk-free
interest rate of 6.03, 5.69 and 5.00 percent , no expected dividend yields,
expected lives of 4.0 years, and expected volatility of 107, 104 and 76 percent,
respectively. Fair value computations are highly sensitive to the volatility
factor assumed; the greater the volatility, the higher the computed fair value
of options granted.
Had compensation cost for options granted been determined based upon fair value
at the date of the grant, Navidec's net income (loss) would have been the
following pro forma amounts (in thousands, except per share data):
2000 1999 1998
----------- ----------- ----------
Net Income/Loss:
As reported $ 16,354 $ (8,161) $ (3,933)
Pro forma $ 14,493 $(15,469) (5,569)
Net Loss per share, basic and diluted
Basic: As Reported $ 1.47 $ (1.08) $ (1.10)
Pro Forma $ 1.30 $ (2.04) $ (1.56)
Diluted: As Reported $ 1.37 $ (1.08) $ (1.10)
Pro Forma $ 1.21 $ (2.04) $ (1.56)
F-19
33
(10) BUSINESS SEGMENT INFORMATION
Navidec has organized its operations around three separate business segments:
eSolutions, Product Distribution, and DriveOff.com (formerly, "Automotive").
eSolutions provides custom solutions, including the architecture, design,
development and integration of high-tech solutions, utilizing Web technology.
Product Distribution provides the resale and configuration of third party
software and hardware components, graphical printers and supplies. Prior to
October 2000, DriveOff.com provided total online automotive solutions through
its Web sites, in addition to providing custom solutions to companies in or with
relationships in the automotive industry.
Segment operations are measured consistent with the accounting policies used in
these consolidated financial statements.
The following provides information on Navidec's segments:
Year Ended December 31, 1998
(in thousands)
Product
eSolutions DriveOff Distribution Corporate Total
---------- -------- ------------ --------- -----
Revenues from external
customers $ 5,443 $ 939 $ 2,173 $ -- $ 8,555
Gross profit $ 1,434 $ 696 $ 555 $ -- $ 2,685
(Loss) income from operations $ (1,113) $ (2,151) $ 137 $ (422)(1) $ (3,549)
Identifiable assets $ 1,607 $ 987 $ 640 $ 2,031 (2) $ 5,265
Year Ended December 31, 1999
(in thousands)
Product
eSolutions DriveOff Distribution Corporate Total
---------- -------- ------------ --------- -----
Revenues from external
customers $ 13,745 $ 3,277 $ 1,944 $ - $ 18,966
Gross profit $ 5,099 $ 2,613 $ 509 $ - $ 8,221
(Loss) income from operations $ (614) $ (7,338) $ (146) $ (950)(1) $ (9,048)
Identifiable assets $ 8,592 $ 12,691 $ 421 $ 43,324 (2) $ 65,028
Year Ended December 31, 2000
(in thousands)
Product
eSolutions DriveOff Distribution Corporate Total
---------- -------- ------------ --------- -----
Revenues from external
customers $ 31,294 $ 713 $ 1,071 $ - $ 33,078
Gross profit $ 15,469 $ 612 $ (289) $ - $ 15,792
(Loss) income from operations $ (4,854) $(14,929) $ (130) $ (7,107)(1) $(27,020)
Identifiable assets $ 11,108 $ -- $ 335 $ 77,734 (2) $ 89,177
(1) Corporate loss from operations represents depreciation expense and in
2000 a loss on a restructured receivable.
(2) Corporate assets are those that are not directly identifiable to a
particular segment and can include cash and cash equivalents,
investment in debt securities, restricted cash, property and equipment,
prepaids and other assets, and investments.
F-20
34
(11) Investments
DriveOff.com
On June 30, 2000, WFC converted its promissory note for 4,307,645 shares of
DriveOff.com. Prior to the conversion, Navidec owned 100% of the outstanding
shares, and subsequent to the conversion, Navidec owned 74.8% of the outstanding
shares.
The Company recognizes gains and losses from the sale or issuance of stock by
its subsidiaries and equity method investees in its statements of operations.
