Back to GetFilings.com
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period ended June 30, 2002.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from January 1, 2002 to June 30, 2002.
Commission file number 0-29098
NAVIDEC, INC.
(Exact name of Registrant as specified in its charter)
COLORADO 33-0502730
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
6399 S. Fiddler's Green Circle, Suite 300 Greenwood Village, Colorado 80111
(Address of principal executive offices)
Registrant's telephone number: 303-222-1000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 14, 2002, Registrant had 11,692,000 shares of common stock
outstanding
NAVIDEC, INC.
INDEX
PART I. FINANCIAL INFORMATION
===============================
Item 1. Financial Statements (Unaudited)
Balance Sheets as of June 30, 2002 and December 31, 2001
Statements of Operations, Three and Six months ended June 30, 2002
and 2001
Statements of Cash Flows, Six months ended June 30, 2002 and 2001
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
============================
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, and is subject to the safe harbors created
by those sections. These forward-looking statements are subject to significant
risks and uncertainties, including those identified in the section of this Form
10-Q entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors That May Affect Future Operating Results,"
which may cause actual results to differ materially from those discussed in such
forward-looking statements. The forward-looking statements within this Form 10-Q
are identified by words such as "believes," "anticipates," "expects," "intends,"
"may," "will" and other similar expressions. However, these words are not the
exclusive means of identifying such statements. In addition, any statements
which refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. The Company undertakes
no obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
occurring subsequent to the filing of this Form 10-Q with the Securities and
Exchange Commission ("SEC"). Readers are urged to carefully review and consider
the various disclosures made by the Company in this report and in the Company's
other reports filed with the SEC that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NAVIDEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, June 30,
ASSETS 2001 2002
---- ----
CURRENT ASSETS:
Cash and cash equivalents $2,465 $636
Restricted cash 1,200 600
Accounts receivable, net 2,475 1,660
Costs and estimated earnings in excess of billings -- 38
Prepaid expenses and other 352 533
------- ------
Total current assets 6,492 3,467
PROPERTY, EQUIPMENT AND SOFTWARE, net 3,497 2,730
OTHER ASSETS:
Investment in CarPoint 588 --
Other investments 17 --
Other assets 18 --
------- ------
TOTAL ASSETS $10,612 $6,197
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,511 $849
Accrued liabilities 1,153 157
Current borrowings 843 978
Deferred revenue 144 --
------- ------
Total current liabilities 4,651 1,984
NON CURRENT LIABILITIES:
Long-term borrowings 927 528
Other 67 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares authorized,
Voting 10,939 and 10,939 shares outstanding 54,532 54,532
Non-voting stock 701 shares outstanding 5,817 5,817
Warrants for common stock 1,175 1,145
Accumulated other comprehensive income (12) (16)
Deferred compensation (191) (88)
Retained earnings (deficit) (56,354) (57,705)
------- ------
Total stockholders' equity 4,967 3,685
------- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,612 $6,197
======= ======
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
3 Months Ended 6 Months Ended
June 30, June 30,
2001 2002 2001 2002
---- ---- ---- ----
REVENUE $4,543 $1,400 $13,151 $3,794
COST OF REVENUE 2,312 836 7,276 2,291
------ ------ ------ -----
GROSS PROFIT 2,231 564 5,875 1,503
OPERATING EXPENSES:
Product development 1,541 18 3,124 102
General and administrative 2,583 536 4,999 1,172
Sales and marketing 2,473 296 5,373 666
Restructuring expenses 1,214 -- 2,020 --
Stock Expense -- 18 -- 41
Loss on impairment of Capital Asset 182 -- 182 --
Depreciation and amortization 750 390 1,393 777
------ ------ ------ -----
Total operating expenses 8,743 1,258 17,091 2,758
------ ------ ------ -----
LOSS FROM OPERATIONS (6,512) (694) (11,216) (1,255)
OTHER INCOME (EXPENSE):
Other Income (2) (76) 294 (97)
Loss on
CarPoint, Inc. investment (1,420) -- (44,904) --
------ ------ ------ -----
Total other loss, net (1,422) (76) (44,610) (97)
------ ------ ------ -----
NET INCOME (LOSS) BEFORE TAXES
AND EXTRAORDINARY GAIN (7,934) (770) (55,826) (1,352)
INCOME TAX BENEFIT -- -- 8,000 --
-- -- -- --
------ ------ ------ -----
NET LOSS BEFORE
EXTRAORDINARY ITEMS (7,934) (770) (47,826) (1,352)
GAIN ON REDUCTION OF DEBT 450 -- 450 --
------ ------ ------ -----
NET LOSS $(7,484) $ (770) $(47,376) $(1,352)
NET LOSS BEFORE
EXTRAORDINARY ITEMS
Per Share basic and diluted $ (.68) $ (.07) $(4.11) $(.12)
====== ====== ====== =====
NET INCOME (LOSS)
Per Share basic and diluted $ (.64) $ (.07) $(4.07) $(.12)
====== ====== ====== =====
WEIGHTED AVERAGE
SHARES OUTSTANDING Basic 11,640 11,686 11,640 11,674
Diluted 11,640 11,686 11,640 11,674
The accompanying notes to consolidated financial statements are an integral
part of these statements.
