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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, 2001.
Commission File No.: 0-29098
NAVIDEC, INC.
(Exact name of registrant issuer as specified in its charter)
Colorado 33-0502730
- -------- ----------
(State or Other (IRS Employer
Jurisdiction of Identification No.)
Incorporation or Organization)
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 of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate 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 31, 2002 was approximately
$4,230,000 based on the closing price of the registrant's common stock as
reported by the NASDAQ National Market at that date. As of March 31, 2002,
11,640,000 shares of the registrant's common stock were outstanding.
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NAVIDEC, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2001
INDEX
Part I
Item 1 Business......................................................................................... 3
Item 2 Properties....................................................................................... 6
Item 3 Legal Proceedings................................................................................ 6
Item 4 Submission of Matters to a Vote of Security Holders.............................................. 6
Part II
Item 5 Market For Registrant's Common Stock and Related Stockholder Matters............................ 7
Item 6 Selected Financial Data......................................................................... 7
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations........... 8
Item 7a Quantitative and Qualitative Disclosures about Market Risk...................................... 14
Item 8 Financial Statements and Supplementary Data..................................................... F-1
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures........... 15
Part III
Item 10 Directors and Executive Officers of the Registrant.............................................. 15
Item 11 Executive Compensation.......................................................................... 16
Item 12 Security Ownership of Certain Beneficial Owners and Management.................................. 19
Item 13 Certain Relationships and Related Transactions.................................................. 20
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................ 21
Exhibits........................................................................................ 3.1
2
PART I
Except as otherwise stated, the information contained in this Form 10-K is as of
December 31, 2001, 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
ACI Systems, Inc., the predecessor to Navidec, Inc., ("Navidec" or the
"Company") was incorporated under the laws of the State of Colorado in 1993.
Navidec combines best practices developed as an e-business expert with best of
breed software products to create a unique approach to enterprise integration.
Navidec draws upon thousands of hours of experience to provide packaged
solutions with defined expectations and results. This approach results in
software and integration solutions that lower the cost, delivery time and risk
associated with a client's application integration initiatives.
Navidec helps clients by:
- leveraging current corporate assets and technology investments;
- combining and consolidating diverse content, applications and
services;
- securing and personalizing business applications and information.
The core philosophy of Navidec is to develop long-term partnerships by
dedicating teams of experienced personnel to a client's solutions to ensure
longevity of the relationship and a consistent vision for their solution. The
result, is rapid deployment of efficient, cost effective e-business solutions,
which position our customers for industry leadership.
SALE OF NAVIDEC'S INTEREST IN DRIVEOFF.COM, INC.
On August 2, 2000, Navidec 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, Navidec became an
8.38% shareholder of CarPoint, Inc. Microsoft Corporation, Ford Motor Company
and WFC Holdings Corporation are also shareholders of CarPoint, Inc. Navidec
sold 12,258,300 shares of CarPoint, Inc. for net proceeds of $6.9 million. As of
December 31, 2001 Navidec held 1,050,000 shares in CarPoint, Inc.
FINANCIAL INFORMATION ABOUT SEGMENTS
Information relating to Navidec's business segments is set forth in Note 10 to
the Financial Statements, and notes thereto, beginning on page F-19.
NAVIDEC'S STRATEGY
Navidec'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 believes that the integration of a company's legacy systems with new and
existing Internet initiatives, combined with the inability of most internal
information technology departments to develop, implement and manage their
Internet environments, creates significant opportunity for e-solutions
providers. Specifically, Navidec believes that there is demand for e-solutions
providers like Navidec who have the expertise and experience to effectively
operate in a dynamic market that is technically complex and has significant
time-to-market constraints.
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Navidec's goal is to become the leading provider of innovative e-business
solutions and services. To achieve this objective, Navidec is pursuing the
following strategies:
Expand Reusable Products: Navidec believes that in order to succeed it has to
expand its offering of reusable products and solutions. It is currently focusing
on products around directory and security, portal implementation and business
process integration. Navidec believes that it should have its first generation
of each product available during the first half of 2002.
Expand the Depth of Client Relationships: Navidec is leveraging its reputation,
industry expertise and technical skills to expand the scope of its current
customer relationships and with the goal of becoming its customers' primary
e-solutions consultant. This will enable our customers to move more rapidly
through the e-business integration process, and results in more complex
solutions with multiple related project engagements.
Continue to Develop Technical Capabilities: Navidec has significant e-solutions
capabilities that it uses to deliver comprehensive e-business solutions and
services. Navidec will continue to expand its technical capabilities and
strategic partner relationships to enable it to deliver time-critical and
mission-critical solutions and to meet the changing needs of its customers. It
will also continue to develop software applications that can be reused in order
to deliver solutions rapidly, reliably and cost-effectively.
Continue to Attract and Retain Experienced Professionals: Navidec's survival 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 e-solutions providers. Navidec's corporate culture is aimed
at maintaining a team-driven and results-oriented environment that is attractive
to energetic, talented professionals and that fosters innovation and creativity.
Increase Professional Services Consulting: Expected to generate a growing
percentage of Navidec's revenues going forward, professional services consulting
relates to implementation, integration and consulting on a limited portion of a
client's e-business needs. Often done in conjunction with our partners, these
services are oriented around helping clients address specific issues. Navidec
continues to develop expertise in our partner companies' products, resulting in
them recommending us for their customers' installation and integration efforts
and to customize front and back end functionality. These short-term arrangements
can often be expanded to include building and managing Internet and e-commerce
solutions for these customers.
NAVIDEC'S SERVICES
Our Enterprise Integration Solutions include:
- ENTERPRISE DIRECTORY - a service that cuts administration costs by
aggregating disparate user information into a single repository/data
source;
- WEB-BASED SECURITY - a service that reduces costs and operating
inefficiencies and strengthen essential business relationships by
providing a secure, personalized single point of access for all
users;
- PORTAL - a service that decreases operational expense, increases
revenue and strengthen your business relationships by aggregating
information and applications for customers, partners and employees;
- BUSINESS PROCESSES INTEGRATION ("BPI") - a service that designs
and continually optimizes complex business processes that include
enterprise applications and systems.
Our Enterprise Services Include:
- CONSULTING - architectural review, GAP analysis, technology
evaluations;
- DEVELOPMENT - creating scalable, secure infrastructures and
custom solutions;
- INTEGRATION - business process integration with existing
back-office systems;
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- CONVERSION - transforming existing products into Internet
products and services;
- DEPLOYMENT - training and collaborative development.
STRATEGIC BUSINESS PARTNERSHIPS
Important in the ongoing success of Navidec is the continued development and
expansion of our strategic partner relationships. Not only do these
relationships drive sales, they ensure that Navidec remains informed of the
latest technological advances. Associating itself with the premier products
within certain platforms, Navidec ensure that it provides its clients with
leading edge solutions.
Navidec is one of only eighteen (18) Authorized Java Development Centers in the
United States. Combining our Java expertise with our application server,
database and mail messaging expertise, we provide our customers with high
quality end-to-end solutions. These solutions utilize J2EE, HTML, XML, Perl and
other proven technologies. We apply these solutions to our own products, to our
corporate customer base and to other e-businesses that have ideas and concepts
requiring technological expertise.
We continually evaluate and enhance our partnerships with leading product
companies such as Sun Microsystems, Inc., IBM, BEA Systems, Inc., iPlanet, and
Netegrity, Inc. We focus on partnering with premier players within their market
sectors. These relationships allow us the opportunity to commit extensive
training resources to maintain and grow product competency and expertise.
Because of our strategic relationships and the large number of additional
third-party technologies that are available to us, we are not dependent upon any
single technology to provide our services. We are in a position to choose from
multiple suppliers to incorporate the most appropriate technologies and products
for each client solution. Because third-party providers typically license their
software directly to our customers, we are not at risk of losing individual
licenses that are necessary for our services.
In addition to our e-business development capabilities, we have 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, Object Design
Developer and Reseller, as well as Macromedia experts.
SALES AND MARKETING
Navidec's sales efforts target clients seeking to leverage the Internet's
potential to drive sales, reduce costs or improve customer or supplier
relations. These companies are looking to supplement their current business plan
by moving up the e-business integration curve. At December 31, 2001, a direct
sales force, consisting of fourteen (14) individuals, was primarily responsible
for identifying prospects, engaging potential users of our solutions and
services and maintaining and growing those client relationships. Over the next
twelve (12) months, as our development capacity grows and our consulting and
application service provider services expand, our direct sales force is expected
to expand proportionately.
Navidec participates in marketing efforts in support of 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. Marketing efforts are expected to expand proportionately with sales.
COMPETITION
The e-solutions business is a competitive environment populated by a large
number of regional and national firms providing services similar to those
provided by to Navidec. Our competition approaches the business of e-solutions
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. Other potential competitors
could include browser software
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vendors, personal computer and Unix software 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
e-solutions business include core technology, breadth of services offered,
creative and artistic ability, marketing and distribution resources, customer
service and support and price.
EMPLOYEES
As of December 31, 2001, we had a total of forty-nine (49) employees, of which
twenty-three (23) were billable, sixteen (16) were in sales and marketing, five
(5) were in operations, and five(5) in management and administration. None of
our employees are represented by a labor union. Recognizing that our employees
are the key to our continued success, Navidec strives to provide each employee
with an environment for professional growth and development.
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.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
All of Navidec's revenues are derived from customers within the United States.
All of Navidec's assets are located in the United States.
ITEM 2. PROPERTIES
Navidec's operations are principally located at Fiddler's Green Center, 6399
Fiddler's Green Circle, Greenwood Village, Colorado, in a 35,000 square foot
facility. All of Navidec's segments utilize this facility. The lease for this
facility expires in December 2004 and has a current monthly lease rate of
$45,000 per month through 2002, $70,000 per month in 2003 and $90,000 in 2004.
ITEM 3. LEGAL PROCEEDINGS
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 Navidec's financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 14, 2001, the shareholders of Navidec voted at the Annual Meeting of
Shareholders to elect Navidec's Board of Directors. The directors elected at the
meeting were J. Ralph Armijo, Patrick R. Mawhinney, Andrew S. Davis, Lloyd G.
Chavez, Jr. and Gerald A. Marroney. The vote was as follows:
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For Withhold
Ralph Armijo 8,940,006 97,746
Andrew Davis 7,572,036 1,465,716
Patrick Mawhinney 8,810,962 226,790
Lloyd G. Chavez, Jr 8,940,006 97,746
Gerald A. Marroney 8,940,006 97,746
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Navidec's common stock commenced trading on the Nasdaq SmallCap Market under the
symbol "NVDC" on February 11, 1997. On October 22, 1999, it commenced trading on
the Nasdaq National Market under the symbol "NVDC." 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 National Market:
Common Stock
Quarter Ended High Low
- -----------------------------------------------------------------------------
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
March 31, 2001 $ 4.064 $ 1.875
June 30, 2001 $ 2.710 $ 0.950
September 30, 2001 $ 1.450 $ 0.391
December 31, 2001 $ 0.620 $ 0.370
As of March 15, 2002, Navidec had 127 shareholders of record.
