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 March 31, 2003.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from January 1, 2003 to March 31, 2003.
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 May 14, 2003, Registrant had 641,000 shares of common stock outstanding
NAVIDEC, INC.
INDEX
PART I. FINANCIAL INFORMATION
===============================
Item 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 2003 and December 31, 2002
Statements of Operations, Three months ended March 31, 2003
and 2002
Statements of Cash Flows, Three months ended March 31, 2003
and 2002
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)
(Unaudited)
December 31, March 31,
2002 2003
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 130 $ 75
Accounts receivable, net 439 163
Costs and estimated earnings in excess of billings -- 11
Inventory 288 288
Prepaid expenses and other 696 638
-------- --------
Total current assets 1,553 1,175
PROPERTY, EQUIPMENT AND SOFTWARE, net 1,922 1,548
OTHER ASSETS:
Other assets 1 --
-------- --------
TOTAL ASSETS $ 3,476 $ 2,723
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 670 $ 686
Accrued liabilities 138 176
Current borrowings 455 420
Deferred revenue 108 0
Convertible Debentures -- 250
-------- --------
Total current liabilities 1,371 1,532
NON CURRENT LIABILITIES:
Convertible Debentures 250 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares authorized,
Voting 611 and 641 shares outstanding 54,450 54,985
Non-voting stock 39 shares outstanding 5,817 5,817
Warrants for common stock 1,175 640
Deferred compensation (38) (25)
Retained earnings (deficit) (59,549) (60,226)
-------- --------
Total stockholders' equity 1,855 1,191
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,476 $ 2,723
======== ========
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
March 31,
2002 2003
------- -------
REVENUE $ 2,392 $ 397
COST OF REVENUE 1,455 188
------- -------
GROSS PROFIT 939 209
OPERATING EXPENSES:
Product development 84 29
General and administrative 635 285
Sales and marketing 370 24
Stock Expense 23 13
Depreciation and amortization 388 533
------- -------
Total operating expenses 1,500 884
------- -------
LOSS FROM OPERATIONS (561) (675)
OTHER INCOME (EXPENSE):
Other Income (21) (2)
Loss on
CarPoint, Inc. investment -- --
------- -------
Total other loss, net (21) (2)
------- -------
NET LOSS $ (582) $ (677)
NET INCOME (LOSS)
Per Share basic and diluted $ (.90) $ (1.02)
======= =======
WEIGHTED AVERAGE
SHARES OUTSTANDING Basic 647 662
Diluted 647 662
The accompanying notes to consolidated financial statements are an
integral part of these statements.
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2002 2003
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (582) $ (677)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 388 533
Non-cash stock expense 23 13
Deferred Compensation 32 --
Changes in operating assets and liabilities:
Accounts receivable (35) 276
Costs and estimated earnings in excess of billings (14) (11)
Prepaid expenses and other assets (48) (15)
Accounts payable (1,127) 15
Accrued liabilities (440) 38
Deferred revenue (98) (108)
Other 62 --
------- -------
Net cash provided (used) in operating activities (1,839) 64
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (Purchase) of property, equipment and software (10) --
Sale of equity investments 588
Other 20 --
------- -------
Net cash provided by investing activities 598 --
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on fees associated with the rights offering (84)
Payments on notes payable and capital lease obligations (332) (35)
------- -------
Net cash used in financing activities (332) (119)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,573) (55)
CASH AND CASH EQUIVALENTS, beginning of period 2,465 130
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 892 $ 75
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 45 $ 18
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, 2002, 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, 2002. 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.
(2) LIQUIDITY
The Company's financial statements for the three months ended March 31, 2003
have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company has historically reported net losses, including
reporting a loss from operations of $675,000 for the three months ended March
31, 2003 and has a negative working capital of $356,000 as of March 31, 2003. At
March 31, 2003, the Company had $213,000 outstanding under its term credit
facility. During the third quarter of 2002, the company was out of compliance
with the covenants of its loan and as such it not able to draw additional
amounts against its line of credit, in addition the Bank accelerated the term
note, which now has principal and interests due in full during the second
quarter of 2003.