The increase in the Company's proportionate share of DriveOff.com's net assets
as a result of these transactions resulted in a pretax gain of $18.3 million for
the Company. Because DriveOff.com issued 1,107,645 additional shares to WFC as
an incentive to convert the outstanding note, a charge of $5,195,000 was
recorded in connection with the conversion.
On September 30, 2000, the Company sold 100% of its remaining interest in
DriveOff.com for 13,308,300 shares, or an 8.38% interest in CarPoint Inc. The
sale of DriveOff.com resulted in a pretax gain of $43.3 million. The investment
in CarPoint is accounted for under the cost method and the results of
DriveOff.com are no longer included in the Company's statement of operations.
In connection with the DriveOff.com transaction, the Company is obligated to pay
a bonus of approximately $5.7 million from the cash proceeds resulting from the
sale of the CarPoint stock. This obligation is included in other noncurrent
liabilities.
As part of its sale of DriveOff.com, the Company also disposed of its
investment in IADMA. IADMA was included in other investments at December 31,
1999, at its carrying amount of $390,000.
Avis
In February of 2001, Navidec entered into a joint venture with Avis Europe for
the development of a nearly new online automotive sales enterprise called Your
AutoChoice.com. During the year, Navidec invested approximately $2.3 million
dollars into the joint venture, and has a further obligation to invest
$700,000, which has been accrued at December 31, 2000.
The Company and Avis Group have decided to cease operations in the venture. As a
result, the Company has written-off its investment in and advances to the
venture, and has accrued $700,000 for its share of the obligatory capital call
in February 2001. Included in impairments of investments, is approximately $3
million related to the venture.
F-21
35
(12) Quarterly Results (Unaudited)
1999
Q1 Q2 Q3 Q4 TOTAL
-------- -------- -------- -------- --------
NET SALES $4,457 $3,776 $4,473 $6,260 $18,966
GROSS MARGIN 1,689 1,529 2,031 2,972 8,221
NET INCOME/(LOSS) (762) (1,600) (2,282) (3,517) (8,161)
EPS - BASIC (0.14) (0.22) (0.31) (0.41) (1.08)
DILUTED (0.14) (0.22) (0.31) (0.41) (1.08)
2000
Q1 Q2 Q3 Q4 TOTAL
-------- -------- -------- -------- --------
NET SALES $6,557 $7,648 $8,641 $10,232 $33,078
GROSS MARGIN 3,172 3,786 4,367 4,467 (3) 15,792
NET INCOME/(LOSS) (6,138) 5,676(1) 26,859(2) (10,043)(4) 16,354
EPS - BASIC (0.56) 0.52 2.44 (0.86) 1.47
DILUTED (0.56) 0.49 2.19 (0.86) 1.37
(1) In the second quarter, Navidec recognized a pretax gain of $18.3 million
from the partial sale of its DriveOff.com subsidiary. The gain was
partially offset by the issuance of $5.2 million in DriveOff.com common
stock as an incentive to convert the outstanding debt into equity.
(2) In the third quarter, Navidec sold its remaining interest in DriveOff.com
for 13.3 million shares of CarPoint resulting in a pretax gain of $43.3
million, and impaired its investment in MBTI and a portion of its
investment in JourneyLink.
(3) In the fourth quarter, the Company accepted equity in lieu of an
outstanding receivable which was eventually written off resulting in a
charge of $4 million
(4) In the fourth quarter, Navidec wrote down equity investments in
JourneyLink and Avis to their net realizable value. This resulted in a
charge of $5.3 million.
F-22
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 1, 1999, Navidec engaged Arthur Andersen LLP to replace Hein +
Associates LLP as the Company's independent accountant to audit the Company's
financial statements starting for the period ended December 31, 1998. Hein +
Associates LLP was dismissed as the Company's independent accountant on the
same date. The Audit Committee of the Company's Board of Directors approved the
change in the Company's independent accountant.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table shows the name, age and position of each officer and
director of Navidec.