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
2001 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(47,376) $(1,352)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 1,393 777
Extraordinary Gain (450) --
Loss on sale of CarPoint, Inc. 44,904 --
Loss on impairment of assets 182 --
Income tax benefit (8,000) --
Provision for bad debt 324 110
Realized gain on investment (208) --
Non-cash stock expense -- 41
Deferred Compensation -- 32
Changes in operating assets and liabilities:
Accounts receivable (242) 705
Costs and estimated earnings in excess of billings 1,005 (38)
Inventory 85 --
Prepaid expenses and other assets 385 (180)
Restricted Cash -- 600
Accounts payable (761) (1,662)
Accrued liabilities (63) (996)
Deferred revenue 539 (144)
Other -- 18
------ ------
Net cash used in operating activities (8,283) (2,089)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and software (1,113) (10)
Fundings of notes receivable - related party (528) --
Proceeds from the sale of marketable debt securities 2,990 --
Proceeds from the sale of assets 100
Repayment of Notes Receivable 2,200
Settlement of costs on sale of CarPoint (815)
Sale (Purchase) of equity investments 7,742 588
Other -- (53)
------ ------
Net cash (used in) provided by investing activities 10,576 525
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and capital lease obligations (915) (614)
Proceeds from notes payable -- 350
Proceeds from issuance of common stock and warrants -- --
------ ------
Net cash provided by (used in) financing activities (915) (264)
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS 1,378 (1,828)
CASH AND CASH EQUIVALENTS, beginning of period 3,475 2,465
------ ------
CASH AND CASH EQUIVALENTS, end of period $ 4,853 $ 637
------ ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 90 $ 71
The accompanying notes to consolidated financial statements are an integral
part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(1) BASIS OF PRESENTATION AND MANAGEMENT OPINION
The unaudited financial statements and related notes to the financial statements
presented herein have been prepared by the management of Navidec, Inc. and
subsidiary (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying financial statements
were prepared in accordance with the accounting policies used in the preparation
of the Company's audited financial statements included in its Annual Report on
Form 10-K for the fiscal year ended December 31, 2001, and should be read in
conjunction with such financial statements and notes thereto. Operating results
for the periods presented are not necessarily indicative of the results that may
be expected for the full year.
The accounting policies followed by the Company are set forth in Note 1 to the
Company's consolidated financial statements in the Form 10-K for the year ended
December 31, 2001. It is suggested that these unaudited condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes included in the Form 10-K.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair presentation of operating
results for the interim period presented have been made.
COMPREHENSIVE INCOME
Comprehensive income includes net income or loss and changes in equity from
non-owner transactions. The Company's comprehensive losses for the three-month
period and six-month period ended June 30, 2001 and 2002 were:
For the Three Months Ended
June 30
(in thousands)
2001 2002
---- ----
Net income (loss) $ (7,484) $ (770)
Unrealized gain (loss), net of taxes
and reclassification adjustments 1 (2)
------- ------
Comprehensive income (loss) $ (7,483) $ (772)
For the Six Months Ended
March 31
(in thousands)
2001 2002
---- ----
Net income (loss) $(47,376) $ (1,352)
Unrealized gain (loss), net of taxes
and reclassification adjustments (787) (4)
------- ------
Comprehensive income (loss) $(48,163) $ (1,356)
(3) RECENTLY ISSUED 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 June 30, 2002, 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.
(4) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
Costs and estimated earnings in excess of billings as of June 30, 2002 and 2001
are comprised of the following (in thousands):
June 30,
2002 2001
---- ----
Costs incurred on contracts in progress $ 260 $1,375
Estimated earnings 338 2,256
------ ------
598 3,631
Less progress billings (565) (2,086)
------ ------
$ 33 $1,545
====== ======
(5) INVENTORIES
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.