Management cannot provide assurance that the Company will ultimately achieve
profitable operations or be cash positive or raise necessary additional debt
and/or equity capital. Management believes that if the Company can substantially
complete its right offering which is contained in the Company's May 8, 2003, S-2
registration, the Company will have adequate capital resources to continue
operating and maintain its business strategy during the next 12 months. If
substantial losses continue and/or the Company is unable to raise additional
capital, liquidity problems could cause the Company to curtail operations,
liquidate assets, seek additional capital on less favorable terms and/or pursue
other such actions that could adversely affect future operations. These
financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the company be unable to continue as
a going concern.
(3) 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 ended March 31, 2002 and 2003 were:
For the Three Months Ended
March 31,
(in thousands)
2002 2003
------- -----
Net income (loss) $ (582) $(677)
Unrealized gain (loss), net of taxes
and reclassification adjustments (1) --
------- -----
Comprehensive income (loss) $ (583) $(677)
(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued Statements of Financial Accounting Standards
No.148, "Accounting for Stock-Based compensation - Transition and Disclosure -
an amendment of FASB Statement 123" (SFAS 123). For entities that change their
accounting for stock-based compensation from the intrinsic method to the fair
value method under SFAS 123, the fair value method is to be applied
prospectively to those awards granted after the beginning of the period of
adoption (the prospective method). The amendment permits two additional
transition methods for adoption of the fair value method. In addition to the
prospective method, the entity can choose to either (i) restate all periods
presented (retroactive restatement method) or (ii) recognize compensation cost
from the beginning of the fiscal year of adoption as if the fair value method
had been used to account for awards (modified prospective method). For fiscal
years beginning December 15, 2003, the prospective method will no longer be
allowed. The Company currently accounts for its stock-based compensation using
the intrinsic value method as proscribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and plans on continuing using
this method to account for stock options , therefore, it does not intend to
adopt the transition requirements as specified in SFAS 148. The Company has
adopted the new SFAS 148 disclosure requirements of SFAS 148 in these financial
statements.
(5) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
Costs and estimated earnings in excess of billings as of December 31, 2002 and
March 31, 2003 are comprised of the following (in thousands):
December 31 March 31,
2002 2003
---- ----
Costs incurred on contracts in progress $ 0 $ 15
Estimated earnings 0 18
---- ----
0 33
Less progress billings 0 (22)
---- ----
$ 0 $ 11
==== ====
(6) 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.
(7) 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 42,000 and 50,000 as of March 31, 2002 and 2003,
respectively.
(8) 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 for the quarter ending March 31, 2002 and 2003,
respectively: risk-free interest rate of 3.00 and 3.00 percent, no expected
dividend yields, expected lives of 5.0 and 5.0 years, and expected volatility of
60 and 32 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):
For the Three Months Ended
March 31, 2003
(in thousands, except per share data)
2002 2003
Net Income (Loss):
As reported $ (582) $ (677)
Net Total stock based employee
Compensation expense determined
Under fair value based method
For all awards, net of related tax effect -- --
-------- --------
Pro forma $ (582) $ (677)
======== ========
Net Loss per share, basic and diluted
Basic: As Reported $ (.90) $ (1.02)
======== ========
Pro Forma $ (.90) $ (1.02)
======== ========
Diluted: As Reported $ (.90) $ (1.02)
======== ========
Pro Forma $ (.90) $ (1.02)
======== ========
(9) SEGMENT REPORTING
The Company currently operates in two different segments: Navidec Technology,
and Navidec Capital. Management has chosen to organize the Company around these
segments based on differences in products and services.
Navidec Technology provides custom solutions, including the architecture,
design, development and integration of high tech solutions, utilizing web
technology. Navidec Capital plans to acquire non-technology companies.