Navidec has never declared a cash dividend on its common stock. Navidec
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. Navidec is not currently a party to any agreement restricting
the payment of dividends.
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.
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Year Ended, December 31,
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
Statement of Operations Data
(In thousands, except per share amounts):
Revenues $ 6,008 $ 8,555 $ 18,966 $ 33,078 $ 22,587
Loss from operations (3,883) (3,549) (9,048) (27,020) (18,920)
Net income (loss) (4,107) (3,933) (8,161) 16,354 (55,396)
Net loss per share:
Basic $ (1.47) $ (1.10) $ (1.08) $ 1.47 $ (4.76)
Diluted $ (1.47) $ (1.10) $ (1.08) $ 1.37 $ (4.76)
Weighted average shares--
Basic 2,800 3,578 7,574 11,159 11,640
Diluted 2,800 3,578 7,574 11,950 11,640
December 31,
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
Balance Sheet Data (in thousands):
Cash & cash equivalents $ 369 $ 711 $ 35,860 $ 3,475 $ 2,465
Investment in debt securities - - 9,855 2,990 -
Restricted cash 280 - - - 1,200
Working capital 678 293 46,264 17,328 1,841
Total assets 3,099 5,265 65,028 89,177 10,612
Long-term debt including
current portion 310 989 779 2,270 1,770
Convertible debt - - 19,876 - -
Total stockholders' equity 1,550 1,799 39,095 60,567 4,967
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as critical to our business operations and
the understanding of our results from operations. The impact and any associated
risks related to these policies on our business operations is discussed
throughout Management's Discussion and Analysis of Financial Conditions and
Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 2 in the Notes to the Consolidated Financial
Statements in Item eight of this Annual Report on Form 10-K, beginning on page
F-8. Note that our preparation of this Annual Report on Form 10-K requires us to
make estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenue and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates.
-Revenue recognition. Our revenue recognition policy is significant
because our revenue is a key component of our results of operations. In
addition, our revenue recognition determines the timing of certain
expenses, such as commissions. We follow very specific and detailed
guidelines in measuring revenue, however, certain judgments affect the
application of our revenue policy. Revenue results are difficult to
predict, and any shortfall in revenue or delay in recognizing revenue
could cause our operating results to vary significantly from quarter to
quarter and could result in future operating losses. During 2001,
approximately 60% of our revenue was generated from fixed-price, fixed
completion date work. Revenue for this work is recognized on a
percentage-of-completion basis using the ratio of direct costs incurred
to the estimated total direct costs of the engagement. Estimates of the
total direct costs of the engagement require judgments about the time
needed to complete the project and the level of personnel involved.
Management regularly reviews its estimates and underlying assumptions
for contracts in progress. The remaining 40% of revenue during 2001 was
from time and materials contracts for which revenue is recognized as
the work is completed. Revenue recognition for time and materials
contracts is not significantly impacted by judgments and estimates.
-Reserves for Bad Debt and Revenue Contingencies. Our policy on
reserves for bad debt and revenue contingencies determines the timing
and recognition of expenses and revenue recognition.
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We follow guidelines that reserve based off of historical and account
specific trends, however, certain judgments affect the application of
our bad debt and revenue reserve contingencies. Repayment is difficult
to predict, and any shortfall or delay in recognizing payment could
cause operating results to vary significantly from quarter to quarter
and could result in future operating losses. Our receivables are
recorded net of an allowance for doubtful accounts which requires
management to estimate amounts due which may not be collected. This
estimate requires consideration of general economic conditions, overall
historical trends related to the Company's collection of receivables,
customer specific payment history, and customer specific factors
affecting their ability to pay amounts due. Management routinely
assesses and revises its estimate of the allowance for doubtful
accounts.
OVERVIEW
Navidec provides quality integrated e-business solutions and services that
transform traditional business into e-business. Navidec's suite of proven
solutions enable an enterprise to centralize and consolidate their content and
applications onto the Internet to improve user experience, collaboration and
system administration to ensure lower operating costs and improved revenue
opportunities. This is done through the integration and extension of
best-of-breed portal, directory, security and integration software developed by
the leading internet software vendors.
Our teams of experts deliver not only extensive Internet development and system
integration experience, but also comprehensive domain knowledge within the
sectors of financial services, energy, telecommunications, utilities and
technology.
The core philosophy of Navidec is to develop long-term partnerships by
dedicating teams of experienced personnel to a client's solutions to ensure
longevity of the relationship and a consistent vision for their solution. The
result, rapid deployment of efficient, cost effective e-business solutions,
which position our customers for industry leadership.
Initially formed in July 1993 as a value-added reseller of computer products
under the name of ACI Systems, Inc., we were renamed Navidec, Inc., in July
1996, after our 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, CarWizard.com
and LeaseSource.com were acquired, two prominent online automotive sites, in
order to expand Navidec's on-line automotive presence.
During 2001, Navidec generated revenues from two divisions: eSolutions and
product distribution. Approximately 60% of the eSolutions revenue was generated
from fixed-price, fixed completion date contracts. 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 ninety
(90) to one hundred twenty (120)-day time frame. Revenue for this work is
recognized on percentage-of-completion accounting basis using the ratio of
direct costs incurred as compared to the estimated total direct costs of the
engagement. The remaining 40% of revenue is from work done on a time and
materials basis. Revenue for this work is recognized as it is completed. 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 generated 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 discontinued
these sales efforts in 2001. All of the assets associated with the product
distribution segment were sold or written off in 2001.
Navidec's operating expenses consist of product development, general and
administrative, sales and marketing and depreciation, amortization and
impairment of goodwill. Additional operating expenses were incurred in 2001,
such as non-cash stock expense, restructuring charges and losses on impairment
of assets. 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
facility and equipment leases. Sales and marketing includes personnel costs,
advertising costs, costs associated with participation in trade shows and direct
marketing program and related travel expenses. Non-cash stock expense relates to
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employee stock options that were repriced in 2001, and warrants given to a third
party vendor for marketing services provided during the year. Restructuring
charges are related to expenses incurred in reducing employees to a level that
corresponded to current demands for services, and expenses related with
restructuring leases to meet the needs of the company. Loss on impairment of
assets is the cost of bringing assets in line with current market value.
RESULTS OF OPERATIONS (a)
Years ended December 31,
1998 1999 2000 2001
-------- -------- -------- --------
REVENUE:
eSolutions $ 5,443 $ 13,745 $ 31,294 $ 22,127
Product distribution 2,173 1,944 1,071 460
-------- -------- -------- --------
Total revenue 7,616 15,689 32,365 22,587
COST OF REVENUE 5,627 10,081 17,185 13,147
-------- -------- -------- --------
Gross margin 1,989 5,608 15,180 9,440
OPERATING EXPENSES:
Product development 542 1,103 5,956 4,102
General and administrative 2,167 3,507 7,259 7,827
Sales and marketing 256 1,758 7,384 7,059
Depreciation/amortization & impairment of goodwill 422 806 3,268 3,016
Non cash stock expense -- -- -- 600
Restructuring charges -- -- -- 4,442
Loss on restructured receivables -- -- 4,016 --
Loss on impairments of assets -- -- -- 1,314
-------- -------- -------- --------
Total operating expenses 3,387 7,174 27,883 28,360
-------- -------- -------- --------
LOSS FROM OPERATIONS $ (1,398) $ (1,566) $(12,703) $(18,920)
======== ======== ======== ========
(a) The results of operations for the years ended 1998, 1999 and 2000 exclude
the results of DriveOff.com which was started in 1998 and sold in 2000. The
results of operations excluding DriveOff.com are not meant to supplant the
results of operations reported under generally accepted accounting
principles and are reported solely for ease of comparison between periods.
Summarized below are the results of DriveOff.com which are necessary to
reconcile to the as reported GAAP numbers.
1998 1999 2000
-------- -------- --------
Revenues $ 939 $ 3,277 $ 713
Cost of revenue 243 664 101
-------- -------- --------
Gross margin 696 2,613 612
Operating Expense:
Product development 870 1,899 312
General and administrative 1,312 1,805 8,695
Sales and marketing 665 6,391 5,922
-------- -------- --------
Total operating expense 2,847 10,095 14,929
-------- -------- --------
LOSS FROM OPERATIONS $ (2,151) $ (7,482) $(14,317)
======== ======== ========
RESULTS OF OPERATIONS AS A PERCENTAGE OF REVENUES
Years ended December 31,
1998 1999 2000 2001
-------- -------- -------- --------
REVENUE:
eSolutions 71.5% 87.6% 96.7% 98.0%
Product distribution 28.5% 12.4% 3.3% 2.0%
-------- -------- -------- --------
Total revenue 100.0% 100.0% 100.0% 100.0%
COST OF REVENUE 73.9% 64.3% 53.1% 58.2%
-------- -------- -------- --------
Gross margin 26.1% 35.7% 46.9% 41.8%
OPERATING EXPENSES:
Product development 7.1% 7.0% 18.4% 18.2%
General and administrative 28.5% 22.4% 22.4% 34.7%
Sales and marketing 3.4% 11.2% 22.8% 31.3%
Depreciation/amortization & impairment of goodwill 5.5% 5.1% 10.1% 13.4%
Non-cash stock expense -- -- -- 2.7%
Restructuring charges -- -- -- 19.7%
Loss on restructured receivables -- -- 12.4% --
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Loss on impairments of assets -- -- -- 5.8%
-------- -------- -------- --------
Total operating expenses 44.5% 45.7% 86.1% 125.8%
LOSS FROM OPERATIONS (18.4%) (10.0%) (39.2%) (84.0%)
======== ======== ======== ========
YEARS ENDED DECEMBER 31, 2001 AND 2000
Revenue for 2001 decreased $9.8 million, or 30.2%, from 2000 adjusted revenues
of $32.4 million to $22.6 million in 2001. The decrease was primarily a result
of lower market demand for IT services, a struggling economy and the reserve of
$1.6 million for disputed contracts. Revenue in 2001 associated with eSolutions
decreased $9.2 million, or 29.3%, from 2000, down to $22.1 million from $31.3
million. Product distribution revenue decreased $611,000, or 57.0%, from $1.1
million in 2000 to $460,000 in 2001. The decrease in revenues was due to
Navidec's decision to discontinue its focus on products distribution during the
second half of the year.
Gross margin decreased $5.7 million, or 37.8%, from adjusted gross margin of
$15.2 million in 2000 to $9.4 million in 2001. As a percentage of revenue, gross
profit decreased from 46.9% to 41.8%. The decrease in the gross margin was a
result of product mix and decreasing margins in eSolutions. As a result of
pricing pressures experienced during the year, eSolutions had a gross margin of
42.5% in 2001 down from 49.4% in 2000.