Name Age Position
- ---- --- --------
J. Ralph Armijo 49 President, Chief Executive Officer and Director
Patrick R. Mawhinney 36 Chief Financial Officer, Treasurer, Secretary and
Director
Michael Wager 49 Executive Vice President - Business Development
Hal Anderson 36 Executive Vice President - Business Operations
Kenneth P. Bero 47 Executive Vice President - Sales and Marketing
Greg Hanchin 40 Vice President - Business Development
Andrew S. Davis 46 Director
Lloyd G. Chavez, Jr. 50 Director
Gerald A. Marroney 47 Director
Our directors are elected by our shareholders at each annual shareholders'
meeting and hold office until their successors are duly elected and qualified
under our bylaws. Our officers are elected by the board of directors at the
first meeting after each annual shareholders' meeting and hold office until
their successors are duly elected and qualified under our bylaws.
J. Ralph Armijo has served as our President, Chief Executive Officer and as one
of our directors since our inception in 1993. From June 1999 until October 2000,
Mr. Armijo served as the Chairman of the Board of DriveOff.com. Mr. Armijo
received his B.A. from Colorado College and his M.B.A. from the University of
California, Los Angeles.
Patrick R. Mawhinney has served as our Chief Financial Officer, Treasurer and as
a director since July 1996. Mr. Mawhinney has served as our Secretary since
August 1999. Prior to that he served as the President of Interactive Planet,
Inc. from its inception in May 1995 until its merger with us in July 1996. From
May 1995 until May 1996, Mr. Mawhinney also served as a financial/accounting
consultant for MIS\Sunguard, a provider of accounting and investment software.
He received his B.S. from Colorado State University.
Michael Wager has served as Executive Vice President of Business Development
since March 2000. Mr. Wager was a partner of Cleveland-based Benesch,
Friedlander, Coplan and Arnoff LLP from June 1989 to December 2000. Mr. Wager
also served as chairman and founder of Ebusiness and Ecapital Group LLC, which
specialized in consulting services for new web-based businesses, including
venture capital financings. Mr. Wager has served as a director and trustee of
numerous public and private companies as well as philanthropic organizations.
Mr. Wager received a B.A. from The American University, M.A. from Columbia
University and his J.D. from New York University School of Law.
Hal Anderson has served as Executive Vice President of Operations since
November 2000. Prior to that Mr. Anderson was the Vice President of Technology
for DriveOff.com, Inc., an automotive solutions practice that was created by
Navidec and recently sold to MSN Carpoint. Mr. Anderson originally joined
Navidec in 1995 as the Vice President of Business Development. Prior to that
Mr. Anderson worked for US West Communication. Mr. Anderson received his B.A.
from the University of Arizona and his MBA from the University of Denver.
37
Kenneth P. Bero has served as Executive Vice President of Sales and Marketing
since September 2000. Prior to that he served as Chief Operating Officer since
July 1999 and as Vice President of Sales from December 1997 to July 1999. From
July 1996 to December 1997, Mr. Bero was Director of Sales, SGI Business Group
at Access Graphics, a wholesale distributor of UNIX based hardware and software
products. From September 1989 to June 1996, Mr. Bero held various sales and
sales management positions at Tektronix, Inc. Mr. Bero received his B.A. from
Bates College and his M.B.A. from Northeastern University.
Greg Hanchin has served as our Vice President of Business Development since July
1999. From December 1997 to July 1999, Mr. Hanchin was Director of Sales for our
ESolutions division. From May 1996 to December 1997, Mr. Hanchin served as
Regional Sales Manger for Netscape. From June 1989 to May 1996, Mr. Hanchin held
various sales and marketing positions at Access Graphics. Mr. Hanchin received
his B.S. from Minot State University.
Andrew S. Davis has served as a director since April 1997. Mr. Davis has served
as Director of Global & Strategic Sales for InFocus Systems, Inc., a
manufacturer of high resolution projection systems since November 1997. Mr.
Davis served as our Vice President of Sales and Marketing from May 1996 until
November 1997. From January 1994 to May 1996, Mr. Davis was manager of wholesale
distribution at InFocus Systems.
Lloyd G. Chavez, Jr. has served as a director since April 1997. He has been a
director of the Burt Group of automobile dealerships in Denver, Colorado since
1988 and director of Automotive Markets of the Burt Group since 1994. From 1983
to 1994, Mr. Chavez was Vice President of Fort Dodge Laboratories, a subsidiary
of American Home Products, where he was responsible for business acquisitions,
new products and technologies, intellectual property acquisitions, and strategic
planning and market research. From 1982 to 1983, Mr. Chavez held the position of
Vice President of General Genetics Corporation, where he was responsible for
management of biological and pharmaceutical research and development. Mr. Chavez
received his B.A. from the University of Colorado, his M.A. from Denver
Seminary, and his Ph.D. from the University of Virginia and was a post-doctoral
Fellow in Chemistry at Cornell University.