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
March 31, 2003
(in thousands)
Navidec Navidec
Technology Capital Corporate Total
Revenues from external
customers ............ $397 $ 0 $ -- $ 397
Loss from operations . $(84) $(45) $ (546)(1) $ (675)
Identifiable assets .. $461 $ 21 $2,241(2) $2,723
For the Three Months Ended
March 31, 2002
(in thousands)
Navidec Navidec
Technology Capital Corporate Total
Revenues from external
customers ............ $2,392 $ -- $ -- $2,392
Loss from operations . $ (150) $ -- $ (411)(1) $ (561)
Identifiable assets .. $ 2,924 $ -- $5,226(2) $8,150
(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 include cash, restricted cash, notes receivable,
prepaids, property and equipment, and other assets.
(10) 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 has
hired a law firm whose primary shareholder is the wife of the Company's CFO, on
a contingency fee to pursue recovery on these notes through the bankruptcy
court.
(11) CARPOINT INVESTMENT
In March of 2002, the Company sold its final 1,050,000 shares of CarPoint, LLC
valued at $588,000. These shares were sold on March 31, 2002 to one of the
majority shareholders at CarPoint.
(11) SUBSEQUENT EVENTS
On May 9, 2003, the Company's S-2 registration statement filed with the SEC,
registering the rights granted to shareholders of record on November 15, 2002
and the underlying shares, was declared effective. The rights offering will run
through 5:00 MST on June 9th, 2003 unless extended for an additional 30 days by
the Company.
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 ending December 31, 2002 and the first
three months of 2003 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 2002 and the first three months of 2003 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.
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 three months of 2003, 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 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 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 March 31,
(in thousands)
2002 2003
---- ----
REVENUE:
eSolutions $2,392 397
------ ---
Total revenue 2,392 397
COST OF REVENUE 1,455 188
----- ---
Gross margin 939 209
OPERATING EXPENSES:
Product development 84 29
General and administrative 635 285
Sales and marketing 370 24
----- ---
Total operating expenses before restructuring
Non-cash stock and depreciation expenses 1,089 338
----- ---
LOSS FROM OPERATIONS BEFORE
RESTRUCTURING NON CASH STOCK
AND DEPRECIATION EXPENSES (150) (129)
Non-cash stock expense 23 13
Depreciation and amortization 388 533
--- ---
Total restructuring, non-cash stock
and depreciation expense 411 546
LOSS FROM OPERATIONS $(561) $(675)
===== ======
THREE-MONTH RESULTS OF OPERATIONS AS A PERCENTAGE OF REVENUES
Three Months
ended March 31,
2002 2003
---- ----
REVENUE:
eSolutions 100.0% 100.0%
------ -----
Total revenue 100.0% 100.0%
COST OF REVENUE 60.8% 47.4%
Gross margin 39.2% 52.6%
OPERATING EXPENSES:
Product development 3.6% 7.3%
General and administrative 26.6% 71.8%
Sales and marketing 15.5% 6.0%
------ -----
Total operating expenses before restructuring
Non-cash and depreciation expenses 45.7% 85.1%
------ -----
LOSS FROM OPERATIONS BEFORE
RESTRUCTURING NON CASH STOCK
AND DEPRECIATION EXPENSES (6.5%) (32.5%)
Non-cash stock Expense 1.0% 3.3%
Depreciation and amortization 16.3% 134.3%
------ -----
Total restructuring, non-cash stock
and depreciation expense 17.3% 137.5%
LOSS FROM OPERATIONS (23.7%) 170.0%
====== ======
Three Months Ended March 31, 2003 and 2002
Revenue for the quarter ended March 31, 2003 decreased $2.0 million, or 83.4%,
from 2002 revenues of $2.4 million to $397,000 in 2003. The decrease was
primarily a result of lower market demand for IT services, the discontinuation
of hardware sales associated with eSolutions sales and a struggling economy.
Gross margin decreased $730,000, or 77.7%, from gross margin of $939,000 in 2002
to $209,000 in 2003. As a percentage of revenue, gross profit increased from
39.2% to 52.6%. The increase in the gross margin was a result of discontinued
hardware sales associated with eSolutions project that was discontinued in the
2nd quarter of 2002.