Product development costs decreased $1.9 million, or 31.1%, from adjusted
expenses of $6.0 million in 2000 to $4.1 million in 2001. As a percentage of
revenue, product development costs decreased from 18.4% in 2000 to 18.2% in
2001. The decrease in product development cost is the result of narrowed focus
on the areas that Navidec is pursuing.
General and administrative expenses increased $568,000, or 7.8%, from adjusted
general and administrative expenses of $7.3 million in 2000 to $7.8 million in
2001. As a percentage of revenue, general and administrative expenses increased
from 22.4% in 2000 to 34.7% in 2001. The increased spending was primarily due to
increased overhead expenses related to projected needs for increased personnel
necessary to support planned expansion in revenues in 2001. Navidec is
projecting general and administrative expenses to decrease in 2002, as a result
of personnel changes and reduced overhead expenses.
Sales and marketing expenses decreased $325,000, or 4.4%, from $7.4 million in
2000 to $7.1 million in 2001. As a percentage of revenue, sales and marketing
expenses increased from 22.8% to 31.3% of revenue in 2000 and 2001,
respectively. The increased spending was primarily due to increased marketing
activities and the opening of remote sales offices to support expected expanding
revenue in 2000, many of which were guaranteed through 2001. Navidec is
projecting sales and marketing expenses to be lower in 2002, as a result of
market closures in 2001.
To align Navidec's cost structure with changing market conditions and to create
a more efficient and flexible organization, Navidec reduced its headcount by
approximately 200 employees during 2001 and recorded restructuring charges of
$4.4 million for severance, benefits, and other contract exit costs.
Impairment charges of $1.3 million included for abandoned leasehold improvements
related to efforts to reduce operating costs by renegotiating its lease to
encompass less space and a $75,000 charge to write down other assets to their
fair value.
11
During 2001, the Company cancelled approximately 1.3 million unexercised and
outstanding stock options and granted 883,000 replacement options with a strike
price of zero. Deferred compensation was recorded for the intrinsic value of the
options and compensation expense of $566,000 was recorded as non cash stock
expense as the deferred compensation was amortized. At December 31, 2001
$191,000 of deferred compensation remained, which will be amortized into non
cash stock expense in future periods. The Company also issued 100,000 warrants
to a vendor in Lieu of cash for advertising services, resulting in non cash
stock expense of $34,000. The Company has aggregated these costs and presented
non cash stock expense in the accompanying consolidated statements of
operations. The allocation of non cash stock expense to the same functional
classification as the employees' cash compensation is as follows:
2001
----
(In Thousands)
Cost of revenue $111
Sales and marketing 99
General and administrative 390
----
Total non cash stock expense $600
====
Depreciation and amortization decreased $252,000 or 7.7% from $3.3 million in
2000 to $3.0 million in 2001. Depreciation was down in part due to asset
impairments during the year and due to more assets becoming fully depreciated.
Interest income decreased from $1,153,000 in 2000 to $223,000 in 2001. This
decrease was the result of lower cash and investment balances in 2001.
Interest expense decreased from $907,000 in 2000 to $215,000 in 2001. Navidec
paid off debt at the beginning of the year. The term note with Silicon Valley
Bank was not taken out until the end of 2001.
During 2001 Navidec realized a loss of $44.9 million on the sale of the majority
of its holding in CarPoint, Inc and the write down of the remaining balance to
fair value. The remainder of the CarPoint stock was carried at $588,000 at
December 31, 2001 and sold in March 2002.
During 2001, the Company sold BEA Systems, Inc. stock with an original cost of
$673,000 for $881,000, resulting in a $208,000 gain included in other income.
Navidec's effective tax rate was 32.8% in 2000 versus a 12.5% benefit in 2001
because of our pretax income of $24.4 million in 2000 versus a pre-tax loss of
$63.8 million in 2001. The effective tax rate differs from the statutory tax
rate because of a valuation allowance of approximately $15.6 million recorded in
2001. The Company's deferred tax assets, including approximately $35 million in
net operating loss carryforwards are fully reserved because their realization is
not certain.
In May 2001, we came to an agreement with an unsecured creditor to settle a note
payable with a carrying amount of $793,000 for $250,000 and monthly payments
through December 2001 of $13,333. The settlement resulted in an extraordinary
gain of $450,000.
As a result of the items discussed above, we recorded a net loss of $55.4
million in 2001 versus net income of $16.4 million in 2000. Our basic and
diluted loss per share was $4.76 in 2001 versus basic and diluted earnings per
share of $1.47 and $1.37, respectively in 2000.
YEARS ENDED DECEMBER 31, 2000 AND 1999
Adjusted 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 Navidec's
decision to focus the majority of its assets on this business segment. Product
distribution revenue decreased $873,000, 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.
Adjusted 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.
Adjusted 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%
12
in 2000. This was the result of increased work being done on Navidec's
e-commerce framework and the implementation of new intranets and financial
tracing systems.
Adjusted 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.
Adjusted 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.
Depreciation and amortization expense was $3.3 million in 2000 up from $806,000
in 1999, primarily due to significant capital expenditures made in 2000.
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.
Prior to the sale DriveOff.com, we had recognized revenues of $713,000 in 2000
versus $3.3 million in 1999. The decrease was due to a partial year of
operations in 2000. Gross profit of $612,000 in 2000 and $2.6 million 1999
represented 85.5% and 79.7% of revenues, respectively. Operating expenses
increased from $10.1 million for the full year in 1999 to $14.9 million for part
of 2000. The increase in operating expenses result from an increase in general
and administrative expenses of $6.9 million ($1.8 million in 1999 to $8.7
million in 2000) due to the onset of commercial operations for DriveOff.com in
2000. The increase was partially offset by a decrease in sales and marketing
costs of $469,000 ($6.4 million in 1999 to $5.9 million in 2000) because of the
partial year of operation in 2000 versus a full-year in 1999. Product
development costs related to DriveOff.com decreased from $1.9 million in 1999 to
$312,000 in 2000 because of the completion of the technical infrastructure. As a
result, our loss from operations related to DriveOff.com prior to its sale
increased from $7.5 million in 1999 to $14.3 million 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 believed, was impaired. The $4
million loss on trade receivables was included in our operating expenses and the
$2 million loss on our investment was included in impairments of investments in
the accompanying consolidated statements of operations.
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 in 2000.
Navidec's interest income increased from approximately $.9 million in 1999 to
$1.2 million in 2000 due primarily to higher investment balances.
Interest expense increased from $685,000 in 1999 to $907,000 in 2000,
primarily due to higher outstanding debt balances.
Navidec's 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. Our basic and diluted
earnings per share was $1.47 and $1.37, respectively in 2000, versus a basic and
diluted loss per share of $1.08 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through December 31, 2001, 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, flow from operations has not historically been sufficient to sustain our
operations without the above additional sources of capital.
As of December 31, 2001, we had cash and cash equivalents of $2.5 million,
restricted cash of $1.2 million and working capital of $1.8 million. This
compares with 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 as of
December 31, 2000.
13
Cash used in our operating activities totaled $11.0 million for the year ended
December 31, 2001 compared with $27.5 million for the year ended December 31,
2000. This was due to a decrease in net loss before non-cash adjustments of $7.4
million between periods ($19.0 million in 2000 to $11.7 million in 2001) and
cash provided by a decrease in net operating assets of $694 in 2001 versus a use
of $8.5 million in 2000. The decrease in net operating assets in 2001
principally result from a $3.2 million reduction in receivables in 2001 due to
the decline in revenues versus a $8.8 million increase in receivables in 2000.
The decline in receivables was partially offset in 2001 by a reduction in
accrued liabilities of $2.1 million.
Cash provided by investing activities totaled $10.7 million for the year
ended December 31, 2001 compared with cash used of $3.7 million for the year
ended December 31, 2000.
Cash used in our investing activities during 2000 consisted primarily of
expenditures for property and equipment and investments in incubated companies,
the purchase of marketable securities and investments in notes payable. Cash
provided by our investing activities in 2001 consisted primarily of sales of
investments and repayments of notes receivable which generated cash of $12.8
million. These cash proceeds are non-recurring.
Cash used in financing activities was $0.7 million during the year ended
December 31, 2001. Cash used in financing activities was $1.1 million during the
year ended December 31, 2000. Cash used in 2001 includes a $1.0 million term
note that Navidec took out during the fourth quarter of 2001 and the repayment
of $1.7 million of notes payable and capital leases. Cash used in 2000 consisted
primarily of repayment of capital leases, purchase of Navidec's stock and
payment for offering and deferred financing costs.
At December 31, 2001, the Company had $1 million outstanding under its term
credit facility. In April 2002 the Company amended its line of credit agreement
with the Bank, and as a result, the availability under the Line was $600,000 as
of April 3, 2002. Availability under the line of credit as amended in April
2002, is limited to the lesser of $1 million or 70% of net accounts receivable
less than 90 days old, and further limited by the amount of the term loan
outstanding that is in excess of cash collateral. The term loan is due monthly
with principal and interest payments through December 2004. The Company is
required to maintain certain financial covenants on a monthly basis. Those
covenants include a minimum quick asset ratio of 1 to 1, increasing to 1.4 to 1
in September 2002, and a minimum tangible net worth of $3,650,000, plus 50% of
quarterly income if any.
If Navidec substantially meets its operation plan, the Company will marginally
maintain compliance with these covenants. If, however, the Company experiences a
larger than anticipated decline in revenues, the Company may not be able to
comply with these covenants. If the Company violates its covenants, it may be
required to pay the balance of the term loan, and funds may not be available
under the line of credit.
If Navidec is not able to maintain compliance with its debt covenants, the
Company will seek to renegotiate or obtain alternative financing. The Company
has implemented a plan of action in order to sustain operations and satisfy the
financial covenants on its credit facilities. During 2001, the Company
significantly reduced costs through headcount reductions. In March of 2002, the
company sold its investment in CarPoint stock for cash. Furthermore, the Company
continues to evaluate its contractual obligations and is seeking to renegotiate
certain of these obligations in order to further reduce costs. The Company would
consider further significant reductions in its operating activities if these
funds are insufficient to sustain operations, or the financial covenants are in
jeopardy of being violated in 2002. The Company believes that its cash and cash
equivalents, working capital, amounts available under its line of credit, and
the subsequent to year-end sale of its investment in CarPoint stock will sustain
operations until the end of 2002. However, there can be no guarantee the Company
will be successful in these efforts.
On a longer-term basis, the Company believes it will generate efficient cash
flow from operations to fund its long-term plan. If, however, our capital
requirements or cash flow vary 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.