(6) NET INCOME (LOSS) PER SHARE
Basic net loss per share is computed by dividing net loss for the period by the
weighted average number of common shares outstanding for the period. Diluted net
loss per share is computed by dividing the net 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. The
Company has excluded common stock issuable upon conversion of all warrants and
stock options from the computation of diluted earnings per share, as the effect
of all such securities is anti-dilutive for all periods presented. Shares
issuable under warrants and options were 1,448,000 and 693,000 as of June 30,
2001 and 2002, respectively.
(7) SEGMENT REPORTING
The Company historically has operated in three different segments: eSolutions,
DriveOff.com ("Automotive") and Product Distribution. With the sale of
DriveOff.com in October 2000 and the discontinuation of Product Distribution in
September 2001, the Company now operates solely in the eSolutions segment.
Management has chosen to organize the Company around these segments based on
differences in products and services.
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.
Segment operations are measured consistent with the accounting policies used in
these consolidated financial statements.
The following provides information on the Company's segments (unaudited):
For the Three Months Ended
June 30, 2001
(in thousands)
Product
eSolutions Distribution Corporate Total
Revenues from external
customers ............ $ 4,418 $125 $ -- $ 4,543
Loss from operations . $ (4,330) $(36) $(2,146)(1) $ (6,512)
Identifiable assets .. $ 5,737 $162 $13,039(2) $ 18,938
For the Three Months Ended
June 30, 2002
(in thousands)
Product
eSolutions Distribution Corporate Total
Revenues from external
customers ............ $ 1,400 $ -- $ -- $ 1,400
Loss from operations . $ (287) $ -- $ (484)(1) $ (771)
Identifiable assets .. $ 2,020 $ -- $ 4,253(2) $ 6,273
For the Six Months Ended
June 30, 2001
(in thousands)
Product
eSolutions Distribution Corporate Total
Revenues from external
customers ............ $ 12,844 $ 307 $ -- $ 13,151
Loss from operations . $ (7,480) $(141) $(3,595)(1) $(11,216)
Identifiable assets .. $ 5,737 $ 162 $13,039(2) $ 18,938
For the Six Months Ended
June 30, 2002
(in thousands)
Product
eSolutions Distribution Corporate Total
Revenues from external
customers ............ $ 3,794 $ -- $ -- $ 3,794
Loss from operations . $ (426) $ -- $ (915)(1) $ (1,341)
Identifiable assets .. $ 2,020 $ -- $ 4,253(2) $ 6,273
(1) Corporate loss from operations represents depreciation expense,
restructuring charges, non-cash stock compensation expense and impairment of
assets.
(2) Corporate assets are those that are not directly identifiable to a
particular segment and includes cash, restricted cash, notes receivable,
prepaids, property and equipment, and other assets.
(8) 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; and Westar Financial
has not paid these notes. On December 22, 2001 Westar filled 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.
(9) RESTRUCTURING AND OTHER RELATED CHARGES
During the first six months of 2001, Navidec recorded restructuring and other
related charges of approximately $2.0 million for headcount reductions. These
restructuring charges 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 80 employees, which was
comprised 60% of non-billable staff and 40% of billable staff.
The $2.0 million charge was paid to the terminated employees during the six
months ended June 30, 2001.
(10) CARPOINT INVESTMENT
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.
(11) SUBSEQUENT EVENTS
None
ITEM 2. 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. Approximately 60% and 50% of our revenue was generated from fixed-price,
fixed completion date work for the year 2001 and the first six months of 2002
respectively. 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% and 50% of revenue for
2001 and the first six months of 2002 respectively 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.
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 the first six months of 2002, Navidec generated revenues from its
eSolutions division. Approximately 50% 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 50% 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 and
2002, 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
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.