Product development costs decreased $55,000 or 65.5%, from expenses of $84,000
in 2002 to $29,000 in 2003. As a percentage of revenue, product development
costs increased from 3.6% in 2002 to 7.3% in 2003. The decrease in product
development cost is the result of narrowed focus on the areas that Navidec is
pursuing.
General and administrative expenses decreased $350,000 or 55.1%, from general
and administrative expenses of $635,000 in 2002 to $285,000 in 2003. As a
percentage of revenue, general and administrative expenses increased from 26.6%
in 2002 to 71.8% in 2003. The decreased spending was primarily due to decreased
overhead expenses related to lower revenues in 2003. Navidec is projecting
general and administrative expenses to remain consistent in the upcoming
quarters.
Sales and marketing expenses decreased by $346,000, or 93.5%, from $370,000 in
2002 to $24,000 in 2003. As a percentage of revenue, sales and marketing
expenses decreased from 15.5% to 6.0% of revenue in 2002 and 2003, respectively.
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 March 31, 2003 $25,000 of
deferred compensation remained, which will be amortized into non-cash stock
expense in future periods. During the quarter ended March 31, 2003 the Company
had non-cash stock expense of $13,000. The allocation of non cash stock expense
to the same functional classification as the employees' cash compensation is as
follows:
September 30,
2002
(In Thousands)
Cost of revenue $3
Sales and marketing 1
General and administrative 9
---
Total non cash stock expense $13
===
Depreciation and amortization increased $145,000 or 37.4% from $388,000 in 2002
to $533,000 in 2003. Depreciation and amortization increased due to the
amortization of prepaid expenses that occurred during the first quarter of 2003.
As a result of the items discussed above, we recorded a net loss of $675,000 for
the quarter ended March 31, 2003 versus a net loss of $582,000 in 2002. Our
basic and diluted loss per share was $1.02 in 2003 versus basic and diluted loss
per share of $0.90 in 2002.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through March 31, 2003, 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.
The Company's financial statements for the three months ended March 31, 2003
have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company has historically reported net losses, including
reporting a loss from operations of $675,000 for the three months ended March
31, 2003 and has negative working capital of $356,000 as of March 31, 2003. At
March 31, 2003, the Company had $233,000 outstanding under its term credit
facility. During the third quarter of 2002, the company was out of compliance
with the covenants of its loan and as such it not able to draw additional
amounts against its line of credit, in addition the Bank accelerated the term
note, which is now due during the second quarter of 2003.
If Navidec completes its current rights offering, the Company will be able to
pay off the bank and be in compliance with its loan covenants. However,
Navidec's ability to meet this requires that the Company complete approximately
25% of the rights offering. As of this date there is no guarantees that the
company will complete its offering. 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 and 2002, the Company significantly reduced costs
through headcount reductions. 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 2003. The Company
believes that its cash and cash equivalents, working capital, is not sufficient
to maintain operations through 2003. However, the Company believes that its
rights offering and convertible debentures will give the Company the working
capital it needs to sustain operations through December 31, 2003. There are no
guarantee the Company will be successful in these efforts.
Management cannot provide assurance that the Company will ultimately achieve
profitable operations or be cash positive or raise necessary additional debt
and/or equity capital. Management believes that if the Company can obtain
additional funding, as described above, the Company will have adequate capital
resources to continue operating and maintain its business strategy during the
next 12 months. If substantial losses continue and/or the Company is unable to
raise additional capital, liquidity problems could cause the Company to curtail
operations, liquidate assets, seek additional capital on less favorable terms
and/or pursue other such actions that could adversely affect future operations.
These financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the company be unable to continue as
a going concern.
Cash, flow from operations has not historically been sufficient to sustain our
operations without the above additional sources of capital.