Navidec is subject to various contractual obligations including long-term debt,
capital leases, and operating leases. The table below summarizes these
contractual obligations by year (in thousands):
Less than
Total 1 year 1-3 yrs. Thereafter
----- --------- -------- ----------
Long-term debt,
including current portion $1,000 $ 311 $ 689 $ --
Capital leases 851 670 181 --
Operating leases 2,610 690 1,920 --
------ ------ ------ ------
Total contractual cash obligations $4,461 $1,671 $2,790 $ --
====== ====== ====== ======
The Company's debt agreement requires the Company to maintain certain financial
covenants. If the Company does not maintain these covenants, the lender may
demand repayment thus accelerating the amounts due.
In addition to these obligations, the Company maintains a standby letter of
credit for $1.2 million, collateralized by $1.2 million of certificates of
deposit shown as restricted cash in the consolidated financial statements. This
letter of credit must be maintained by the Company through the term of its
office lease which expires in December 2004.
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 other of our 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
Navidec is exposed to the impact of interest rate changes and change in the
market values of its investments. Based on our market risk sensitive
instruments outstanding as of December 31, 2001, as described below, we have
determined that there was no material market risk exposure to our consolidated
financial position, results of operations, or cash flows as of such date. We do
not enter into derivatives or other financial instruments for trading or
speculative purposes.
INTEREST RATE RISK - At December 31, 2001, Navidec's exposure to market rate
risk for changes in interest rates relates primarily to its borrowings. Navidec
has not used derivative financial instruments in its credit facilities. At
December 31, 2001, the company had $1 million of debt outstanding at a floating
interest rate of Prime + 1.50% with a floor of 8.4% (8.4% at December 31, 2001).
The estimated fair value of our long-term debt approximates its carrying value
because of the variable rates. The debt matures as follows: 2002 - $311,000;
2003 - $330,000; 2004 - $359,000. A hypothetical 10% increase in the Prime rate
would not be significant to the Company's financial position, results of
operations, or cash flows.
INVESTMENT RISK - Navidec 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 twenty percent (20%) and Navidec does not assert
significant influence.
The Company's marketable equity securities are recorded at fair value of
approximately $17,000 at December 31, 2001 and are not significant to the
Company's financial position or results of operations.
The Company owns 1.05 million shares of CarPoint, representing a minimal equity
interest. The investment has a carrying amount, which approximates fair value,
of $588,000 as of December 31, 2001. Subsequent to December 31, 2001, these
shares were sold for cash to one of the primary shareholders.
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, 2000 and 2001 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 2000 and 2001 F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1999, 2000 and 2001 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 2000 and 2001 F-6
Notes to Consolidated Financial Statements F-7
F-1
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, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the three years ended December 31, 2001. These consolidated financial
statements are the responsibility of Navidec'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, 2001 and 2000 and the results of their
operations and their cash flows for the three years ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company must maintain minimum financial ratios in
order to comply with its debt covenants. As a result of the Company's
outstanding debt and uncertainty about the Company's ability to maintain
compliance with its debt covenants, substantial doubt exists about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Denver, Colorado,
April 3, 2002.
F-2
NAVIDEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
ASSETS 2000 2001
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 3,475 $ 2,465
Investment in debt securities 2,990 --
Restricted cash -- 1,200
Accounts receivable, net 4,908 2,475
Costs and estimated earnings in excess of billings 1,545 --
Inventory 586 --
Notes receivable, net 3,700 --
Deferred taxes 6,395 --
Prepaid expenses and other 565 352
-------- --------
Total current assets 24,164 6,492
PROPERTY, EQUIPMENT AND SOFTWARE, net 6,379 3,497
OTHER ASSETS:
Investment in CarPoint 56,670 588
Other investments 1,964 17
Other assets -- 18
-------- --------
TOTAL ASSETS $ 89,177 $ 10,612
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,362 $ 2,511
Accrued liabilities 3,030 1,153
Current borrowings 1,028 843
Deferred revenue 416 144
-------- --------
Total current liabilities 6,836 4,651
NON CURRENT LIABILITIES:
Long-term borrowings 1,242 927
Other 20,532 67
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares authorized,
Voting 10,939 and 10,939 shares outstanding 53,775 54,532
Non-voting stock 701 and 701 shares outstanding 5,817 5,817
Warrants for common stock 1,141 1,175
Accumulated other comprehensive income 792 (12)
Deferred compensation -- (191)
Retained earnings (deficit) (958) (56,354)
-------- --------
Total stockholders' equity 60,567 4,967
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 89,177 $ 10,612
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended
December 31,
1999 2000 2001
-------- -------- --------
REVENUE $ 18,966 $ 33,078 $ 22,587
COST OF REVENUE 10,745 17,286 13,147
-------- -------- --------
GROSS PROFIT 8,221 15,792 9,440
OPERATING EXPENSES:
Product development 2,858 6,268 4,102
General and administrative 5,312 15,954 7,827
Sales and marketing 8,149 13,306 7,059
Restructuring charges -- -- 4,442
Loss on impairment of assets -- -- 1,314
Loss on restructured receivable -- 4,016 --
Non cash stock expense -- -- 600
Depreciation and amortization 950 3,268 3,016
-------- -------- --------
Total operating expenses 17,269 42,812 28,360
-------- -------- --------
Loss from operations (9,048) (27,020) (18,920)
OTHER INCOME (EXPENSE):
DriveOff.com debt conversion incentive payment -- (5,195) --
Gain on sale of DriveOff.com -- 43,302 --
Impairment of investments -- (5,317) (44,903)
Gain on issuance of DriveOff.com equity -- 18,291 --
Interest income 919 1,153 223
Interest expense (685) (907) (215)
Realized gain on investment 652 -- 208
Other (expense) income 1 47 (239)
-------- -------- --------
Total other income, net 887 51,374 (44,926)
-------- -------- --------
NET INCOME (LOSS) BEFORE TAXES
AND EXTRAORDINARY GAIN (8,161) 24,354 (63,846)
PROVISION (BENEFIT) FOR TAXES -- 8,000 (8,000)
-------- -------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY GAIN (8,161) 16,354 (55,846)
EXTRAORDINARY GAIN -- -- 450
-------- -------- --------
NET INCOME (LOSS) $ (8,161) $ 16,354 $(55,396)
======== ======== ========
NET INCOME (LOSS) BEFORE EXTRAORDINARY GAIN:
Per share basic $ (1.08) $ 1.47 $ (4.80)
======== ======== ========
Per share diluted $ (1.08) $ 1.37 $ (4.80)
======== ======== ========
EXTRAORDINARY GAIN, per share basic $ 0.00 $ 0.00 $ 0.04
======== ======== ========
EXTRAORDINARY GAIN, per share diluted $ 0.00 $ 0.00 $ 0.04
======== ======== ========
NET INCOME (LOSS):
Per share basic $ (1.08) $ 1.47 $ (4.76)
======== ======== ========
Per share diluted $ (1.08) $ 1.37 $ (4.76)
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 7,574 11,159 11,640
Diluted 7,574 11,950 11,640
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Accumulated
Warrants Other Compre- Total
Voting Non-Voting for Compre- Accum- hensive Stock-
Common Stock Common Stock Common hensive ulated Income Deferred holders'
Shares Amount Shares Amount Stock Income Deficit (Loss) Compensation Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 4,709 $ 8,059 -- $ -- $ 2,891 $ -- $ (9,151) $ -- $ 1,799
Issuance of common stock and
warrants, net of issuance
costs of $406 380 3,394 -- -- 780 -- -- -- 4,174
Issuance of common stock in a
public offering, net of
offering costs of $2,555 2,625 21,726 -- -- -- -- -- -- 21,726
Beneficial conversion feature
on convertible debt -- 285 -- -- -- -- -- -- 285
Issuance of warrants -- -- -- -- 1,356 -- -- -- 1,356
Exercise of warrants 2,820 20,251 -- -- (3,820) -- -- -- 16,431
Exercise of employee
stock options 321 1,195 -- -- -- -- -- -- 1,195
Net loss -- -- -- -- -- -- (8,161) $(8,161) -- (8,161)
Unrealized gain on investments,
net of taxes of $0 -- -- -- -- -- 290 -- 290 -- 290
-------
Comprehensive loss $(7,871)
=======
----------------------------------------------------------------------------------------------
Balances, December 31, 1999 10,855 54,910 -- -- 1,207 290 (17,312) -- 39,095
Conversion of unsecured
promissory notes
to common stock - -- -- 701 5,817 -- -- -- -- 5,817
Stock issuance costs -- (1,400) -- -- -- -- -- -- (1,400)
Exercise of warrants 24 176 -- -- (66) -- -- -- 110
Exercise of employee
stock options 187 571 -- -- -- -- -- -- 571
Treasury stock (127) (482) -- -- -- -- -- -- (482)
Net income -- -- -- -- -- -- 16,354 $16,354 -- 16,354
Unrealized gain on investments,
net of taxes of $470 502 -- 502 -- 502
-------
Comprehensive income $16,856
=======
----------------------------------------------------------------------------------------------
Balances, December 31, 2000 10,939 53,775 701 5,817 1,141 792 (958) -- 60,567
Issuance of repriced options -- 883 -- -- -- -- -- (883) --
Amortization for accelerated
vesting of options -- -- -- -- -- -- -- 234 234
Cancellation of repriced options -- (126) -- -- -- -- -- 126 --
Amortization of deferred compensation -- -- -- -- -- -- -- 332 332
Warrants issued -- -- -- -- 34 -- -- -- 34
Net loss -- -- -- -- -- -- (55,396) $(55,396) -- (55,396)
Unrealized loss on investments,
net of taxes of $(470) and
reclassification adjustment for
realized gain of $208 -- -- -- -- -- (804) -- (804) -- (804)
--------
Comprehensive loss $(56,200)
========
----------------------------------------------------------------------------------------------
Balances, December 31, 2001 10,939 $54,532 701 $ 5,817 $ 1,175 $(12) $(56,354) $ (191) $ 4,967
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1999 2000 2001
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $ (8,161) $ 16,354 $(55,396)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 1,094 3,268 3,016
Extraordinary gain -- -- (450)
Non cash interest expense 396 249 --
Provision for bad debt expense 182 155 796
Write-off of notes receivable and accrued interest -- -- 1,661
Provision (benefit) for deferred taxes -- 8,000 (8,000)
Gain on sale of DriveOff.com -- (56,398) --
Stock received for services (206) -- --
Gain on sale of investments (652) -- (208)
Write down of investments -- 9,333 44,903
Non-cash stock expense -- -- 600
Loss on sale of assets -- -- 48
Impairment charges -- -- 1,314
Changes in operating assets and liabilities:
Restricted cash -- -- (1,200)
Accounts receivable (2,386) (7,447) 1,576
Costs and estimated earnings in excess of billings (41) (1,397) 1,545
Inventory (505) 138 191
Prepaid expenses and other assets (619) 470 515
Accounts payable 1,586 (1,000) 149
Bank overdrafts 149 (149) --
Accrued liabilities and other 129 900 (2,082)
-------- -------- --------
Net cash used in operating activities (9,034) (27,524) (11,022)
Cash flows from investing activities:
Purchase of property, equipment and software (3,548) (4,304) (1,014)
Proceeds from sale of equipment -- -- 232
Capitalized software development costs (2,979) -- --
Repayment of notes receivable -- -- 2,100
Funding of notes receivable -- (3,700) --
Proceeds from the sale of marketable debt securities -- 6,865 2,990
Funding of notes receivable related parties -- -- (528)
Settlement costs from CarPoint sale -- -- (815)
Purchase of marketable debt securities (9,782) -- --
Additional purchase consideration -- (700) --
Sale (Purchase) of investments (2,441) (1,880) 7,736
-------- -------- --------
Net cash provided by (used in) investing activities (18,750) (3,719) 10,701
-------- -------- --------
Cash flows from financing activities:
Payments on notes payable and capital lease obligations (1,050) (867) (1,689)
Proceeds from borrowing -- -- 1,000
Proceeds from issuance of common stock and warrants 28,081 -- --
Proceeds from issuance of convertible debt 21,200 -- --
Proceeds from exercise of stock options 1,195 571 --
Proceeds from exercise of warrants 16,619 110 --
Repurchase of common stock -- (482) --
Payment for offering and deferred financing costs (2,909) (540) --
Proceeds from factoring of accounts receivable 257 -- --
Payments to factor (460) -- --
Other -- 66 --
-------- -------- --------
Net cash provided by (used in) financing activities 62,933 (1,142) (689)
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents 35,149 (32,385) (1,010)
Cash and cash equivalents, beginning of year 711 35,860 3,475
-------- -------- --------
Cash and cash equivalents, end of year $ 35,860 $ 3,475 $ 2,465
======== ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
NAVIDEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Navidec, Inc., a Colorado corporation (the "Company"), was incorporated in 1993.