THREE-MONTH RESULTS OF OPERATIONS
Three Months
ended June 30,
2001 2002
---- ----
REVENUE:
eSolutions 4,418 1,400
Product distribution 125 --
------- ------
Total revenue 4,543 1,400
COST OF REVENUE 2,312 836
------- ------
Gross margin 2,231 564
OPERATING EXPENSES:
Product development 1,541 18
General and administrative 2,583 536
Sales and marketing 2,473 296
------- ------
Total operating expenses before restructuring
Non-cash stock and depreciation expenses 6,597 850
------- ------
LOSS FROM OPERATIONS BEFORE
RESTRUCTURING NON CASH STOCK
AND DEPRECIATION EXPENSES (4,366) (286)
Restructuring expenses 1,214 --
Non-cash stock expense -- 18
Depreciation and amortization 932 390
------- ------
Total restructuring, non-cash stock
and depreciation expense 2,146 408
LOSS FROM OPERATIONS (6,512) (694)
======= ======
THREE-MONTH RESULTS OF OPERATIONS AS A PERCENTAGE OF REVENUES
Three Months
ended June 30,
2001 2002
---- ----
REVENUE:
eSolutions 97.2% 100.0%
Product distribution 2.8% 0.0%
------- ------
Total revenue 100.0% 100.0%
COST OF REVENUE 50.9% 59.7%
Gross margin 49.1% 40.3%
OPERATING EXPENSES:
Product development 33.9% 1.3%
General and administrative 56.9% 38.3%
Sales and marketing 54.4% 21.1%
------- ------
Total operating expenses before restructuring
Non-cash and depreciation expenses 145.2% 60.7%
------- ------
LOSS FROM OPERATIONS BEFORE
RESTRUCTURING NON CASH STOCK
AND DEPRECIATION EXPENSES (96.1)% (20.4%)
Restructuring expenses 26.7% 0.0%
Non-cash stock Expense 0.0% 1.3%
Depreciation and amortization 20.5% 27.9%
------- ------
Total restructuring, non-cash stock
and depreciation expense 47.2% 29.1%
LOSS FROM OPERATIONS (143.3%) (49.6%)
======= ======
Three Months Ended June 30, 2001 and 2000
Revenue for the quarter ended June 30, 2002 decreased $3.1 million, or 69.2%,
from 2001 revenues of $4.5 million to $1.4 million in 2002. The decree was
primarily a result of lower market demand for IT services, and a struggling
economy. Revenue in 2002 associated with eSolutions decreased $3.0 million, or
68.3%, from 2001, down to $1.4 million from $4.4 million. Product distribution
was discontinued in the forth quarter of 2001 resulting in a revenue decreased
$125,000.
Gross margin decreased $1.7 million, or 74.7%, from gross margin of $2.2 million
in 2001 to $564,000 in 2002. As a percentage of revenue, gross profit decreased
from 49.1% to 40.3%. The decrease in the gross margin was a result of decreasing
margins in eSolutions caused by pricing pressures.
Product development costs decreased $1.5 million, or 98.8%, from expenses of
$1.5 million in 2001 to $18,000 in 2002. As a percentage of revenue, product
development costs decreased from 33.9% in 2001 to 1.3% in 2002. The decrease in
product development cost is the result of narrowed focus on the areas that
Navidec is pursuing.
General and administrative expenses decreased $2.0 million or 79.2%, from
adjusted general and administrative expenses of $2.6 million in 2001 to $536,000
in 2002. As a percentage of revenue, general and administrative expenses
decreased from 56.9% in 2001 to 38.3% in 2002. The decreased spending was
primarily due to decreased overhead expenses related to lower revenues in 2002.
Navidec is projecting general and administrative expenses to remain stable for
the remainder of 2002, as a result of personnel changes and reduced overhead
expenses.
Sales and marketing expenses decreased by $2.2 million, or 88.0%, from $2.5
million in 2001 to $296,000 in 2002. As a percentage of revenue, sales and
marketing expenses decreased from 54.4% to 21.1% of revenue in 2001 and 2002,
respectively.
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 50 employees during the quarter ended June 30, 2001 and recorded
restructuring charges of $1.2 million for severance and benefits.
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. On June 30, 2002 $88,000 of
deferred compensation remained, which will be amortized into non cash stock
expense in future periods. During the quarter ended June 30, 2002 the Company
had non cash stock expense of $18,000. The allocation of non cash stock expense
to the same functional classification as the employees' cash compensation is as
follows:
March 31,
2002
(In Thousands)
Cost of revenue $3
Sales and marketing 1
General and administrative 14
--
Total non cash stock expense $18
===
Depreciation and amortization decreased $542,000 or 58.2% from $932,000 in 2001
to $390,000 in 2002. Depreciation was down in part due to asset impairments
during the year and due to more assets becoming fully depreciated.
During the quarter ended June 30, 2001 Navidec realized a loss of $1.4 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 was sold in March 2002.