Gerald A. Marroney has served as a director since April 1997. He has been the
State of Colorado Court Administrator since 2000. From 1990 to 2000, Mr.
Marroney was a State of Colorado District Court Judge in Pueblo County,
Colorado. Before that time he was a practicing attorney in Pueblo, Colorado. Mr.
Marroney received his B.S. from Southern Colorado State College and his J.D.
from Oklahoma City University.
Section 16(a) Beneficial Ownership Reporting Compliance
Kenneth P. Bero failed to file a Form 3 at the time he became an officer of the
Company in 1998. Mr. Bero timely filed a Form 4 in April 2000 in connection with
the exercise of his options, which represent his only securities in the Company.
Greg Hanchin failed to file a Form 3 at the time he became an officer of the
Company in July 1999. Mr. Hanchin has filed a Form 5, reflecting the grant of
options to him during 1998 and 1999. The Form 5 filing was not made on a timely
basis.
Andrew S. Davis failed to file a Form 3 at the time he became a director of the
Company in 1997. Mr. Davis has filed a Form 5 reflecting the acquisition and
sale of securities during 1997, 1998 and 1999, and the grant of options in 1998
and 1999, for which Form 4 filings were required. The Form 5 filing was not made
on a timely basis.
Lloyd G. Chavez, Jr. failed to file Form 4s in connection with five separate
option grants to him during 1998 and 1999. Mr. Chavez has filed a Form 5 with
respect to the grants. The Form 5 filing was not made on a timely basis.
38
Gerald A. Marroney failed to file a Form 4 in connection with five separate
option grants to him during 1998 and 1999.
Except as set forth above, Navidec believes that its current officers and
directors are in compliance with Section 16(a).
39
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual compensation paid to Navidec's Chief
Executive Officer and other executive officers of the company, for the last
three fiscal years.
Long Term Compensation
Name and Annual Restricted Securities All Other
Principal Compen- Stock Underlying LTIP Compen-
Position Year Salary Bonus sations Awards Options/SARs(#) Payouts sations
- ----------------------------------------------------------------------------------------------------------
Ralph 2000 $288,000 $125,000 $ 0 $ 0 0 $ 0 $ 0
Armijo, 1999 $214,000 $ 61,825 $ 0 $ 0 150,000(1) $ 0 $ 0
CEO 1998 $172,133 $ 0 $ 0 $ 0 146,000(1) $ 0 $ 0
Ken Bero, 2000 $190,000 $ 49,000 $ 0 $ 0 0 $ 0 $ 0
EVP - 1999 $150,000 $ 42,952 $ 0 $ 0 0 $ 0 $ 0
Sales and 1998 $104,706 $ 25,000 $ 0 $ 0 125,000(2) 0 $ 0
Marketing
Greg 2000 $150,000 $ 36,000 $ 0 $ 0 0 $ 0 $ 0
Hanchin 1999 $150,000 $ 40,906 $ 0 $ 0 20,000(3) $ 0 $ 0
VP Sales 1998 $ 78,750 $ 49,424 $ 0 $ 0 50,000(3) $ 0 $ 0
Pat 2000 $167,000 $100,000 $ 0 $ 0 0 $ 0 $ 0
Mawhinney 1999 $135,000 $ 21,459 $ 0 $ 0 50,000(4) $ 0 $ 0
CFO 1998 $ 87,000 $ 12,583 $ 0 $ 0 57,000(4) $ 0 $ 0
Hal 2000 $181,000 $40,000 $ 0 $ 0 0 $ 0 $ 0
Anderson 1999 $108,000 $ 40,000 $ 0 $ 0 0 $ 0 $ 0
EVP Bus 1998 $ 87,000 $ 24,000 $ 0 $ 0 50,000(5) $ 0 $ 0
Operations
Michael 2000 $135,000(6) $30,000(6) $ 0 $ 0 0 $ 0 $ 0
Wager,
EVP Bus.