Navidec provides integrated e-business solutions and services. Navidec's suite
of solutions enable an enterprise to centralize and consolidate their content
and applications onto the Internet to improve user experience, collaboration and
system administration to ensure lower operating costs and improved revenue
opportunities. This is done through the integration and extension of portal,
directory, security and integration software developed by the leading Internet
software vendors.
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.
During 2001, Navidec borrowed $1 million on a term loan due in 36 monthly
installments through December 2004. As part of this agreement, Navidec was
required to maintain certain minimum financial covenants on a monthly basis.
Since the inception of the agreement, Navidec was not in compliance with these
covenants. In April 2002, the Company amended the term loan agreement to waive
the past covenant violations and revise the required financial covenants. The
amended covenants include a minimum quick asset ratio of 1 to 1, increasing to
1.4 to 1 in September 2002, and a minimum tangible net worth. The quick asset
ratio is the ratio of cash deposited with the lender plus accounts receivable
to current liabilities less deferred revenue. At December 31, 2001, the
Company's quick asset ratio was .8 to 1. The minimum tangible net worth is
$3,650,000, plus 50% of quarterly net income, if any. At December 31, 2001, the
Company's tangible net worth was $4,967,000. The Company was in compliance with
its covenants at March 31, 2002.
If Navidec substantially meets its operating plan, the Company will marginally
maintain compliance with these covenants. However, Navidec's ability to meet
this plan depends, in part, on its ability to obtain additional profitable
customer contracts and its ability to control operating costs. If Navidec is
not able to maintain compliance with its debt covenants, the Company will seek
to renegotiate or obtain alternative financing. The Company has implemented a
plan of action in order to sustain operations and satisfy the financial
covenants on its credit facilities. During 2001, the Company significantly
reduced costs through headcount reductions. In March of 2002, the company sold
its investment in CarPoint stock for cash. Furthermore, the Company
continues to evaluate its current contractual obligations for renegotiation in
order to further reduce costs. The company would consider further significant
reductions in its operating activities if these funds are insufficient to
sustain operations, or the financial covenants are in jeopardy of being
violated in 2002. The Company believes that its cash and cash equivalents,
working capital, amounts available under its line of credit, and the subsequent
to year-end sale of its investment in CarPoint stock will sustain operations
until the end of 2002. However, there can be no guarantee the Company will be
successful in these efforts.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As a result of the Company's
outstanding debt and uncertainty about the Company's ability to maintain
compliance with its debt covenants, substantial doubt exists about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should Navidec be unable to continue as a going
concern.
(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 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.
F-7
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.
RESTRICTED CASH
In connection with renegotiating its office lease during 2001, the Company was
required to invest $1.2 million in certificates of deposit. The lessor may
request remittance of up to $600,000 at any time, while the remaining $600,000
must be invested through the term of the lease which expires in December,
2004. Accordingly, $1.2 million was recorded as restricted cash in the
accompanying consolidated balance sheet at December 31, 2001.
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 uncollectible accounts receivable are determined based
upon information available and historical experience. Accounts receivable are
shown net of an allowance for doubtful accounts of $2,021,000 and $532,000 as of
December 31, 2001 and 2000, respectively. In addition to its allowance for
doubtful accounts Navidec fully reserved $1,661,000 for notes receivable and
accrued interest from Westar Financial which declared bankruptcy in December of
2001.
INVESTMENT IN DEBT SECURITIES
In 2000, Navidec had investments in debt securities, consisting of short-term
notes and commercial paper. The investments were recorded at their amortized
cost, which approximates fair value due to their short-term nature. Debt
securities were 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 (excluding CarPoint-see Note 12) included the following for the year
ended December 31, 2000 and 2001 (in thousands):
December 31, 2001
Unrealized Carrying
Cost Loss Value
---- ---- -----
Marketable securities $29,000 $12,000 $17,000
======= ======= =======
F-8
December 31, 2000
Unrealized Carrying
Cost Gain Value
---- ---- -----
Marketable securities $ 702,000 $ 1,262,000 $ 1,964,000
========== ========== ==========
Navidec received common stock with a fair value of $702,000 in exchange for
common shares with a carrying value of $50,000 during 1999.
In 2001 Navidec sold marketable securities with a basis of $673,000 for
$881,000, realizing a gain of $208,000.
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.
Navidec wrote down the remaining products inventory to net realizable value of
$0 as of December 31, 2001. During 2001, Navidec exchanged its inventory of Java
Bean applets for rights to updated versions of these products. The value of the
inventory exchanged was $320,000.
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.
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 and
$144,000 for 2000 and 1999, respectively. With the sale of DriveOff.com in 2000,
the Company did not have any goodwill or amortization in 2001.
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
Company's 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
F-9
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. Contract revenues are recorded net of
reserves for revenue contingencies for such items as contract or change order
disputes. Reserves for revenue contingencies were $1.6 million in 2001 and zero
in 2000 and 1999.
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 $128,000, $5,078,000, and $1,643,000 in
2001, 2000 and 1999, respectively.
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
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.
The Company accounts for warrants issued to non-employees using the fair value
method. During 2001, warrants given to a third party vendor for marketing
services provided were valued at $34,000 and are included in sales and marketing
in the table below.
The Company has segregated these costs and presented non cash stock expense in
the accompanying consolidated statements of operations. The allocation of
non cash stock expense to the same functional classification as the employees'
cash compensation is as follows:
F-10
For the Twelve Months Ended
December 31,
1999 2000 2001
---- ---- ----
(In Thousands)
Cost of revenue $ -- $ -- $111
Sales and marketing -- -- 99
General and administrative -- -- 390
---- ---- ----
Total non cash stock
expense $ -- $ -- $600
==== ==== ====
ACCRUALS
Accrued expenses include the following at December 31 (in thousands):
2000 2001
---- ----
Accrued compensation and commissions $ 622 $ 400
Fees payable on sale of DriveOff.com 1,458 --
Accrued restructuring charges -- 753
Other 950 --
------ ------
$3,030 $1,153
====== ======
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.
Shares used in the computation of diluted earnings per share, using the treasury
stock method, were as follows (in thousands):
December 31,
1999 2000 2001
Weighted average common shares 7,574 11,159 11,640
Stock options -- 734 --
Warrants -- 57 --
------ ------ ------
Weighted average diluted shares 7,574 11,950 11,640
====== ====== ======
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:
1999 2000 2001
Navidec stock options 1,550 770 95
Convertible debt 701 -- --
Warrants 298 125 369
----- ----- -----
Total anti-dilutive shares excluded 2,549 895 464
===== ===== =====
F-11
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes the following adjustments to net income
(loss) for the years presented (in thousands):
1999 2000 2001
Gross unrealized gain (loss) $ 290 $ 972 $(1,066)
Reclassification adjustment for gain on sale -- -- (208)
Income taxes -- (470) 470
------- ------- -------
$ 290 $ 502 $ (804)
======= ======= =======
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, $0, and $2,979,000 in 2001,
2000 and 1999, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. The adoption of SFAS No. 133 as of January 1, 2001, had no effect on
the Company's financial position or results of operations.
In June 2001 the FASB issued SFAS No. 141, "Business Combinations." Under this
statement all business combinations must be accounted for under the purchase
method. The pooling method is no longer allowed. The statement also establishes
criteria to assess when to recognize intangible assets separately from goodwill.
At this time the Company has no pending business combinations that would be
affected by the adoption of this statement.
In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." The statement addresses how goodwill and other intangible assets should
be accounted for when acquired by some means other than a business combination.
It also addresses the accounting for and disclosure about goodwill and other
intangible assets after they have been initially recognized in the financial
statements and provides specific guidance for testing goodwill and other
intangible assets for impairment. This statement is effective for fiscal years
beginning after December 15, 2001. The Company does not anticipate that the
adoption of this statement will have a material effect on the Company's
financial position or results of operations.
In July 2001 the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement requires companies to recognize the fair value of
an asset retirement liability in the financial statements by capitalizing that
cost as part of the cost of the related long-lived asset. The asset retirement
liability should then be allocated to expense by using a systematic and rational
method. The statement is effective for fiscal years beginning after June 15,
2002. Adoption of this statement is not expected to have a significant impact on
the Company's financial position or results of operations.
In August 2001 the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement provides a single accounting
model for long-lived assets to be disposed of and changes the criteria that
would have to be met to classify an asset as held-for-sale. The statement also
requires expected future operating losses from discontinued operations to be
recognized in the periods in which the losses are incurred, which is a change
from the current requirement of recognizing such operating losses as of the
measurement date. The statement is effective for fiscal years beginning after
December 15, 2001. The Company does not anticipate that the adoption of the
statement will have a material effect on the Company's financial position or
results of operations.
(3) PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment and software consists of the following (in thousands):
December 31,
Useful Lives 2000 2001
------------ ---- ----
Computers, software and equipment 3 to 4 years $ 5,045 $ 3,203
Software 3 years 2,009 2,301
Furniture and office equipment 4 to 5 years 1,385 2,450
Leasehold improvements Lease term 1,346 933
------- -------
F-12
9,785 8,887
Less accumulated depreciation (3,406) (5,390)
------ ------
Net property, equipment and software $6,379 $3,497
====== ======
Depreciation expense was $3,016,000, $3,091,000 and $806,000 for 2001, 2000 and
1999, respectively.