During the quarter ended June 30, 2001 Navidec renegotiated a note payable
resulting in an extraordinary gain of $450,000 for the quarter. No similar
transactions occurred in 2002.
As a result of the items discussed above, we recorded a net loss of $770,000 for
the quarter ended June 30, 2002 versus a net loss of $7.5 million in 2001. Our
basic and diluted loss per share was $0.07 in 2002 versus basic and diluted loss
per share of $0.64 in 2001.
SIX-MONTH RESULTS OF OPERATIONS
Six Months
ended June 30,
2001 2002
---- ----
REVENUE:
eSolutions 12,844 3,794
Product distribution 307 --
------- ------
Total revenue 13,151 3,794
COST OF REVENUE 7,276 2,291
------- ------
Gross margin 5,875 1,503
OPERATING EXPENSES:
Product development 3,124 102
General and administrative 4,999 1,172
Sales and marketing 5,373 666
------- ------
Total operating expenses before restructuring
Non-cash stock and depreciation expenses 13,496 1,940
------- ------
LOSS FROM OPERATIONS BEFORE
RESTRUCTURING NON CASH STOCK
AND DEPRECIATION EXPENSES (7,621) (437)
Restructuring expenses 2,020 --
Non-cash stock expense -- 41
Depreciation and amortization 1,575 777
------- ------
Total restructuring, non-cash stock
and depreciation expense 3,595 818
LOSS FROM OPERATIONS (11,216) (1,255)
======== =======
THREE-MONTH RESULTS OF OPERATIONS AS A PERCENTAGE OF REVENUES
Six Months
ended June 30,
2001 2002
---- ----
REVENUE:
eSolutions 97.7% 100.0%
Product distribution 2.3% 0.0%
------- ------
Total revenue 100.0% 100.0%
COST OF REVENUE 55.3% 60.4%
Gross margin 44.7% 39.6%
OPERATING EXPENSES:
Product development 23.8% 2.7%
General and administrative 38.0% 30.9%
Sales and marketing 40.9% 17.6%
------- ------
Total operating expenses before restructuring
Non-cash and depreciation expenses 102.6% 51.1%
------- ------
LOSS FROM OPERATIONS BEFORE
RESTRUCTURING NON CASH STOCK
AND DEPRECIATION EXPENSES (57.9)% (11.5)%
Restructuring expenses 15.4% 0.0%
Non-cash stock Expense 0.0% 1.1%
Depreciation and amortization 12.0% 20.5%
------- ------
Total restructuring, non-cash stock
and depreciation expense 27.3% 21.6%
LOSS FROM OPERATIONS (85.3)% (33.1)%
======= =======
Six Months Ended June 30, 2001 and 2000
Revenue for the six months ended June 30, 2002 decreased $9.4 million, or 71.2%,
from 2001 revenues of $13.2 million to $3.8 million in 2002. The decree was
primarily a result of lower market demand for IT services, and a struggling
economy. Revenue in 2002 associated with eSolutions decreased $9.0 million, or
70.5%, from 2001, down to $3.8 million from $12.8 million. Product distribution
was discontinued in the forth quarter of 2001 resulting in a revenue decreased
$307,000.
Gross margin decreased $4.4 million, or 74.4%, from gross margin of $5.8 million
in 2001 to $1.5 million in 2002. As a percentage of revenue, gross profit
decreased from 44.7% to 39.6%. The decrease in the gross margin was a result of
decreasing margins in eSolutions due to pricing pressures.
Product development costs decreased $3.0 million, or 96.7%, from expenses of
$3.1 million in 2001 to $102,000 in 2002. As a percentage of revenue, product
development costs decreased from 23.8% in 2001 to 2.7% in 2002. The decrease in
product development cost is the result of narrowed focus on the areas that
Navidec is pursuing.
General and administrative expenses decreased $3.8 million or 76.6%, from
adjusted general and administrative expenses of $5.0 million in 2001 to $1.2
million in 2002. As a percentage of revenue, general and administrative expenses
decreased from 38.0% in 2001 to 30.9% in 2002. The decreased spending was
primarily due to decreased overhead expenses related to lower revenues in 2002.
Navidec is projecting general and administrative expenses to remain stable for
the remainder of 2002, as a result of personnel changes and reduced overhead
expenses.
Sales and marketing expenses decreased by $4.7 million, or 87.6%, from $5.4
million in 2001 to $666,000 in 2002. As a percentage of revenue, sales and
marketing expenses decreased from 40.9% to 17.6% of revenue in 2001 and 2002,
respectively.