Dev.
(1) The number indicated represents the number of shares of common stock
underlying stock options granted to Mr. Armijo during 1998 and 1999.
(2) The number indicated represents the number of shares of common stock
underlying stock options granted to Mr. Bero during 1998.
(3) The numbers indicated represent the number of shares of common stock
underlying stock options granted to Mr. Hanchin during 1998 and 1999.
(4) The numbers indicated represent the number of shares of common stock
underlying stock options granted to Mr. Mawhinney during 1998 and 1999.
(5) The numbers indicated represent the number of shares of common stock
underlying stock options granted to Mr. Anderson during 1998.
(6) Mr. Wager commenced working with the Company in March 2001 and as such
the preceding table only reflects 9 months of service.
40
Option/SAR Grants in Last Fiscal Year
For the fiscal year ending December 31, 2000 no individual grants of stock
options were made to Navidec's Chief Executive Officer or any other executive
officers. The Company has issued no stock appreciation rights.
The following table sets forth information concerning each exercise of stock
options during the year ended December 31, 2000 by Navidec's Chief Executive
Officer and the other named executive officers, and the fiscal year-end value of
unexercised options held by him.
Number of
Securities Value of
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End (#) at FY-End ($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized Unexercisable Unexercisable(1)
-------------- -------- ------------- ----------------
Ralph Armijo 0 0 146,000/150,000 $ 0/$ 0
Ken Bero 0 0 125,000/0 $ 0/$ 0
Greg Hanchin 0 0 70,000/0 $ 0/$ 0
Pat Mawhinney 0 0 57,000/50,000 $ 0/$ 0
Michael Wager 0 0 0/0 $ 0/$ 0
(1) The value indicated was calculated by determining the difference between
the fair market value of the Company's common stock underlying the stock
options on December 31, 2000 and the exercise price of those options.
Director Compensation
None of Navidec's directors received any compensation during the most recent
fiscal year for serving in their position as a director. Non-employee members of
the Board of Directors received options to purchase 10,000 shares of common
stock issued under the Company's stock option plan.
Employment Agreements and Termination of Employment and Change-in- Control
Arrangements
Navidec entered an Employment Agreement with Mr. Armijo effective March 9, 2000.
The term of that agreement is for two years and it renews automatically for
successive additional one-year periods provided that neither Mr. Armijo nor the
Company provide the other with notice of their intent not to renew the agreement
at least thirty days before the anniversary date of the agreement. Mr. Armijo's
current annual salary under the agreement is $285,000 and his salary is reviewed
annually. The agreement also provides that Mr. Armijo will be paid an annual
bonus. In the event that Mr. Armijo's employment were to be terminated without
"Cause" by the Company, as defined in the agreement, then the Company must pay
Mr. Armijo severance payments (the "Severance Payments"). The Severance Payments
will be equal to two times Mr. Armijo's then effective annual salary, plus two
times the annual bonus paid or payable for the most recently completed fiscal
year during the term of the agreement, plus the continuation of all of
"Benefits" that Mr. Armijo is entitled to under Company plans, as defined in the
agreement, for two years and the immediate vesting of all of Mr. Armijo's
non-vested options for shares of the Company's capital stock. If Mr. Armijo's
employment were terminated without Cause, including termination due to a change
in control, as of March 30, 2001, Mr. Armijo would receive $820,000.
Navidec entered an Employment Agreement with Mr. Anderson effective January 30,
2001. The term of that agreement is for two years and it renews automatically
for successive additional one-year periods provided that neither Mr. Anderson
nor the Company provide the other with notice of their intent not to renew the
agreement at least thirty days before the anniversary date of the agreement. Mr.
Anderson's current annual salary under the agreement is $185,000 and his salary
is reviewed annually. The agreement also provides that Mr. Anderson will be paid
an annual bonus. In the event that Mr. Anderson's employment were to be
terminated without "Cause" by the Company, as defined in the agreement, then the
Company must pay Mr. Anderson severance payments (the "Severance Payments"). The
Severance Payments will be equal to Mr. Anderson's then effective annual salary,
plus the annual bonus paid or payable for the most recently completed fiscal
year during the term of the agreement, plus the continuation of all of
"Benefits" that Mr. Anderson is entitled to under Company plans, as defined in
the agreement, for one year and the immediate vesting of all of Mr. Anderson's
non-vested options for shares of the Company's capital stock. If Mr. Anderson's
employment were terminated without Cause, including termination due to a change
in control, as of March 30, 2001, Mr. Anderson would receive $210,000.