(4) BORROWINGS
In 2001, Navidec entered into a term credit facility for $1.0 million and a $3.5
million revolving line of credit. The line of credit is limited to 70% of
accounts receivable less than 90 days past due and is further reduced by 70% of
the amount outstanding under the term credit facility. Both notes are secured by
all assets of the Company and are governed by minimum adjusted quick ratio (1.4
to 1) and minimum tangible net worth ($6,750,000) covenants, as defined. In
addition, the Company was to become subject to a quarterly minimum debt service
coverage ratio (2 to 1) upon meeting this 2 to 1 coverage ratio for two
consecutive quarters.
Borrowings consist of the following:
December 31,
2000 2001
---- ----
Term credit facility, due December 2004, with monthly payments
beginning January 2002, at $33,000 per month interest at 8.4% $ -- $1,000,000
Unsecured notes payable 860,000 --
---------- ----------
860,000 1,000,000
Less - current 160,000 311,000
---------- ----------
Long term portion $ 700,000 $ 689,000
========== ==========
At December 31, 2001, the Company was not in compliance with its debt covenants.
In April 2002, the Company amended its credit facilities to waive the past
covenant violations and revise the required financial covenants. The amendment
requires the Company to collateralize the term loan with $500,000 of restricted
cash. In addition, it reduces the revolving line of credit to the lesser of $1
million or 70% of accounts receivable less than 90 days. The availability is
further reduced by outstanding term loans in excess of the cash collateral. Upon
attaining an adjusted quick ratio, as defined, of 1.4 to 1 for two consecutive
months, the availability will no longer be reduced by the term loan in excess of
cash collateral, and the maximum availability will increase to $3.5 million. The
amendment also reduces the minimums required by the minimum adjusted quick ratio
(1 to 1 through August, 2002 and 1.4 to 1 thereafter) and minimum tangible net
worth ($3,650,000) covenants and requires a minimum debt service Coverage ratio
(2 to 1) upon meeting this 2 to 1 coverage ratio for two consecutive quarters.
MATURITIES
As of December 31, 2001, payments under the Company's term loan are as
follows:
Year ended December 31, Notes Payable
2002 $311,000
2003 330,000
2004 359,000
----------
Total obligation $1,000,000
==========
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. In 2001 the Company settled the debt and recognized an
extraordinary gain on the settlement of $450,000.
F-13
(5) CAPITAL LEASE OBLIGATIONS
Navidec has entered into several capital lease obligations for furniture,
computers and equipment. The leases have 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:
2000 2001
Furniture, computers and equipment $ 2,585,000 $ 3,042,000
Less - accumulated depreciation (719,000) (1,458,000)
----------- -----------
Net book value $ 1,866,000 $ 1,584,000
=========== ===========
Navidec acquired property of $639,000, $1,498,000 and $840,000 in 2001, 2000 and
1999, respectively, under capital lease arrangements.
During 2001, Navidec recorded an impairment charge of $182,000 to write-down
leased workstations to their estimated fair value.
MATURITIES
As of December 31, 2001, future minimum payments under the Company's capital
leases are as follows:
Year ended December 31, Capital Leases
--------------
2002 $ 670,000
2003 111,000
2004 70,000
---------
Total minimum payments 851,000
Less interest (81,000)
---------
Total obligation 770,000
Less - current portion (532,000)
---------
Long-term obligations $ 238,000
=========
The estimated fair value of Navidec's borrowings approximate the book value for
2001 and 2000. Cash paid for interest was $215,000, $282,000 and $251,000 in
2001, 2000 and 1999, respectively.
(6) INCOME TAXES
The provision for income taxes consists of the following (in thousands):
Year Ended December 31,
1999 2000 2001
------- ------- --------
Current:
Federal $ -- $ -- $ --
State -- -- --
Total current provision -- -- --
Deferred:
Federal (2,616) 11,514 (20,398)
State (395) 1,086 (3,192)
Valuation allowance 3,011 (4,600) 15,590
------- ------- --------
Total deferred provision (benefit) -- 8,000 (8,000)
Total provision (benefit) $ -- $ 8,000 $ (8,000)
======= ======= ========
F-14
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,
1999 2000 2001
---- ---- ----
Expected rate (35.0)% 35.0% (35.0)%
State taxes, net of federal deduction (3.1) 4.4 (3.2)
Tax gain greater than book on DriveOff.com -- 11.7 --
Nondeductible goodwill amortization 0.6 0.3 --
Other permanent items 0.6 0.3 1.3
Valuation allowance 36.9 (18.9) 24.4
----- ----- -----
0% 32.8% (12.5)%
===== ===== =====
The components of the net deferred income tax assets (liabilities) are as
follows (in thousands):
December 31,
1999 2000 2001
---- ---- ----
Current assets (liabilities):
Investments $ -- $ 3,255 $ (3)
Accruals and other 30 2,935 (172)
Bad debt reserves 114 205 1,443
Valuation allowance (144) -- (1,268)
--------- --------- ---------
-- 6,395 --
Noncurrent assets (liabilities):
Basis difference in Carpoint -- (19,465) (53)
Net operating losses 6,907 4,600 13,350
Property and equipment (1,260) -- 1,025
Valuation allowance (5,647) -- (14,322)
--------- --------- ---------
-- (14,865) --
--------- --------- ---------
Net deferred tax liability $ -- $ (8,470) $ --
========= ========= =========
At December 31, 2001, for income tax purposes, Navidec had approximately $35
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
given year if certain events occur, including significant changes in ownership
interests. The sale of Driveoff.com in 2000 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.
During 2001, the Company increased its valuation allowance by $15,590,000 to
fully reserve its net deferred tax asset, primarily because of uncertainty
relating to realizability of the Company's net operating loss carryforwards.
Navidec paid no income taxes during the three years ended December 31, 2001.
(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, 2001:
Year ended December 31 -
2002 $ 690,000
2003 840,000
2004 1,080,000
----------
$2,610,000
==========
F-15
Rental expense related to these leases was $1,840,000, $1,896,000 and $244,000
for 2001, 2000, and 1999, 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. The Company
contributed $99,000, $64,000 and $0, during 2001, 2000 and 1999, respectively.
LITIGATION
In the normal course of business, Navidec is subject to, and may become a party
to, litigation. Management believes there are no claims currently in litigation
or unasserted matters that will have a material impact on the Company's
financial position or results of operations.
(8) RELATED PARTY TRANSACTIONS
In February 1998, Navidec entered into a service agreement with a 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. No warrants were exercised in 2000 and
2001.
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.
The note and accrued interest was paid off in March of 2001.
During 2000, Navidec retained Benesch, Friedlander, Coplan & Aronoff LLP, of
which firm Navidec's Executive Vice President -- Business Development, was a
partner during 2000, to perform legal services for the Company. The Company paid
$84,000 and $546,000 in fees and expenses to Benesch, Friedlander, Coplan &
Aronoff LLP in 2001 and 2000, respectively, for the performance of legal
services for the Company.
In January of 2001, the Company funded promissory notes due from management and
shareholders totaling $528,000. These notes carried an interest rate of 5.9%
payable annually. The notes were secured by a right to proceeds agreement that
required the payment of the notes upon the sale of the CarPoint, Inc. stock held
by the Company. These notes receivable were settled in conjunction with the sale
of the CarPoint, Inc. stock in May 2001. The receivables were netted against the
amounts otherwise payable to these individuals for their involvement in the
initial sale of DriveOff.com in September 2000, and the sale of CarPoint stock
in May 2001.
During 2001, Navidec sold $52,000 worth of inventory at cost to XCEN28, Inc,
whose primary shareholder is the nephew of Navidec's CEO.
(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
F-16
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.
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, convertible debt held by WFC Holdings
Corp. ("WFC") 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, 2001:
Original
Exercise Issuance Remaining
Warrants Units Price Value Contractual Life
-------- ----- ----- ---------- ----------------
A 15,925 $7.38 $ 13,000 1.25 years
B 11,862 $4.50 45,000 1.25 years
C 1,538 $3.50 3,000 1.25 years
D 3,788 $4.50 10,000 1.25 years
E 70,508 $4.50 202,000 1.25 years
F 40,500 $2.00 88,000 2.00 years
G 125,000 $9.25 780,000 2.75 years
H 100,000 $0.50 34,000 5.00 years
------- ----------
369,121 $1,175,000
======= ==========
F-17
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 December 31,
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. 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.
In the third quarter of 2001, the Company canceled approximately 1,324,000
unexercised and outstanding options and granted 883,000 replacement options with
a strike price of $0. The new options vest over three years and expire 10 years
from the date of grant. The Company recorded deferred compensation of $883,000
on the date of grant for the difference between the strike price and the
intrinsic value of the repriced options. The deferred compensation charge will
be amortized to stock expense over the vesting period of the new options. During
2001, 126,000 options were cancelled in conjunction with employee layoffs and
the related deferred compensation previously recorded was reversed during 2001.
In addition, options granted to executives that were terminated in the fourth
quarter received accelerated vesting and the remaining deferred compensation
expense related to those executives' options was recognized as compensation
expense. The weighted average remaining contractual life of these options is
7.60 years. The weighted average grant date fair value of these options was
$1.00.