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 95 employees during six months ended June 30, 2001 and recorded
restructuring charges of $2.0 million for severance and benefits.
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. On June 30, 2002 $88,000 of
deferred compensation remained, which will be amortized into non-cash stock
expense in future periods. During the six months ended June 30, 2002 the Company
had non-cash stock expense of $41,000. The allocation of non cash stock expense
to the same functional classification as the employees' cash compensation is as
follows:
June 30,
2002
(In Thousands)
Cost of revenue $7
Sales and marketing 2
General and administrative 32
--
Total non cash stock expense $41
===
Depreciation and amortization decreased $798,000 or 50.7% from $1.6 million in
2001 to $777,000 in 2002. Depreciation was down in part due to asset impairments
during the year and due to more assets becoming fully depreciated.
During the first six months of 2001 the company reduced the carrying value of
its investment in CarPoint, Inc to net realizable value and sold 12.3 million
shares of its 13.3 million shares held. Navidec recorded an other than temporary
loss on its investment in CarPoint, Inc. of $44.5 million. The remainder of the
CarPoint stock was carried at $588,000 at December 31, 2001 and was sold in
March 2002.
During the quarter ended June 30, 2001 Navidec renegotiated a note payable
resulting in an extraordinary gain of $450,000 for the quarter. No similar
transactions occurred in 2002.
The Company reversed its deferred tax liabilities during the first quarter of
2001 resulting in a non-cash benefit of $8 million.
As a result of the items discussed above, we recorded a net loss of $1.4 million
for the six months ended June 30, 2002 versus a net loss of $47.4 million in
2001. Our basic and diluted loss per share was $0.12 in 2002 versus basic and
diluted loss per share of $4.07 in 2001.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through June 30, 2002, 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 June 30, 2002, we had cash and cash equivalents of $637,000, restricted
cash of $600,000 and working capital of $1.6 million. This compares with cash
and cash equivalents of $4.9 million, and working capital of $6.0 million as of
June 30, 2001.
Cash used in our operating activities totaled $2.0 million for the six months
ended June 30, 2002 compared with $8.3 million for the six months ended June 30,
2001. This was due to a decrease in net loss before non-cash adjustments of
$46.1 million between periods ($47.4 million in 2001 to $1.3 million in 2002)
and cash used in changes in net operating assets of $1.5 million in 2002 versus
cash provided of $1.0 million in 2001.
Cash provided by investing activities totaled $525,000 for the six months ended
June 30, 2002 compared with $10.6 million for the six months ended June 30,
2001.
Cash used in financing activities was $264,000 during the six months ended June
30, 2002 and $915,000 for the six months ended June 30, 2001.
At June 30, 2002, the Company had $844,000 outstanding under its term credit
facility. At June 30, 2002 the Company had $350,000 outstanding under its line
of credit agreement with the Bank. Availability under the line of credit, 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, 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. 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 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 $844 $ 311 $ 533 $ --
Line of Credit 350 350 -- --
Capital leases 372 280 92 --
Operating leases 2,249 540 1,709 --
------ ------ ------ ------
Total contractual cash obligations $3,815 $1,481 $2,334 $ --
====== ====== ====== ======
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 $600,000, collateralized by $600,000 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.
Item 3.
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 June 30, 2002, 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 June 30, 2002, 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 March 31, 2002). 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.
INFLATION
The Company does not believe that inflation will have a material impact on our
future operations.
FORWARD LOOKING INFORMATION
Information contained in this report, other than historical information, should
be considered forward looking and reflects management's current views of future
events and financial performance that involve a number of risks and
uncertainties. The factors that could cause actual results to differ materially
include, but are not limited to, the following: general economic conditions and
developments within the Internet and Intranet industries; competition; market
acceptance of our products and services; length of sales cycle; variability of
sales order flow; management of growth; and other risk factors identified from
time to time in the Company's filings with the Securities and Exchange
Commission. These filings are available on-line at http://www.sec.gov.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, the Company is subject to, and may become a
party to, other litigation. Management believes there are no other matters
currently in litigation that could have a material impact on the Company's
financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Form 8-K
None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAVIDEC, INC.
By /S/RALPH ARMIJO
Ralph Armijo
President and CEO
Date: August 14, 2002
By /S/ PAT MAWHINNEY
Pat Mawhinney
Chief Financial Officer
Date: August 14, 2002