Navidec entered an Employment Agreement with Mr. Bero effective March 9, 2000.
The term of that agreement is for two years and it renews automatically for
successive additional one-year periods provided that neither Mr. Bero nor the
Company provide the other with notice of their intent not to renew the agreement
at least thirty days before the anniversary date of the agreement. Mr. Bero's
current annual salary under the agreement is $150,000 and his salary is reviewed
annually. The agreement also provides that Mr. Bero will be paid an annual
bonus. In the event that Mr. Bero's employment were to be terminated without
"Cause" by the Company, as defined in the agreement, then the Company must pay
Mr. Bero severance payments (the "Severance Payments"). The Severance Payments
will be equal to Mr. Bero's then effective annual salary, plus the annual bonus
paid or payable for the most recently completed fiscal year during the term of
the agreement, plus the continuation of all of "Benefits" that Mr. Bero is
entitled to under Company plans, as defined in the agreement, for one year and
the immediate vesting of all of Mr. Bero's non-vested options for shares of the
Company's capital stock. If Mr. Bero's employment were terminated without Cause,
including termination due to a change in control, as of March 30, 2001, Mr. Bero
would receive $150,000.
Navidec entered an Employment Agreement with Mr. Mawhinney effective March 9,
2000. The term of that agreement is for two years and it renews automatically
for successive additional one-year periods provided that neither Mr. Mawhinney
nor the Company provide the other with notice of their intent not to renew the
agreement at least thirty days before the anniversary date of the agreement. Mr.
Mawhinney's current annual salary under the agreement is $170,000 and his salary
is reviewed annually. The agreement also provides that Mr. Mawhinney will be
paid an annual bonus. In the event that Mr. Mawhinney's employment were to be
terminated without "Cause" by the Company, as defined in the agreement, then the
41
Company must pay Mr. Mawhinney severance payments (the "Severance Payments").
The Severance Payments will be equal to two times Mr. Mawhinney's then effective
annual salary, plus two times the annual bonus paid or payable for the most
recently completed fiscal year during the term of the agreement, plus the
continuation of all of "Benefits" that Mr. Mawhinney is entitled to under
Company plans, as defined in the agreement, for two years and the immediate
vesting of all of Mr. Mawhinney's non-vested options for shares of the Company's
capital stock. If Mr. Mawhinney's employment were terminated without Cause,
including termination due to a change in control, as of March 30, 2001, Mr.
Mawhinney would receive $540,000.
Navidec entered an Employment Agreement with Mr. Wager effective October 2,
2000. The term of that agreement is for two years and it renews automatically
for successive additional one-year periods provided that neither Mr. Wager nor
the Company provide the other with notice of their intent not to renew the
agreement at least thirty days before the anniversary date of the agreement. Mr.
Wager's current annual salary under the agreement is $190,000 and his salary is
reviewed annually. The agreement also provides that Mr. Wager will be paid an
annual bonus. In the event that Mr. Wager's employment were to be terminated
without "Cause" by the Company, as defined in the agreement, then the Company
must pay Mr. Wager severance payments (the "Severance Payments"). The Severance
Payments will be equal to two times Mr. Wager's then effective annual salary,
plus two times the annual bonus paid or payable for the most recently completed
fiscal year during the term of the agreement, plus the continuation of all of
"Benefits" that Mr. Wager is entitled to under Company plans, as defined in the
agreement, for two years and the immediate vesting of all of Mr. Wager's
non-vested options for shares of the Company's capital stock. If Mr. Wager's
employment were terminated without Cause, including termination due to a change
in control, as of March 30, 2001, Mr. Wager would receive $500,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 15, 2001, concerning the
beneficial ownership of the Company's common stock by each person who
beneficially owns more than five percent of the common stock; by each of the
Company's executive officers and directors; and by all executive officers and
directors as a group.