The following table summarizes activity for options issued in the money:
2001
Weighted
Average
Exercise
Shares Price
------ -----
Outstanding at
beginning of year -- --
Granted 883,000 $0.00
Exercised -- --
Forfeited and cancelled (126,000) $0.00
-------- -----
Outstanding at end of year 757,000 $0.00
-------- -----
Exercisable at end of year 338,000 $0.00
-------- -----
The following table summarizes activity for options issued at the money:
1999 2000 2001
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at
beginning of year 1,468,000 $4.23 1,550,000 $5.70 1,996,000 $6.28
Granted 477,000 9.45 747,000 7.14 -- --
Exercised (334,000) 3.98 (187,000) 2.95 -- --
Forfeited and cancelled (61,000) 5.17 (114,000) 9.55 (1,901,000) $7.51
--------- ----- --------- ----- ---------- -----
Outstanding at end of year 1,550,000 $5.85 1,996,000 $6.28 95,000 $6.97
--------- ----- --------- ----- ---------- -----
Exercisable at end of year 709,000 $4.01 757,000 $5.27 90,000 $7.17
--------- ----- --------- ----- ---------- -----
F-18
Weighted average fair value
of options granted during year $6.97 $5.35 N/A
===== ===== =====
The status of stock options outstanding and exercisable under the Plan as of
December 31, 2001 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
$2.37 - $3.81 46,000 2.95 2.10 41,000 2.99
$5.75 - $8.37 9,000 7.73 2.16 9,000 7.72
$9.38 - $13.00 40,000 11.33 2.52 40,000 11.33
------ ----- ---- ------ -----
95,000 $6.97 2.26 90,000 $7.17
====== ======
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 2001, 2000 and 1999, respectively: risk-free
interest rate of 5.42, 6.03 and 5.69 percent , no expected dividend yields,
expected lives of 8.0, 4.0 and 4.0 years, and expected volatility of 107, 107
and 104 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):
2001 2000 1999
---- ---- ----
Net Income (Loss):
As reported $ (55,396) $ 16,354 $ (8,161)
Pro forma $ (55,161) $ 14,493 $ (15,469)
Net Loss per share, basic and diluted
Basic: As Reported $ (4.76) $ 1.47 $ (1.08)
Pro Forma $ (4.74) $ 1.30 $ (2.04)
Diluted: As Reported $ (4.76) $ 1.37 $ (1.08)
Pro Forma $ (4.74) $ 1.21 $ (2.04)
(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:
F-19
Year Ended December 31, 1999
(in thousands)
Product
e-Solutions 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 from operations $ (614) $ (7,482) $ (146) $ (806)(a) $ (9,048)
Identifiable assets $ 8,592 $ 12,691 $ 421 $ 43,324 (b) $ 65,028
Year Ended December 31, 2000
(in thousands)
Product
e-Solutions DriveOff Distribution Corporate Total
----------- -------- ------------ --------- -----
Revenues from external
customers $ 31,294 $ 713 $ 1,071 $ -- $ 33,078
Gross profit $ 15,469 $ 612 $ (289) $ -- $ 15,792
Loss from operations $ (5,466) $(14,317) $ (130) $ (7,107)(a) $(27,020)
Identifiable assets $ 11,108 $ -- $ 335 $ 77,734 (b) $ 89,177
Year Ended December 31, 2001
(in thousands)
Product
e-Solutions DriveOff(c) Distribution Corporate Total
----------- ----------- ------------ --------- -----
Revenues from external
customers $ 22,127 $ -- $ 460 $ -- $ 22,587
Gross profit $ 9,412 $ -- $ 28 $ -- 9,440
Loss from operations $ (9,366) $ -- $ (182) $ (9,372)(a) $(18,920)
Identifiable assets $ 2,453 $ -- $ -- (d) $ 8,155 (b) $ 10,612
(a) Corporate loss from operations represents restructuring charges, losses on
impairment of assets and restructured receievables, non cash stock expense and
depreciation.
(b) 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.
(c) Due to the sale of DriveOff.com in 2000 there was no activity in 2001.
(d) All assets associated with Product Distribution were sold or written off in
2001.
F-20
(11) NOTES RECEIVABLE IN DEFAULT
In March, June, July and August of 2000, the Company funded four Promissory
Notes to Westar Financial, Inc. for $1.2 million, $1 million, $1 million and
$500,000, respectively. The notes carried an interest rate of 9% annually and
are unsecured. The March and June notes were paid in full at the scheduled due
dates of March 31, 2001 and June 5, 2001. The July 2000 note was due on July 5,
2001 and the August 2000 note was due on August 25, 2001; Westar Financial
has not paid these notes. On December 22, 2001 Westar filed for reorganization
under Chapter 11. Accrued interest on the two remaining notes receivable of
$1,500,000 was $161,000. In December, 2001 the Company wrote off the balance
of the Note and accrued interest and has included the charge in other (expense)
income in the accompanying consolidated statement of operations. The Company is
pursuing recovery on these notes through the bankruptcy court.
(12) 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 for the Company of
$18.3 million. 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 was obligated to
pay approximately $5.7 million from the cash proceeds resulting from the sale of
the CarPoint stock. This obligation is included in other non-current liabilities
in 2000.
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.
Car Point, Inc.
In March 2001, Navidec concluded there had been an other than temporary
impairment in its CarPoint investment and wrote-down its shares to their
estimated fair value of $0.63 per share. This write-down resulted in a charge of
approximately $43.5 million in the quarter ended March 31, 2001.
In May 2001, Navidec sold 12,258,300 shares of CarPoint, Inc. for net proceeds
of $6.9 million. The sale of the stock resulted in a recognized loss on sale of
the investment of $858,000. In connection with the sale, the Company's Board of
Directors authorized the payment of a bonus of approximately $513,000. The
remaining shares where written-down to $0.56 per share, the price received for
the shares sold. This resulted in a charge of $49,000 for the second quarter
ended June 30, 2001. As of December 31, 2001, the Company held 1,050,000 shares
valued at $588,000. These shares were sold on March 31, 2002 to one of the
majority shareholders at CarPoint.
The net results of the above transactions have been included in impairment of
investments of $44.9 million in the accompanying consolidated statements of
operations.
Avis
In February of 2000, Navidec entered into a joint venture with Avis Europe for
the development of an online automotive sales enterprise called
YourAutoChoice.com. During 2000, Navidec invested approximately $2.3 million
dollars into the joint venture, and had a further obligation to invest $700,000,
which was accrued at December 31, 2000.
The Company and Avis Group decided to cease operations of the venture in early
2001. As a result, the Company impaired its investment in and advances to the
venture, and it accrued $700,000 for its share of the obligatory capital call
in February 2001. Included in impairments of investments in the accompanying
consolidated statement of operations for the year ended December 31, 2000, is
approximately $3 million related to the venture.
Marketable Securities
In 2001, Navidec sold BEA Systems, Inc. ("BEA") stock with a basis of $673,000
for $881,000, realizing a gain of $208,000. The Company holds approximately
1,100 remaining shares of BEA carried at approximately $17,000 in the
accompanying consolidated balance sheet.
F-21
(13) RESTRUCTURING AND OTHER RELATED CHARGES
During 2001, Navidec recorded restructuring and other related impairment charges
of $5,756,000 for headcount reductions and losses related to cancellation and
renegotiation of operating leases. These headcount reductions and lease changes
were taken to align Navidec's cost structure with changing market conditions and
to create a more flexible and efficient organization. The plan resulted in a
headcount reduction of approximately 200 employees, which was comprised 45% of
non-billable staff and 55% of billable staff.
The Company paid $3,504,000 and has accrued $446,000 for employees terminated
during 2001. The remaining restructuring charges of $492,000 consists primarily
of exit costs associated with the Company's termination of its lease for a
portion of its office space, which is no longer needed due to the reduced
headcount.
During 2001, the Company took an impairment charge of $182,000 to write-down
leased workstations to their estimated fair value of $75,000. Fair value was
determined based upon current negotiations to sell the workstations. An
impairment of $1,057,000 was recorded for leasehold abandonments in connection
with the termination of a portion of the Company's office lease and other assets
were written down $75,000 to their net realizable value.
The following table summarizes restructuring and other related charges recorded
during, the year, including the remaining accrual balance at December 31, 2001
(in thousands):
Asset Remaining
Expensed Write-Downs Payments Balance
-------- ----------- -------- ----------
Severance & benefits $3,950 -- $3,504 $ 446
Contract exit costs 492 -- 185 307
-------- ----------- -------- ----------
Total restructuring $4,442 -- $3,689 $ 753
Total impairments $1,314 $1,314 -- --
(14) REDUCTION OF DEBT
In May 2001, the Company came to an agreement with an unsecured creditor to
settle its note payable with a carrying amount of $793,000 for $250,000 and
monthly payments through December 2001 of $13,333. The settlement resulted in an
extraordinary gain of $450,000.
(15) QUARTERLY RESULTS (Unaudited)
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(c) 15,792
NET INCOME (LOSS) (6,138) 5,676(a) 26,859(b) (10,043)(d) 16,354
EPS - BASIC (0.56) 0.52 2.44 (0.86) 1.47
DILUTED (0.56) 0.49 2.19 (0.86) 1.36
2001
Q1 Q2 Q3 Q4 TOTAL
-- -- -- -- -----
NET SALES $ 8,608 $ 4,543 $ 5,579 $ 3,857 $ 22,587
GROSS MARGIN 3,644 2,231 2,841 724 9,440
NET LOSS BEFORE
EXTRAORDINARY
ITEM (39,892) (7,934) (4,510) (3,510) (55,846)
NET LOSS (39,892)(e) (7,484)(f) (4,510)(f) (3,510)(f) (55,396)
EPS - BASIC (3.43) (.64) (.39) (.30) (4.76)
DILUTED (3.43) (.64) (.39) (.30) (4.76)
F-22
(a) In the second quarter of 2000, 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.
(b) In the third quarter of 2000, 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.
(c) In the fourth quarter of 2000, the Company accepted equity in lieu of an
outstanding receivable which was eventually written off resulting in a charge of
$4 million
(d) In the fourth quarter of 2000, Navidec wrote down equity investments in
JourneyLink and Avis to their net realizable value. This resulted in a charge of
$5.3 million.
(e) During the first quarter of 2001, the Company wrote down its investment in
CarPoint by $43.5 million.
(f) In the second, third and fourth quarters of 2001 Navidec reduced its
operating expenses through headcount reductions.
F-23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 50 President, Chief Executive Officer and Director
Patrick R. Mawhinney 37 Chief Financial Officer, Treasurer, Secretary and Director
Andrew S. Davis 48 Director
Lloyd G. Chavez, Jr. 52 Director
Gerald A. Marroney 49 Director
Our officers are elected by the board of directors at the first meeting after
each annual meeting of our shareholders 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, Inc. From 1981
to 1993, Mr. Armijo was employed by Tektronix, Inc., a communications company
which also produces testing and measuring equipment, most recently as its
Western Regional Manager. From 1976 to 1981, Mr. Armijo was employed by IBM
Corporation, where he sold computerized accounting and financial applications to
small and medium-sized businesses. 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 from
August 1999 until July 2001, and was re-elected Secretary in January, 2002.
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. Mr. Mawhinney
was employed as an Assistant Vice President of The Bank of Cherry Creek from
November 1993 to May 1995. He received his B.S. from Colorado 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 the manager of
wholesale distribution at InFocus Systems. From September 1982 to January 1994,
Mr. Davis held various sales and marketing positions at Tektronix, Inc.,
including Director of Marketing for the Interactive Technologies Division. Mr.
Davis attended the University of Denver where he studied business management and
marketing.
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, 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, his Ph.D. from the University of Virginia and was a post-doctoral
Fellow in Chemistry at Cornell University.
15
Gerald A. Marroney has served as a director since April 1997. He has served as a
State of Colorado District Court Judge in Pueblo County, Colorado since 1990.
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
Under U.S. securities laws, directors, certain executive officers and persons
holding more than ten percent (10%) of the Company's common stock must report
their initial ownership of the common stock and changes in that ownership to the
SEC. The SEC has designated specific due dates for those reports and the Company
must identify in this report those persons who did not file these reports when
due. Based solely on the Company's review of copies of the reports filed with
the SEC in the most recent fiscal year and written representations of its
directors and executive officers:
Except as set forth above, Navidec believes that its current officers and
directors are in compliance with Section 16(a).