As of March 31, 2003, we had cash and cash equivalents of $75,000, and negative
working capital of $356,000. This compares with cash and cash equivalents of
$892,000, and working capital of $2.1 million as of March 31, 2002.
Cash provided by operating activities totaled $64,000 for the three months ended
March 31, 2003 compared with cash used by operating activities of $1.8 million
for the three months ended March 31, 2002. This was due to a change in net cash
used and provided in changes of operating assets and liabilities. During the
first quarter of 2003, our changes in operating assets and liabilities provided
$195,000 in cash compared with cash used of $1.7 million during the first
quarter of 2002.
No cash was used or provided by investing activities for the three months ended
March 31, 2003 compared with cash provided by investing activities of $598,000
for the three months ended March 31, 2002. The decrease was the result of the
sale of Navidec's holdings in CarPoint, LLC in 2002 compared with expenses
associated with the Company's current rights offering in 2003
Cash used in financing activities was $119 during the three months ended March
31, 2003 and $332,000 for the three months ended March 31, 2002.
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
Term debt $233 $ 233 $ -- $ --
Capital leases 121 121 -- --
Operating leases 132 132 -- --
---- ---- ------ ------
Total contractual cash obligations $486 $486 $ -- $ --
==== ==== ====== ======
Item 3.
CONTROLS AND PROCEDURES
With the participation of management, the Company's chief executive officer and
chief financial officer evaluated the Company's disclosure controls and
procedures on May 1, 2003. Based on this evaluation, the chief executive officer
and the chief financial officer concluded that the disclosure controls and
procedures are effective in connection with the Company's filing of its
quarterly report on Form 10-Q for the quarterly period ended March 31, 2003.
Subsequent to December 31, 2002, through the date of this filing of Form 10-Q
for the quarterly period ended March 31, 2003, there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls, including any significant deficiencies or
material weaknesses of internal controls that would require corrective action.
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 March 31, 2003, 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 March 31, 2003, 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 March 31,
2003, the company had $233,000 of debt outstanding at a floating interest rate
of Prime + 1.50% with a floor of 8.4% (8.4% at March 31, 2003). The estimated
fair value of our long-term debt approximates its carrying value because of the
variable rates. The debt matures as follows: 2003 - $233,000. 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: May 15, 2003
By /s/ PAT MAWHINNEY
Pat Mawhinney
Chief Financial Officer
Date: May 15, 2003
I, J. Ralph Armijo, Chief Executive Officer of Navidec, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Navidec, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certify officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as determined
in Exchange act Rules 131-14 and 15Q-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made know to us by
other within those entities, particularly during the period in
which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this report (the "Evaluation Date") and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certify officers and I have disclosed, passed
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors;
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certify officers and I have indicated in this
quarterly report whether there where significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ J. Ralph Armijo
J. Ralph Armijo
Chief Executive Officer
I, Patrick R. Mawhinney, Chief Financial Officer of Navidec, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Navidec, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certify officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as determined
in Exchange act Rules 131-14 and 15Q-14) for the registrant and have:
d) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made know to us by
other within those entities, particularly during the period in
which this quarterly report is being prepared;
e) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this report (the "Evaluation Date") and
f) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certify officers and I have disclosed, passed
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors;
c) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
d) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certify officers and I have indicated in this
quarterly report whether there where significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Patrick R. Mawhinney
Patrick R. Mawhinney
Chief Financial Officer
Certification of the Chief Executive Office and Chief Financial officer of
Navidec, Inc. Pursuant to 18 U.S.C. Section 1350
We certify that, to the best of our knowledge and belief, the Quarterly report
on form 10Q of Navidec, Inc. for the period ended September 30, 2002:
1) complies with the requirements of Section 13(a) or 15(d) of
the Securities and Exchange act of 1934; and
2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of Navidec, Inc.
By /s/RALPH ARMIJO
Ralph Armijo
President and CEO
Date: May 15, 2003
By /s/ PAT MAWHINNEY
Pat Mawhinney
Chief Financial Officer
Date: May 15, 2003