Number of
Shares of
Name and Address of Common Stock Percent of
Beneficial Owner (2) Beneficially Owned Beneficial Ownership
- -------------------- ------------------ --------------------
Ralph Armijo 805,649(3) 6.9%
Patrick R. Mawhinney 156,357(3) 1.3%
Kenneth P. Bero 118,201(3) 1.0%
Greg Hanchin 20,000(3) (1)
Michael Wager 165,300(3) 1.4
Andrew Davis 41,250(3) (1)
Lloyd G. Chavez, Jr. 34,250(3)(4) (1)
Gerald A. Marroney 30,000(3) (1)
All directors and executive officers as
a Group (8 Persons) 1,371,007 11.7%
Wells Fargo & Company
WFC Holdings Corp.
420 Montgomery St.
San Francisco, CA 94104 1,081,081(5)(6) 9.2%
Palo Alto Investors
470 University Ave.
Palo Alto, CA 94301 632,600(5) 5.4%
Rule 13d-3 under the Securities Exchange Act of 1934, provides the determination
of beneficial owners of securities. That rule includes as beneficial owners of
securities, any person who directly or indirectly has, or shares, voting power
and/or investment power with respect to such securities. Rule 13d-3 also
includes as a beneficial owner of a security any person who has the right to
acquire beneficial ownership of such security within sixty days through means,
including, the exercise of any option, warrant or conversion of a security. Any
securities not outstanding which are subject to such options, warrants or
conversion privileges are deemed to be outstanding for the purpose of computing
the percentage of outstanding securities of the class owned by such person.
Those securities are not deemed to be outstanding for the purpose of computing
the percentage of the class by any other person.
(1) Less than one percent.
(2) Except as indicated herein, the business address for each person is 6399 S.
Fiddler's Green Circle, Suite 300, Greenwood Village, CO 80111.
(3) The number of shares indicated includes shares of common stock underlying
options that are currently exercisable, as of March 30, 2001 which are held
by the following persons in the amounts indicated: Mr. Armijo (146,000);
Mr. Mawhinney (57,000); Mr. Bero (75,000); Mr. Hanchin (20,000); Mr. Davis
(30,000); Mr. Marroney (30,000); and Mr. Chavez (30,000).
(4) LGC Management owns 4,250 shares of common stock. Mr. Chavez is President
of LGC Management and may be deemed the beneficial owner of such shares.
(5) Represents a beneficial owner of more than 5% of the Common Stock based on
the owner's reported ownership of shares of common stock in filings made
with the Securities and Exchange Commissioner
42
pursuant to Section 13(g) of the Securities Exchange Act of 1934, as
amended. Information with respect to each beneficial owner is as of the
date of the most recent filing by the beneficial owner with the Securities
and Exchange Commissioner and is based solely on information contained in
such filings.
(6) On October 13, 2001, the shareholders of Navidec approved the issuance of
non-voting common shares. Subsequently, 701,081 non-voting shares were
issued to Wells Fargo upon conversion of a convertible debenture.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1997, Ralph Armijo guaranteed a line of credit in the amount of
$750,000 extended to us by USA Funding, Dallas, Texas. No compensation was paid
by Navidec for the personal guarantee. The line of credit was repaid in
September, 1999.
During 2000, we retained Benesch, Friedlander, Coplan & Aronoff LLP, of which
firm Michael Wager, our Executive Vice President -- Business Development, was a
partner during 2000, to perform legal services for the Company. The Company paid
$546,352 in fees and expenses to Benesch, Friedlander, Coplan & Aronoff LLP in
2000 for the performance of legal services for the Company.
Although the foregoing transactions were determined without arm's length
negotiations and involved conflicts of interest between the interests of the
related party and the Company, the Company believes that the transactions were
entered into on terms no less favorable to the Company than could have been
obtained from independent third parties.
43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a)1. Index to Financial Statements
Report of Independent Public Accountants
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1999 and 2000
Consolidated Statements of Operations for the years ended December 31,
1998, 1999 and 2000
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000
Notes to Consolidated Financial Statements
(a)2. Index to Financial Statements Schedules
(a)3.