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 Navidec, 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 2001 $207,000 $ 0 $ 0 $ 0 197,000(1) $ 0 $ 0
Armijo, 2000 $288,000 $125,000 $ 0 $ 0 0 $ 0 $ 0
CEO 1999 $214,000 $ 61,825 $ 0 $ 0 150,000(1) $ 0 $ 0
Pat 2001 $126,000 $ 0 $ 0 $ 0 71,000(2) $ 0 $ 0
Mawhinney 2000 $167,000 $100,000 $ 0 $ 0 0 $ 0 $ 0
CFO 1999 $135,000 $ 21,459 $ 0 $ 0 50,000(2) $ 0 $ 0
Michael 2001 $162,000(8) $ 0 $ 0 $ 0 167,000(3) $ 0 $ 0
Wager, 2000 $135,000(4) $ 0 $ 0 $ 0 0 $ 0 $ 0
COO
Hal 2001 $139,000(9) $ 0 $ 0 $ 0 81,000(5) $ 0 $ 0
Anderson 2000 $181,000 $ 40,000 $ 0 $ 0 0 $ 0 $ 0
EVP Bus 1999 $108,000 $ 40,000 $ 0 $ 0 50,000(5) $ 0 $ 0
Operations
Rick 2001 $130,000(6) $ 0 $ 0 $ 0 30,000(7) $ 0 $ 0
Winston 2000 $79,000 $ 0 $ 0 $ 0 45,000(7) $ 0 $ 0
VP Corp.
Counsel
16
(1) The number indicated represents the number of shares of common stock
underlying stock options granted to Mr. Armijo during 1999 and 2001.
(2) The numbers indicated represent the number of shares of common stock
underlying stock options granted to Mr. Mawhinney during 1999 and 2001.
(3) The number indicated represents the number of shares of common stock
underlying stock options granted to Mr. Wager during 2001.
(4) Mr. Wager commenced working with Navidec in March 2000, and as such, this
number reflects nine months of service.
(5) The number indicated represent the number of shares of common stock
underlying stock options granted to Mr. Anderson during 1999 and 2001.
(6) Mr. Winston's employment with Navidec terminated in December 2001.
(7) The number indicated represents the number of shares of common stock
underlying stock options granted to Mr. Winston during 2000 and 2001.
(8) Mr. Wager's employment with Navidec terminated in December of 2001.
(9) Mr. Anderson's employment with Navidec terminated in December of 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of stock
options made during the year ended December 31, 2001 to Navidec's Chief
Executive Officer and the other named executive officers. Navidec has issued no
stock appreciation rights.
Individual Grants
Number of % of
Securities Total Options Closing
Underlying Granted to Price as of
Options/SARs Employees in March 31, Exercise or Base Expiration Grant Date
Name Granted Fiscal Year 2002 Price ($/Sh) Date Present Value
---- ------- ----------- ---- ------------ ---- -------------
Ralph Armijo 197,000 22.4% $ 0.42 $ 0.00 7/1/2006 $197,000(1)
Pat Mawhinney 71,000 8.1% $ 0.42 $ 0.00 7/1/2006 $ 71,000(1)
Michael Wager 167,000 18.9% $ 0.42 $ 0.00 7/1/2006 $167,000(1)
Hal Anderson 81,000 9.2% $ 0.42 $ 0.00 7/1/2006 $ 81,000(1)
Rick Winston 30,000 3.4% $ 0.42 $ 0.00 7/1/2006 $ 30,000(1)
(1) Based on the value according to Black Scholes
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth information concerning each exercise of stock
options during the year ended December 31, 2001 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 0/197,000 $ 0/$79,000
Pat Mawhinney 0 0 0/71,000 $ 0/$29,000
Michael Wager 0 0 167,000/0 $67,000/$ 0
Hal Anderson 0 0 81,000/0 $33,000/$ 0
Rick Winston 0 0 30,000/0 $12,000/$0
17
(1) The value indicated was calculated by determining the difference between
the fair market value of Navidec's common stock underlying the stock
options on December 31, 2001 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 Navidec's stock option plan.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN- CONTROL
ARRANGEMENTS
Navidec entered into 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
Navidec 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 Navidec, as defined in the agreement, then Navidec 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 Navidec's capital stock. If Mr. Armijo's
employment were terminated without Cause, including termination due to a change
in control, as of March 31, 2002, Mr. Armijo would receive $820,000.
In December 2001, Navidec terminated employment with Mr. Anderson. In settlement
of his employment agreement with the Company, Navidec, agreed to pay Mr.Anderson
salary through April 30, 2002, benefits through December 31, 2002, and
immediately vest all outstanding options and transfer rights to 100,000 shares
of CarPoint, Inc.
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 Navidec 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 Navidec, as defined in the agreement, then Navidec
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 Navidec's
capital stock. If Mr. Mawhinney's employment were terminated without Cause,
including termination due to a change in control, as of March 31, 2002, Mr.
Mawhinney would receive $540,000.
18
In December 2001, Navidec terminated employment with Mr. Wager. In settlement
of his employment agreement with the Company, Navidec agreed to pay Mr. Wager's
salary through April 30, 2002, benefits through December 31, 2002 and,
immediately vest all outstanding options and transfer rights to 250,000 shares
of CarPoint, Inc.
In December 2001, Navidec terminated employment with Mr. Winston. In settlement
of his Employment Agreement with the Company, Navidec agreed to pay Mr.
Winston's salary through March 31, 2002, benefits through December 31, 2002, and
immediately vest all outstanding options and transfer rights to 35,000 shares of
CarPoint, Inc.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Patrick Mawhinney, our Chief Financial Officer, served as a member of Navidec's
Compensation Committee For the Fiscal year ended 2001.
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 Navidec's common stock by each person who beneficially
owns more than five percent of the common stock; by each of Navidec'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) 7.4%
Patrick R. Mawhinney 170,690(3) 1.5%
Michael Wager
18230 Shelburne Rd
Shaker Heights, OH 44118 166,667(3) 1.5%
Hal Anderson
9102 White Pelican Way
Highlands Ranch, CO 80126 81,332 (3) (1)
Rick Winston
6250 Red Canyon Drive
Littleton, CO 80126 30,000(3) (1)
Andrew Davis 41,250(3) (1)
Lloyd G. Chavez, Jr 34,250(3)(4) (1)
19
Gerald A. Marroney 30,000(3) (1)
All directors and executive officers as
a Group (Six Persons) 1,359,838 11.7%
Wells Fargo & Company
WFC Holding Corp.
420 Montgomery St.
San Francisco, CA 94104 1,081,481(5)(6) 9.3%
Palo Alto Investors
470 University Ave.
Palo Alto, CA 94301 1,503,700(5)(7) 12.9%
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 31, 2001 which are held
by the following persons in the amounts indicated: Mr. Armijo (197,333); Mr.
Mawhinney (71,333); Mr. Wager (166,667); Mr. Davis (30,000); Mr. Anderson
(81,332); 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 Commission 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 Commission and is based
solely on information contained in such filings.
(6) On October 13, 2000, the shareholders of Navidec approved the issuance on
non-voting common shares. Subsequently, 701,081 non-voting shares were
issued to Wells Fargo upon conversion of a convertible debenture.
(7) William Leland Edwards and Micro Cap Partners, L.P. may be deemed to be the
beneficial owners of all or part of the common stock over which Palo Alto
Investors, LLC and Palo Alto Investors have investments and/or voting power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2001, we retained Benesch, Friedlander, Coplan & Aronoff LLP, of which
firm Michael Wager, our Chief Operating Officer, was a partner until December of
2000, to perform legal services for Navidec. Navidec paid $83,603 and $546,352
in fees and expenses to Benesch, Friedlander, Coplan & Aronoff LLP in 2001, and
2000 respectively for the performance of legal services for Navidec.
During 2001, we sold $52,000 worth of inventory at cost in our products
distribution business to XCEN28, Inc, whose primary shareholder is the Nephew of
Ralph Armijo.
Although the foregoing transactions were determined without arm's length
negotiations and involved conflicts of interest between the interests of the
related party and Navidec, Navidec believes that the transactions were entered
into on terms no less favorable to Navidec than could have been obtained from
independent third parties.
20
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
Consolidated Balance Sheets as of December 31, 2000 and 2001
Consolidated Statements of Operations for the years ended December 31,
1999, 2000 and 2001
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 2000 and 2001
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 2000 and 2001
Notes to Consolidated Financial Statements
3.1 Second Amended and Restated Articles of Incorporation of Navidec, Inc.
Filed herewith.
3.2 Amended and Restated Bylaws of ACI Systems, Inc.(1)
3.3 Articles of Merger and Agreement and Plan of Merger Between ACI Systems,
Inc. and Interactive Planet, Inc.(1)
4.1 Form of Certificate for Common Stock of Navidec.(1)
10.1 Navidec's Stock Option Plan.(2)
10.2 Form of Confidentiality and Non-Disclosure Agreement between Navidec
and its significant technical employees.(1)
10.3 Employment Agreement between Navidec and Ralph Armijo dated March 9,
2000.(3)
10.6 Stock and Note Purchase Agreement dated as of July 23, 1999 by and
between the Company and WFC Holdings Corporation.(5)
10.7 Form of Note of the Company payable to the order of WFC Holdings
Corporation.(5)
10.8 Form of Registration Rights Agreement by and between the Company and WFC
Holdings Corporation.(5)
23.1 Consent of Arthur Andersen LLP. Filed herewith.
99.1 Letter to Securities and Exchange Commission regarding representations of
Arthur Andersen LLP. Filed herewith.
(1) Incorporated by reference from the like numbered exhibit to Navidec's
Registration Statement on Form SB-2 declared effective February 10,
1997 (SEC File Number 333-14497).
(2) Incorporated by reference from Navidec's Preliminary 14/A filed May 13,
1998.
(3) Incorporated by reference from the like numbered exhibit to Navidec's
Annual Report on Form 10-K for the year ended December 31, 2000.
21
(4) Incorporated by reference from Navidec's Annual Report on Form 10-KSB for
the year ended December 31, 1998.
(5) Incorporated by reference from Navidec's Form 8-K filed July 29, 1999.
(b) Reports on Form 8-K
None
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: April 12, 2002 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: April 12, 2002 By: /s/ J. Ralph Armijo
- --------------------- -----------------------
J. Ralph Armijo
President, Chief Executive Officer and Director
Dated: April 12, 2002 By: /s/ Patrick R. Mawhinney
- ---------------------- ----------------------------
Patrick R. Mawhinney
Chief Financial Officer, Secretary and Director
(Principal financial and accounting officer)
Dated: April 12, 2002 By: /s/ Andrew S. Davis
- --------------------- ------------------------
By: Andrew S. Davis
Director
Dated: April 12, 2002 By: /s/ Lloyd G. Chavez, Jr.
- --------------------- --------------------------- -
By: Lloyd G. Chavez, Jr.
Director
Dated: April 12, 2002 By: /s/ Gerald A. Marroney
- --------------------- ---------------------------
By: Gerald A. Marroney
Director
22