3.1 Amended and Restated Articles of Incorporation of Navidec, Inc.*******
3.2 Amended and Restated Bylaws of Navidec, Inc.*
3.3 Articles of Merger and Agreement and Plan of Merger Between ACI Systems,
Inc. and Interactive Planet, Inc.*
4.1 Form of Certificate for Common Stock of the Company.*
10.1 Form of Confidentiality and Non-Disclosure Agreement between the
Company and its significant technical employees.*
10.2 The Company's stock option plan.***
10.3 Employment Agreement between the Company and Ralph Armijo dated
March 9, 2000.
10.5 Agreement between the Company and Verio Inc. dated January 23, 1999.*****
10.7 Stock and Note Purchase Agreement dated as of July 23, 1999 by and
between the Company and WFC Holdings Corporation.******
10.9 Form of Note of the Company payable to the order of WFC Holdings
Corporation.******
10.12 Form of Registration Rights Agreement by and between the Company and WFC
Holdings Corporation.******
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP. Filed herewith.
44
* Incorporated by reference from the like numbered exhibit to the
Company's Registration Statement on Form SB-2 declared effective
February 10, 1997 (SEC File Number 333-14497).
** Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997.
*** Incorporated by reference from the Company's preliminary proxy
statement for the 1998 Annual Shareholders' Meeting.
**** Incorporated by reference from the Company's Registration Statement
on Form SB-2 declared effective July 22, 1998 (SEC File Number
333-59019).
***** Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998.
****** Incorporated by reference from the Company's Form 8-K filed July 29,
1999.
******* Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999.
(b) Reports on Form 8-K
Form 8-K filed October 15, 1999 in connection with the consummation of WFC
Holdings Corporation's (i) $10,000,000 investment in the Company and (ii)
$15,000,000 investment in the Company's subsidiary, DriveOff.com, Inc., and the
related signing of a Co-Branding Agreement, Master Consulting Agreement, License
Agreement and Confidentiality Agreement. The Form 8-K also addressed an
announcement made by Sun Microsystems, Inc. of its intention to purchase up to
$3,000,000 of the Company's common stock in the Company's secondary public
offering.
Form 8-K filed October 20, 1999 for purposes of filing the form of Underwriting
Agreement among the Company, First Security Van Kasper, Advest, Inc. and various
selling shareholders, relating to the Company's secondary public offering of
2,500,000 shares of its common stock.
Form 8-K filed on August 2, 2000, identifying that Navidec, Inc. ("Navidec"),
had entered into an agreement dated August 2, 2000, related to the acquisition
of its subsidiary, DriveOff.com, Inc., by CarPoint.com, LLC ("CarPoint").
Navidec and CarPoint, which is majority owned by Microsoft Corporation
("Microsoft"), expect the transaction to close within thirty (30) days. Upon
completion of the transaction, Navidec will be a shareholder of a newly created
corporation, CarPoint, Inc., along with Microsoft, Ford Motor Company and WFC
Holdings Corporation.
Form 8-K filed on October 12, 2000, in connection with the board of directors of
Navidec, Inc. authorized the repurchase by the Company of up to 1,000,000 shares
of its common stock. The Company has approximately 11,640,000 shares
outstanding. The shares will be repurchased in the open market from time to
time, depending on market conditions.
45
Pursuant to the requirements of Section 13 or 15(d) 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.
NAVIDEC, INC.
Dated: March 31, 2001 By: /s/ J. Ralph Armijo
- --------------------- -----------------------
J. Ralph Armijo
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated. This report may be signed in
multiple identical counterparts all of which, taken together, shall constitute a
single document.
Dated: March 31, 2001 By: /s/ J. Ralph Armijo
- ---------------------- -----------------------
J. Ralph Armijo
President, Chief Executive Officer
and Director
Dated: March 31, 2001 By: /s/ Patrick R. Mawhinney
- ---------------------- ----------------------------
Patrick R. Mawhinney
Chief Financial Officer, Secretary
and Director
Dated: March 31, 2001 By: /s/ Andrew S. Davis
- ---------------------- ----------------------------
Director
Dated: March 31, 2001 By: /s/ Lloyd G. Chavez, Jr.
- ---------------------- ----------------------------
Director
Dated: March 31, 2001 By: /s/ Gerald A. Marroney
- ---------------------- ----------------------------
Director